The employer mandate provisions of the Affordable Care Act – better known as Obamacare – are among the more controversial parts of the legislation. The mandates were originally scheduled to go into effect in 2014, but after lobbying efforts from various business groups, the mandates’ effective dates were postponed. However, for many employers, the mandates will go into effect in just a few days, at the beginning of 2015.
With the January 1, 2015 effective date approaching for many employers, I have received a number of questions from readers about potential liability issues employers might face as a result of the mandates. As a general matter, I think many of the liability issues that the employer mandates might present will only become apparent over time. However, there are a few areas of potential liability that are apparent now, as discussed below. I note that my observations in this blog post draw on the April 2014 memo from the LeClair Ryan law firm entitled “Emerging ACA Employer Exposure” (here) [.pdf file].
There are of course a number of other issues under the ACA beyond those discussed below that have already led to litigation – there is, for example, the ongoing dispute about whether or not religious organizations can be required to offer its employees contraception benefits through their health plans. The point of this review is not to anticipate every litigation issue that might arise under the ACA but rather to discuss particular areas where employer liability related litigation may arise.
The ACA’s employer mandate requirements and the challenges the mandates present are discussed in an interesting December 10, 2014 Orange County Register article entitled “Obamacare Year One: D-Day Approaches for Employers” (here). As outlined in the article, the ACA requires employer with more than 50 employees to offer health insurance coverage to its workers who work 30 hours or more a week. If they don’t provide the insurance, the company is liable for a $2,000 penalty on each of its employees. The ACA also specifies that the insurance offered must meet certain requirements – it must be affordable; it must cover, on average, at least 60 percent of the group’s medical expenses; and it must provide Obamacare’s “10 essential health benefits” (such as coverage for inpatient hospital stays, trips to the ER, post-natal care, mental health, prescription drugs, pediatrics and free preventive services).
Part of the reason for the delay has been the innumerable questions that arise. How are the hours of employees with seasonable or variable hours to be counted? How should the rules be applied to employers whose employee base fluctuates throughout the year, or to new employers? What about organizations with multiple, corporately separate operating units? The IRS has issued regulations to address many of these issues. But as detailed in the Orange County Register article, for some employers, many questions remain.
With the postponements to the mandates’ effective date, one concern facing many employers is the question of when the mandates will now take effect. As detailed in an October 21, 2014 New York Times article entitled “Answering the Hard Questions on the A.C.A.: Does the Employer Mandate Apply to Your Business?” (here), the mandate does not take effect for employers with fewer than 100 employees until 2016, although those smaller employers will still have reporting requirements for 2015. For employers with 100 or more employees, the mandates will take effect on January 1, 2015. The Times article details many the issues employers will face in trying to determine whether or not the mandates will apply to them.
Potential Employer Liability Exposures
Along with the challenges employers will face in struggling to understand the applicability and scope of the ACA requirements, the employers will also face, according to the law firm memo to which I linked above, “the added issue of new liability exposures.” In addition, as employers struggle with questions of whether or not to restructure their workforce in order to change the way they are positioned with respect to the mandates, they could face “potential liability and fiduciary issues not yet resolved by the courts.”
The potential liability issues (or at least the potential liability issues that I am going to discuss in detail in this post) fall into three general areas: (1) potential fiduciary liability arising from the applicability of ERISA to the ACA’s requirements; (2) the ACA’s whistleblower protections and anti-retaliation provisions; and (3) potential liability for workplace restricting actions.
First, as detailed in the law firm memo, Section 1201 incorporates the ACA’s healthcare coverage mandates into Section 715 of ERISA. To the extent employers continue to sponsor health plans, they must now do so in compliance with the ACA’s requirements (including the Obamacare 10 essential health benefits). To enforce the new coverage mandates, health plan participants can seek to rely on the direct action options under Section 502 of ERISA, which permits health plan participants to bring a civil action to recover benefits; to enforce rights under the plan; or to clarify rights to future benefits under the plan. In reliance on these provisions, a health plan participant might seek to litigate the denial of a benefit or the elimination of a feature of the plan.
The key point is that participants have a private cause of action to enforce their rights to ACA benefits, including recovery of attorneys’ fees. .Among other things, claims against plan fiduciaries in many cases potentially could lead to class-wide exposure if ACA benefits are not provided.
As health plan fiduciaries struggle to determine whether coverage mandates apply and to select appropriate health plans, litigation by health plan participants and beneficiaries to obtain injunctive or equitable relief or to address violations of statute or of the plan will, according to the law firm memo, “grow exponentially in the next two or three years.” In addition, as has been seen with retirement benefit litigation, it can be anticipated that health plan participants “will challenge choices that arguably limit or curtail health benefits to all or some participants.” In addition, beyond private civil litigation, the Department of Labor and the IRS will be auditing employer health care plans, and will be able to seek civil penalties and impost substantial excise taxes for noncompliance.
Second, the ACA provides whistleblower protection for employees who approach regulators regarding an employer’s failure to meet the ACA’s various requirements for reporting, recordkeeping and benefits. Section 1558 of the ACA protects whistleblowing employees from retaliation. An employee who believes he or she has been the subject of retaliation can report a violation to OSHA. A whistleblowing employee may sue in federal court if OSHA does not act within 210 days or fails to enter an order on its findings within 90 days. The employee may also sue in federal court within 90 days of the OSHA decision.
With respect to organizations in the healthcare industry, particularly those receiving various subsidies or reimbursements under the ACA, existing laws (such as, for example, the False Claims Act) create “a highly incentivized scheme for whistleblowers to report government overpayments.” For that reason, firms in the healthcare industry, such as physician groups, health insurers, hospital groups, pharmaceutical companies and medical device companies could face a particular risk of whistleblower activities.
It is important to note that the ACA whistleblowing protections incorporate an “employee-friendly burden of proof” – that is, if the employee can demonstrate that the protected activity was a “motivating factor” for the retaliation, then the employer must demonstrate by clear and convincing evidence that the employer would have taken the same action in the absence of the protected activity.
Third, the ACA’s mandates create obvious incentives for employers to try to restructure to avoid the statute’s requirements. However, as the law firm memo notes, “decisions to restructure workforces to avoid providing health plan benefits are positioning numerous employers for potential litigation in months and years to come.” Section 510 of ERISA prohibits companies from making employment decisions specifically to prevent an employee from obtaining or keeping benefits coverage. The law firm memo notes that courts have generally required a showing of specific intent to deprive a benefit to impose liability based on Section 510, that requirement may not deter prospective claimants where restructuring has clearly been engineered to address ACA requirements.
There are, in addition to the issues discussed above, additional features of the ACA that potentially could lead to litigation, including, for instance, the statute’s “civil rights” provisions specifying that no person may be denied participation in a plan or access to health benefits based on improper discrimination; and the “equal coverage” provisions specifying that employers may not provide better benefits to top employees than to other employees. These and other provisions of the ACA may also lead to employer liability litigation.
It is worth emphasizing that just as there is a lot of uncertainty surrounding the ACA’s scope and requirements, there is also a great deal of uncertainty surrounding the potential liability exposures that employers may face under the ACA. The prospective liability exposures discussed above may not materialize or may prove to be not nearly as serious as suggested. On the other hand, there could be many other liability exposures that have not yet been anticipated but that will only emerge as the employers implement the ACA’s requirements. There can be little doubt at this point that the ACA’s employer mandates present a number of at least potential liability exposures for employers.
These potential liability exposures raise a number of insurance-related implications. To the extent that the ACA’s employer mandates create fiduciary liability exposures under ERISA, there could be important implications under employers’ fiduciary liability insurance policies. Whether and to what extent these issues affect the fiduciary liability insurance carriers’ underwriting protocols, or affect the terms and conditions that the insurance carriers are willing to offer, remains to be seen. In any event, this could be a good time for policyholders to review the limits of liability of their fiduciary liability policies and to consider whether the limits are sufficient to address prospective claims that might arise under ACA-related issues.
The possibility of a whistleblowing retaliation claim raises with respect to the scope and extent of coverage under employers’ employment practices liability policies. However, the activities of whistleblowers raise concerns beyond just the EPL related issues. A whistleblower report could lead to regulatory activity which might potentially raise either fiduciary liability issues that could implicate the fiduciary liability insurance policy, or it could, depending on what actions follow after a whistleblower report, lead to claims that potentially trigger the employer’s D&O insurance policy. The D&O insurance policy could in any event be triggered if, as a result of ACA employer mandate related activity, the company or its directors and officers were to be hit with mismanagement claims or misrepresentation claims.
The possibility of litigation arising out of workplace restructuring –where it is alleged that the employer restructured its work force to avoid the ACA employer mandates or to avoid or eliminate the payment of benefits to employees — could present particularly complicated insurance-related issues. The complication arises from the distinction the courts have drawn between liability arising from actions taken in a fiduciary capacity and actions taken in a settlor capacity. Fiduciary liability arises from actions taken in administering employee plans. Settlor liability arises in connection with actions to establish or discontinue employee plans.
In the past, fiduciary liability insurance carriers have taken the position that their policies provide coverage only for fiduciary liability but not for settlor liability (about which refer for example here). More recently a debate has emerged on the question whether or not fiduciary liability insurance policies should provide coverage for settlor liability of for claims that involve both fiduciary liability and settlor liability components (about which refer for example here). Currently, many fiduciary liability carriers will upon request agree to endorse their policies to expressly state that their policies will provide coverage for settlor liability claims, often subject to the payment of additional premium.
The possibility of actions claiming that employers improperly restructured their work force to avoid ACA requirements or to eliminate benefits raises the possibility of civil actions involving both fiduciary liability claims and settlor liability claims. This concern could be particularly involved where an employer decides to eliminate health plans and simply pay the penalty, as the decision to eliminate the plan would seem to involve more of a settlor function than a fiduciary function. In light of the possibility of workplace restructuring kinds of claims, it could be particularly important to ensure that employer’s fiduciary liability insurance programs include settlor liability insurance coverage.
The ACA potentially involves many other types of potential liability concerns. To cite just one example, health care firms that, in response to incentives in the ACA, form “affordable care organizations” could face potential liability exposures under the antitrust laws, as discussed in a prior post, here.
I know that there likely are many readers who have a much greater familiarity with these issues than I do. I encourage readers who may have additional insights about potential employer liability issue under the ACA to add their thoughts to this post using the blog’s comment feature.
From the Magazine Files: Here at The D&O Diary, we read everything so you don’t have to. With that mission in mind, we reviewed and are pleased to recommend a couple of items from this week’s magazine stockpile.
First, from the December 6, 2014 issue of The Economist, we note the interesting article entitled “Places Apart: A Planet of Suburbs” (here) which discusses what the author describes as the increasing trend toward suburbanization around the world. The essay takes the contrarian view that the world is better for this move toward suburbanization. Among other things, the author contends, in support of the growth of suburbs and against restrictions that would constrain that growth, “suburbia, at its heart, is the embodiment of compromise. It is a space for solving puzzles involving cost, space and commuting time, of balancing the needs for work and recreations, privacy and community.”
Second, from the December 15, 2014 issue of The New Yorker, we note the absolutely fascinating article entitled “Blood, Simpler” (here) about the 30 year-old, Stanford dropout and entrepreneur Elizabeth Holmes, whose startup Silicon Valley company Theranos is threatening to disrupt the world of medical testing, particularly the testing of blood samples. The article presents an absorbing portrait of a successful and visionary young woman. The article quotes one of her company’s many prestigious board members: “She has sometimes been called another Steve Jobs, but I think that’s an inadequate comparison,” Perry, who knew Jobs, said. “She has a social consciousness that Steve never had. He was a genius; she’s one with a big heart.”
Working Out the Stereotypes: Stereotypes often say more about the people who hold them than the people they are meant to describe. That ironic characteristic of stereotypes is neatly and humorously captured in this short video portraying the stereotypes Europeans hold of each other (as well as of the U.S. and the U.K.).