EEOC Files Lawsuit Against Employee Wellness Program

On August 20, 2014, the U.S. Equal Employment Opportunity Commission (“EEOC”) filed suit in Wisconsin federal court challenging an employee wellness program’s legality under the Americans with Disability Act (“ADA”). As noted in a press release, this lawsuit is the EEOC’s first to directly challenge a wellness program under the ADA.

Orion Energy Systems (“Orion”) implemented a wellness program that included health screenings and disability related inquiries. The ADA prohibits medical examinations and inquires unrelated to employment, unless they are voluntary. The EEOC alleges that Orion’s wellness program did not qualify as voluntary under the ADA because one employee who refused to participate was forced to bear the entire cost of her health coverage premium and was ultimately terminated. “Employers certainly may have voluntary wellness programs,” stated John Hendrickson, regional attorney for the EEOC Chicago district. “But they have to actually be voluntary. They can’t compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits on the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries – which are not job-related – in a wellness program, on the one hand, or being fired, on the other hand, is not choice at all.”

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Roe to Hold Indiana Field Hearing on Health Care Challenges Facing Schools and Workplaces

Below is an announcement issued by the Subcommittee on Health, Employment, Labor, and Pensions:

On Thursday, September 4, at 10:00 a.m., Subcommittee on Health, Employment, Labor, and Pensions Chairman Phil Roe (R-TN) will hold a field hearing entitled, “The Effects of the President’s Health Care Law on Indiana’s Classrooms and Workplaces.” The hearing will take place at Greenfield City Hall, 10 South State Street, Greenfield, Indiana.

Across the country, workers and employers are struggling with the consequences of the president’s health care law. For example, in response to a survey by the Federal Reserve Bank of New York, businesses generally expect health care costs to increase by 10 percent next year and a majority cited the health care law as the reason. The survey also revealed the law was leading employers to raise the number of part-time employees, lower employee compensation, and increase consumer prices.

The House Education and the Workforce Committee is examining how many of these same consequences are affecting the nation’s K-12 and higher education systems. Through testimony and the committee’s YourStory initiative, school leaders have shared stories of health care costs going up and staff work-hours being cut.

The field hearing will provide members an opportunity to learn how the health care law is affecting Indiana’s schools and workplaces. For more information about the field hearing, visit www.edworkforce.house.gov/hearings. Media interested in attending the field hearing must RSVP to Liz Hill at liz.hill@mail.house.gov.

 

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IRS Adjusts Affordability Percentage Under Employer Mandate

Beginning in 2015, the Affordable Care Act requires applicable large employers to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The Affordable Care Act measures affordability based on annual household income. Because employers have no way of knowing an employee’s household income, the Affordable Care Act provides three safe harbors that will allow employers to claim that their plans are “affordable.”   Employers familiar with these safe harbors are also familiar with the significance of the 9.5% number. It is this 9.5% number that the IRS, in Revenue Procedure 2014-37, recently increased to 9.56%.

Employers may use the 9.56% figure in its safe harbor calculations when setting premiums for the 2015 plan year. The three safe harbors are the Form W-2 safe harbor, the rate of pay safe harbor, and the federal poverty line safe harbor. First, if the employee contribution towards the self-only coverage does not exceed 9.56% of the employee’s wages listed in Box 1 of his/her Form W-2, then the coverage will be deemed to be affordable. Second, coverage is affordable if the employee contribution does not exceed 9.56% of the employee’s hourly rate of pay times 130, or the employee’s monthly salary. The third safe harbor provides that coverage is affordable if the employee contribution does not exceed 9.56% of the most recently published federal poverty level for a single individual.

While the change from 9.5% to 9.56% is not a massive change, it does serve as a reminder that what is deemed “affordable” may change from year to year.

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IRS Releases Draft Versions of Forms for Health Information Reporting by Employers

The IRS released final regulations on March 5, 2014, outlining the employer reporting requirements that will take effect for the 2015 taxable year. While the final regulations specified the type of information that will need to be reported, the actual reporting forms were not issued at that time. As a result many employers were taking a wait and see approach to the reporting requirements. We now have draft reporting forms. On July 24, 2014, the IRS released draft forms that employers will use to report on health coverage they offer to their employees. The forms are the primary mechanism used by the government to track and enforce the Affordable Care Act’s minimum essential coverage and shared responsibility requirements for employers. The first reports will be due in 2016.

There are two types of reporting requirements. First, is section 6055 reporting, which is to aid the IRS in enforcing the ACA individual mandate. The second type of reporting is section 6056 reporting, which applies to applicable large employers and is to aid in the enforcement of the shared responsibility penalties under the ACA. The IRS recently released draft forms may be found using the following hyperlinks: 1094-B (Transmittal of Health Coverage Information Return), 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), 1095-B (Health Coverage), and 1095-C (Employer-Provided Health Insurance Offer and Coverage). The draft instructions relating to the forms have not been released. The IRS anticipates posting draft instructions to IRS.gov sometime in August.

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King Decision on ACA Subsidies

On July 22, 2014, two conflicting decisions on the legality of insurance subsidies provided in federally established health care exchanges were handed down. In the Halbig decision, discussed previously in this blog, the D.C. Circuit of the U.S. Court of Appeals ruled that such subsidies are not allowable on federally established exchanges. The second decision, in King v. Burwell, directly conflicted with the Halbig decision, with the Fourth Circuit of the Court of Appeals ruling that such subsidies are allowable on federally established exchanges. This case is the topic of this post.

The plaintiffs in King v. Burwell, which may be read in full here, were Virginia residents who did not wish to purchase comprehensive health insurance. Due to Virginia’s refusal to establish a state health care exchange, citizens of the state were to use the federally established exchange healthcare.gov. The plaintiffs’ opposition to the availability of insurance subsidies in federally established exchanges is linked to the individual mandate provision of the ACA. The plaintiffs argue that absent these subsidies, they would fall under the ACA’s unaffordability exemption and not be required to purchase health insurance. Due to their low income, the plaintiffs argue that the availability of these subsidies makes them subject to the individual mandate and therefore imposes an undue financial burden on them, as they will be required to either obtain insurance or pay a penalty.

The crux of the plaintiffs’ argument in King is essentially the same as that of the plaintiffs in Halbig; they believe that the language of the ACA which allows for insurance subsidies in exchanges “established by the state” prevents these subsidies from being available on federally established exchanges. However, unlike the court in Halbig, the Court found this argument unpersuasive and ruled in favor of the government’s broader interpretation of the statutory language.

The rationale behind the Fourth Circuit’s ruling is centered on the perceived ambiguity of the statutory language. The King court explains that, taken in context of the entire act, the language in question could have two reasonable interpretations. One of these interpretations is that taken by the plaintiffs, while the other is the broad interpretation presented in the IRS’ final regulation on this matter, which allows for insurance subsidies on all health care exchanges. Due to the fact that the IRS has interpretative authority, the Court explains that they are not authorized to supplant the IRS’ interpretation of the statute unless it is clearly “arbitrary, capricious, or manifestly contrary to the statute.” The Court determined that the IRS’ interpretation did not fall into any of these categories, and therefore upheld the IRS’ ruling and the legality of insurance subsidies in federally established exchanges.

This decision will be appealed, similar to the Halbig decision. Until a final decision on this issue is published (likely by the United States Supreme Court), employers should continue to proceed as if the employer penalties are applicable in states with federally facilitated exchanges.

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The Shaky Future of the ACA Employer Penalty After Halbig

In a previous post, we discussed the murky legal status of insurance subsidies in federally established insurance exchanges. This post will focus on the July 22, 2014 decision in Halbig v. Burwell and the impact this ruling will have if it is upheld.

Yesterday, in a potentially landmark decision, the D.C. Circuit of the U.S. Court of Appeals ruled that federally established health care exchanges are not authorized to provide insurance subsidies. The case centered on language of the Affordable Care Act (“ACA”) which, on its face, limits the availability of insurance subsidies to state-established exchanges. The language in question, found in Section 36B of the Internal Revenue Code, made tax credits available as a subsidy for individuals purchasing health insurance through marketplace which were “established by the State.”

The appellants, a group of individuals and employers residing in states without state-established exchanges, argued that this language prohibited the offering of insurance subsidies on federal exchanges; the government argued that the broad interpretation of this language, as interpreted and promulgated by the IRS in a final regulation on this issue, should be used to allow federal exchanges to offer insurance subsidies. With its ruling in Halbig, the Court sided with the appellants and held that the ACA “unambiguously restricts the . . . subsidy to insurance purchased on Exchanges ‘established by the State’. . .”

The crux of the Court’s ruling relied on the language of the ACA itself. As noted above, the ACA provides that subsidies should be available for plans “enrolled in through an exchange established by the state;” it makes no mention of these subsidies being provided in federal exchanges. The government argued that by allowing the federal government to establish exchanges in the states which failed to do so, the ACA made federal exchanges equivalent to the state exchanges, thus allowing subsidies to be provided within these exchanges. However, the Court rejected this argument. Additionally, the court rejected the government’s arguments that a narrow construction would make other provisions of the ACA unworkable and that a narrow interpretation would be contradictory to the law’s purpose and legislative history.

The federal government intends to appeal the Court’s decision. However, if this decision is ultimately upheld, it would have a material impact on the employer shared responsibility penalty under the ACA. The employer penalty, which will be effective January 1, 2015, will impact applicable large employers that have at least one full-time employee who receives a subsidy through the new insurance exchanges. If the Halbig decision is upheld, employers in the thirty-four states utilizing federally established exchanges would not be subject to this penalty.

As noted in yesterday’s blog, the Fourth Circuit issued a conflicting ruling on the same issue within hours of the Halbig decision. Accordingly, the current status of insurance subsidies and employer penalties in states with federally established exchanges is unclear. The next step is likely an en banc review of the Halbig decision by the D.C. Circuit; however, there is a good chance that this issue will ultimately be decided by the Supreme Court. If the Halbig decision is ultimately upheld, it will provide significant relief to large employers in the thirty-four states without state-established exchanges. It is important to note, however, that while the issue is on appeal, the administration has stated that these subsidies still will be available on all exchanges; therefore, employers must still comply with the mandate until a final ruling is made on this issue

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Conflicting Federal Rulings Issued Today on ACA

Earlier today, two circuits of the U.S. Court of Appeals handed down conflicting rulings regarding the legality of insurance subsidies offered in connection with federally facilitated exchanges. The controversy surrounding these subsidies involves language found in the Affordable Care Act (“ACA”) which provides that subsidies are available to individuals purchasing insurance through exchanges “established by the State.” The IRS interpreted this language broadly to allow for subsidies to be offered with both state and federally facilitated exchanges.  The plaintiffs in both cases believe that the IRS exceeded its authority in expanding subsidies to states with federally facilitated exchanges, thereby unfairly exposing applicable large employers in those states to shared responsibility penalties.

In Halbig v. Burwell, the U.S. Court of Appeals for the District of Columbia held that the language of the ACA allowing for insurance subsidies in state operated exchanges did not apply to federally facilitated exchanges. However, only hours later, in King v. Burwell, the Fourth Circuit sided with the government and upheld the legality of insurance subsidies in connection with federally facilitated exchanges.

The conflicting results are due to differing interpretations of the statutory language. The Halbig Court, which struck down subsidies in connection with federal exchanges, relied on the actual language of the statute. This court determined that the language was unambiguous and restricted subsidies to insurance purchased on exchanges “established by the State.” Conversely, the King Court found the language of the statute to be ambiguous and “subject to multiple interpretations.” Due to this, the Court gave deference to the government’s broad interpretation of the language, and upheld the IRS final rule on the issue, which allowed for subsidies to be provided on both state and federal exchanges.

Both of today’s decisions will be appealed. In addition, we are still awaiting a decision from the federal court in Indianapolis in State of Indiana v. IRS, which involves similar arguments raised by the state and thirty-nine Indiana public schools. The public schools in State of Indiana v. IRS are represented by Bose McKinney & Evans LLP.  (State v. IRS – Amended Complaint)   For now, employers should continue to assume that the shared responsibility penalties will be effective January 1, 2015. Ultimately, the United States Supreme Court may need to determine whether the IRS may validly impose penalties upon employers located in states that do not operate a state-based exchange.

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