Cafeteria Plan/FMLA Rules for 2002

 Cafeteria Plan/FMLA Rules for 2002  Mental Health Parity Amendment  Emergency Assistance Queries Approved  HIPAA Simplification Delay  Health Insurance Aid  Supreme Court to Review FMLA Case  Annual Women's Health and Cancer Rights Act Notice  GUST Extension Unlikely  Issue Spotlight — Wellness Programs and HIPAA  New Year's Resolutions

Final FMLA rules for cafeteria plan years starting on or after January 1, 2002 were released on October 17, 2001. The IRS regulations closely follow the proposed regulations from 1995.

Recovery of Premiums — An employer will often pay to continue benefits during a leave even if an employee fails to make required contributions. The final regulations make it clear that if an employer continues an employee's medical coverage by paying the employee's share of the premiums during an FMLA leave, the employer can recover those premiums when the employee returns. Advance agreement by the employee is not required. If the employee does not return, the employer can attempt to recover both the employee and employer share of the premiums from the employee. The employer cannot require the employee to reimburse these payments until FMLA is completed.

Employer-Required Reinstatement — Following FMLA leave, an employee has the right to be reinstated in the group health plan even if the employee initially revoked his election or if he failed to make all the premium payments during leave. Under the final regulations, employers now have the right to require employees to reinstate their health plan coverage (including health care spending accounts) upon return from FMLA leave if the employer requires the same of employees who return from other types of leave.

No Revocation — The FMLA does not require that an employer allow an employee to revoke coverage if the employer pays the employee's share of premiums during the leave.

December 2001 www.willis.com Open Enrollment — An employee who is on FMLA leave during an open enrollment period has the same rights to revoke or change an election as an employee who is not on FMLA leave. An employee on FMLA leave can be held to the same standards and deadlines for enrollment as active employees. Upon return to work, an employee generally may then again revoke or change an election. These rules would allow for late enrollment into a medical plan during annual enrollment while on FMLA and for revocation during the leave with reinstatement upon return to work.

Health Care Spending Accounts — Cafeteria plans with health care spending accounts generally must conform to the same FMLA rules that apply to health care coverage. The FMLA requires that an employer permit an employee taking FMLA leave to continue coverage under a health care spending account while on FMLA leave. If the employee is on unpaid FMLA leave, the employer must allow the employee to revoke coverage or to continue coverage (the employee can choose to lose coverage by discontinuing premium payments).

For an employee who participates in health care spending accounts while on FMLA leave, the full amount of the elected coverage (less any prior reimbursements) must be available to the employee at all times as long as the employee continues coverage. This rule applies regardless of whether the employee pre-pays for this coverage, selects the pay-as-you-go method, or uses the catch-up option.

If an employee revokes his health care spending account election before FMLA leave (or does not make all the required payments), he may elect to be reinstated in a health care spending account upon return from FMLA leave. Under the final regulations, upon returning from FMLA:

1) The employee may resume coverage at the original level of participation (reduced by prior reimbursements) and make up the missed payments using the catch-up option; or

2) The employee may resume coverage under the health care spending account, but the level of coverage will be prorated for the period during the FMLA leave for which no premiums were paid, and reduced by any reimbursements. Under no circumstances may the employer require the employee to pay more than the remaining premiums due.

Mental Health Parity Amendment

A "Mental Health Parity" amendment sponsored by senators Peter Domenici (R-N. Mex.) and Paul Wellstone (D-Minn.) has been attached to a larger bill in a move some legislative observers say will secure its passage. The amendment is designed to completely erase coverage differences between mental and other physical illness. The Senate approved the amendment in early November — setting the stage for a challenging compliance situation for U.S. employers.

2 Specifically, the amendment prohibits placing limits on the number of visits patients can make to psychologists, psychiatrists or social workers in any given year. The amendment requires group health plans that offer mental health coverage benefits to provide full parity, extending to both treatment limitations (including limits on the number of days and visits) and financial requirements (including deductibles, coinsurance and co- payments) for mental health and other medical benefits. Moreover, the proposal would apply to all conditions listed in the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) except for chemical and substance abuse disorders.

Emergency Assistance Queries Approved

The Washington Post notes that, because of concerns stemming from ADA (Americans with Disabilities Act) requirements, trade groups and employers are asking for guidance about what can be done to identify workers who might need help during an emergency. According to news reports, the September 11 terrorist attacks raised consciousness about providing help to disabled co-workers in the event of an emergency.

The U.S. Equal Employment Opportunity Commission subsequently announced that employers are allowed to inquire about which workers would need assistance in the event of an emergency. However, the EEOC cautioned that a general, standardized form should be used to inquire about the need for all employees of the company. Employers may also ask for volunteers to help those in need during an emergency to reduce confusion, but the EEOC warned employers to maintain appropriate use of such information.

HIPAA Simplification Delay

Senator Larry Craig (R-Idaho) and seventeen co-sponsors have introduced a bill (S. 1588) to change the compliance date for the HIPAA administrative simplification standards for electronic transactions to October 16, 2003. The proposed one-year extension enjoys strong bipartisan support as well as the backing of many Governors because state Medicaid programs are also required to meet the new standards.

This proposal would not affect the privacy of health information regulations issued by the Department of Health and Human Services.

3 Health Insurance Aid

The Wall Street Journal reports that although President Bush and key congressional leaders agree about the need, no one seems to agree about how health-care assistance can be implemented so as to benefit all unemployed individuals.

Senate Democrats favor offering direct monetary aid to the unemployed to fund their payment of COBRA premiums (currently averaging $7,053 annually). Their opponents argue that doing so creates a new entitlement program.

Senator Max Baucus (D-Mont.) offers a proposal that would provide a 50 percent subsidy for COBRA premiums, and make Medicaid available to those workers that do not qualify for COBRA. Senator Kennedy (D-Mass.) and other Democrats are pressing for a 75 percent subsidy, Senate Republicans plan to support the issuance of grants to states to be used to pay the COBRA premiums for the unemployed, provide income support and job training.

The economic stimulus package is expected to be released by the end of the November and should include a three-year, 30 percent depreciation bonus; permanent corporate alternative-minimum tax repeal, acceleration of all individual rate cuts passed earlier this year and may feature special payments for low-income workers.

Supreme Court to Review FMLA Case

The Supreme Court agreed to review a decision by the U.S. Court of Appeals for the Eighth Circuit, which rejected one of the DOL's key FMLA regulations. Ragsdale v. Wolverine, 2000 WL 943787 (8th Cir. 2000).

The DOL regulation states that FMLA leave cannot be counted toward the 12-week allotment until the employer notifies the employee that the leave will be counted. Although Congress gave the DOL authority to write regulations to interpret and implement FMLA, critics note that Congress never specifically required such a notification about FMLA leave. Consequently, the Eighth Circuit held that the DOL rules creates rights that the statute (and Congress) did not intend.

The Eighth Circuit sided with a 1999 Eleventh Circuit decision in its ruling. McGregor v. Autozone, Inc., 180 F.3d 1305 (11th Cir. 1999). However, it's important to note that other circuits have supported the DOL's FMLA designation rule.

The Supreme Court review of this issue will resolve the question of whether or not employer notification is required before the "clock starts ticking" for the employee's 12- week allotment.

4 Annual Women's Health and Cancer Rights Act Notice

If you have not already done so, open enrollment season may be an opportune time to distribute the required annual notice under the "Women's Health and Cancer Rights Act" (WHCRA).

Federal law requires that an employer provide an outline of an employee's rights under WHCRA upon the employee's enrollment in the medical plan. Additionally, employers are required to send an annual reminder about benefits mandated under WHCRA. This annual notice may be included in any of the following materials:

 Union or benefits newsletter  Open enrollment materials  Any other written communication by the plan — or employer

Many employers find it convenient to address this requirement at open enrollment. Consequently, the following notice included with your open (or annual) enrollment materials would fulfill your company's annual notice obligation. Different language is required to meet the WHCRA's enrollment notice. Please call your Willis representative for more information.

DOL Model Annual Notice

Did you know that your plan, as required by the Women's Health and Cancer Rights Act of 1998, provides benefits for mastectomy-related services including reconstruction and surgery to achieve symmetry between the breasts, prostheses, and complications resulting from a mastectomy (including lymphedema)? Call your plan administrator [insert name and phone number] for more information.

GUST Extension Unlikely

GUST is the acronym for the Uruguay Round Agreements of 1996 (GATT), the Uniformed Service Employment and Reemployment Rights Act of 1994 (USERRA), the Small Business Job Protection Act of 1996 (SBJPA), the Taxpayer Relief Act of 1997 (TRA), the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA '98) and the Community Renewal Tax Relief Act of 2000 (CRA).

Employers who are counting on an additional extension to get their qualified retirement plans restated to conform to the GUST changes should not procrastinate any longer.

On November 1, 2001, Paul Schultz, Director, Employee Plans, Rulings, and Agreements at the Internal Revenue Service, indicated that while the IRS is indeed studying whether or not an extension is warranted, employers should not expect one. That means that employers who sponsor individually designed plans will need to get their plans restated and submitted to the IRS for determination letters no later than December 31, 2001.

5 Keep in mind that employers who use certain master, prototype or volume submitter plans no longer have to request individual determination letters for their plans. If the plans are identical (or with only certain approved changes) to those with favorable opinion letters from the IRS, the employer can rely on the opinion letter provided to the master, prototype or volume submitter sponsor. That provides an additional option for employers who currently maintain individually designed plans that may have waited too long.

Those employers who find themselves in a bind, can either actually adopt a master, prototype or volume submitter plan or just certify their intent to adopt the master, prototype or volume submitter plan of the sponsor on or before December 31, 2000. As long as the employer actually does adopt that plan (or another such plan) the deadline for the actual adoption is extended until twelve months after the plan sponsor actually obtains its favorable opinion letter.

Issue Spotlight — Wellness Programs and HIPAA

Many employers want to implement wellness programs as part of a strategy to curb medical costs. Unfortunately, much of what we've come to think of as appropriate wellness goals may now violate the HIPAA nondiscrimination requirements unless they are properly implemented.

An Example

One employer's program was very detailed with a significant number of physical and wellness goals. Achievement levels were set and those who could reach the maximums received employer-paid medical benefits including some small cash awards.

The program's physical goals included varying numbers of sit-ups, push-ups, chin-ups, and a three-mile run. In addition, there were goals for maximum weight, blood pressure, waist/hip ratio, pulse, cholesterol levels and for abstinence from tobacco use. To achieve the maximum goal, men had to be able to do 80 push-ups and women (and anyone 50 or over) had to do 55 push-ups — each within two minutes. Similarly, the cholesterol levels for the maximum rewards could not exceed 180 (for men and women) or 200 for those 50 or over. A resting pulse could not exceed 66 for men, 71 for women and 74 for anyone 50 or over. There were graduated levels for all of these with corresponding rewards.

The reward system, as designed, violates the nondiscrimination provisions of HIPAA and the regulations. However, with some changes (major and minor ones) the program could still pass muster under HIPAA.

6 HIPAA Nondiscrimination

HIPAA provides that group health plans cannot discriminate on the basis of health status. Prohibited discrimination includes any requirement that any individual pay a premium or contribution which is greater than the premium or contribution for a similarly situated individual enrolled in the plan on the basis of any health status-related factor. So, if there are rewards or discounts available for some, HIPAA guarantees that they must be available to all regardless of health status.

Bona Fide Wellness Programs

There is an exception to the general rules of nondiscrimination that permits group health plans to offer discounts or rebates or modifications to co-payments or deductibles in return for adherence to programs of health promotion and disease prevention that are considered to be "bona fide wellness" programs.

To qualify as a bona fide wellness program the plan or program must meet four tests:

 Maximum reward — The total reward, coupled with the reward for other wellness programs under the plan must not exceed 10 to 20 percent [the maximum has not been finalized] of the cost of employee-only coverage under the plan.

 Reasonably designed to promote good health — The program must be reasonably designed to promote good health or prevent disease. For this purpose, that means that the program gives individuals the opportunity to qualify at least once per year.

 Available to similarly situated individuals — The rewards must be available to all similarly situated individuals. That means that the program must allow a reasonable alternative standard to obtain the reward for those for whom it is unreasonably difficult due to a medical condition to satisfy the standard for the reward or if it is medically inadvisable to attempt to satisfy the otherwise applicable standard for the reward.

 Alternatives must be disclosed — The plan must disclose in all plan materials describing the terms of the program the availability of reasonable alternative standards.

The examples in the regulations make it clear that actually achieving some pre-set level of "fitness" to obtain the reward is not permissible unless people are told that a reasonable alternative is available and that the alternative provides the same level of reward as the basic program. For instance, a requirement that a participant achieve a cholesterol count below 200 to obtain a discount is allowed as long as an alternative is available for people for whom it is not advisable, or who cannot get to that level. One reasonable accommodation would be to give the discount to anyone who at least adheres to a low cholesterol diet. There might be other alternative accommodations that would also be considered reasonable.

7 Examples of Required Changes

 Amount of discount — The regulations provide alternatives for the amount of the discount but the maximum is 20 percent of the employee cost.

It is unlikely that a graduated scale for achievements would be considered as reasonable. Everyone should be eligible for the maximum discount or a reasonable alternative must be available to obtain the maximum.

 Physical requirements — By themselves, none of these requirements (sit-ups, push- ups, chin-ups, three mile walk/run) can be required. However, they are allowable if reasonable alternatives are provided for people who for medical reasons cannot achieve the primary requirements.

 Fitness measures — The proposed regulations make it clear that these types of measures (blood pressure, weight, pulse, and cholesterol) can only be part of the plan if reasonable alternatives to achieving the measures are also available.

 Communications — An employer must communicate the availability of an alternative method of obtaining the discount. The proposed regulations contain specific language that will meet this requirement:

"If it is unreasonably difficult due to a medical condition for you to achieve the standards for the reward under this program, or if it is medically inadvisable for you to attempt to achieve the standards for the reward under this program, call us at [insert telephone number] and we will work with you to develop another way to qualify for the reward."

Language that is substantially similar is also acceptable.

 Tobacco cessation — Most surprising is the fact that employers must provide a reasonable alternative to abstinence from tobacco. Cessation from tobacco use is not a permitted goal unless there is a reasonable alternative (such as the participation in a smoking cessation program even if actually quitting is not achieved).

Taking a positive outlook, there are ways to structure HIPAA compliant wellness programs. The key requirement is that such programs must be designed with "reasonable alternatives" for those employees who, for medical reasons, cannot otherwise achieve the rewards. In addition, those alternatives must be clearly communicated to the participants.

8 New Year's Resolutions

If you haven't already registered online for FOCUS on Benefits, be sure to do so soon. Accomplish an early New Year's resolution to keep informed and "work smarter, not harder." Online you'll find:

 The current issue of FOCUS on Benefits,  Archival issues of FOCUS on Benefits,  The ability to search for specific topics of interest (e.g. FMLA, HIPAA, etc.),  A printable version of the current issue, and  Links to other benefits Web sites

Log onto www.FOCUSonBenefits.com via the Internet and fill out the registration form. You will automatically receive monthly e-mail reminder to let you know when the Web site has been updated.

9 U.S. Benefit Office Locations

Anchorage, AK Dallas, TX Mobile, AL Salt Lake City, UT (907) 562-2266 (972) 385-9800 (334) 433-0441 (801) 453-0010 Atlanta, GA Detroit, MI Morris Plains, NJ San Diego, CA (770) 640-2940 (248) 735-7580 (973) 538-7140 (619) 297-7111 Baltimore, MD Eugene, OR Nashville, TN San Francisco, CA (410) 527-1200 (541) 687-2222 (615) 872-3700 (415) 981-0600 Birmingham, AL Ft. Worth, TX New Orleans, LA San Jose, CA (205) 871-3871 (817) 335-2115 (504) 581-6151 (408) 452-7555 Boston, MA Greenville, SC New York NY Seattle, WA (617) 437-6900 (864) 232-9999 (212) 344-8888 (206) 386-7400 Chapel Hill, NC Knoxville, TN Philadelphia, PA Tampa, FL (919) 968-4472 (865) 588-8101 (610) 964-8700 (813) 281-2095 Charlotte, NC Lexington, KY Phoenix, AZ Washington, DC (704) 376-9161 (859) 223-1925 (602) 787-6000 (301) 530-5050 Chattanooga, TN Los Angeles, CA Portland, OR Wichita, KS (423) 756-7821 (818) 548-7500 (503) 224-4155 (316) 264-5311 Chicago, IL Louisville, KY Raleigh, NC Wilmington, DE (312) 621-4700 (502) 499-1891 (919) 968-4472 (302) 477-9640 Cleveland, OH Milwaukee, WI Rochester, NH (216) 861-9100 (414) 271-9800 (603) 332-5800 Columbus, OH Minneapolis, MN St. Louis, MO (614) 766-8900 (763) 302-7100 (314) 721-8400

Other Willis Locations: Willis has offices in more than 20 other U.S. Cities and in 70 countries around the world, with a total of 260 offices worldwide.

FOCUS is produced by National Benefits Resource of Willis: [email protected] or 877-4WILLIS (toll-free). FOCUS is not intended to provide legal advice. Please consult your attorney regarding issues raised in this publication. Willis publications appear on the internet at: www.focusonbenefits.com.