Healthcare Plans Facing Compliance Demands, Audits

If they haven't already, now would be the time for compliance officers and legal counsel to take a more active role in ensuring employee health plans pass regulatory muster.

Health benefits have long been the domain of human resources departments, with minimal oversight from compliance. Complex regulations from the Patient Protection and Affordable Care Act, however, have changed that. Even though many companies have moved slowly on health plan changes, awaiting more government guidance, enforcement is already underway, forcing companies to take a closer look at their plans.

“We have seen an onslaught in Department of Labor audits of benefit programs,” says Rebecca Knoll Lawrence, assistant vice president of the national legal and research group for Willis North America, an insurance broker and consultant. “It used to be fairly rare that our clients would be audited. Now, every week we are hearing about another client that gets one. It is a very aggressive approach.”

Among the information the DOL is reviewing are plan policies and amendments that were adopted to comply with the Affordable Care Act, including contracts and agreements with service providers and notices of enrollment for adult children of covered employees up to age 26.

Companies have come to expect audits of retirement plans, which has fostered vigilance among employers to make sure they were doing everything right, says Steven Friedman, a shareholder at the law firm Littler Mendelson and chairman of its employee benefits practice group. Audits of health plans, however, are a relatively new occurrence. “In the health plan area, the government wasn't auditing and companies were not under the gun to make sure everything was up to snuff,” he says. “Now, the knock on the door comes and they are in a state of panic, and justifiably so. Why should they be in a position to provide perfect documentation when no one has ever expected it before?”

Heightened scrutiny comes as companies are still struggling to get a handle on what must be done to ensure compliance with new, and emerging, demands on healthcare benefits. This month alone, an additional 700 pages of new regulations were released, some with provisions that go into effect as early as May 11. Among them are rules that cover health insurance exchanges, how insurers set rates based on claim histories, cost saving programs and risk pooling, and a requirement that insurers report data on all rate increases, not just jumps of 10 percent or more.

Mandated Compliance Programs

The Affordable Care Act also mandates a formal compliance program (either a compliance officer or compliance committee) for nursing facilities and physician groups that are Medicare or Medicaid providers.

Guidance from the Department of Health and Human Services, Office of the Inspector General, and Centers for Medicare & Medicaid Services has clarified that these efforts are intended to be “practice level,” not outsourced and must report directly to the most senior level of the company. Responsibilities include implementing education and training programs, maintaining an anonymous compliant “hotline,” responding to allegations of improper conduct, putting in place protocols to protect whistleblowers from retaliation, and enforcing disciplinary action against employees who have violated either internal policies or state and federal regulations.

“Maintaining compliance with the law as it continues to roll out over the next few years is a challenge for employers,” says Tim Clifford, president of ADP Benefits Administration Services, a leading payroll company closely monitoring healthcare reform. “You have to make sure all of your systems are updated appropriately and make sure staff is administering plans in accordance with regulations. From a pure compliance perspective, it's pretty significant.”

“It is important to get a handle on your workforce and who is, or isn't, a true employee for purposes of the statute.”

—Neil Ekblom,

Lawyer,

LeClairRyan

Many companies are taking a wait-and see approach to complying with health reform. According to a survey last year by insurance broker Willis of roughly 2,300 employers, fewer than half have developed a healthcare strategy to comply with reform demands. The survey found that “employers remain under the gun to get their plans into compliance and are taking a ‘compliance-as-we-go' approach.”

This year's edition of the survey, released late last month, produced a similar conclusion. Even though a majority of employers, 60 percent, said they want to avoid cost increases, “more than half have not put pen to paper to calculate the cost of healthcare reform,” it concluded. Employers are relying upon “inaccurate perceptions of cost” and many have yet to study how healthcare reform will affect various aspects of plan design.

Lawrence says many companies are “stunned” and in “a state of denial” when it comes to the cost and regulatory burdens they will be forced to comply with.

That companies are slow to act, may be understandable however, given the complexity of reform and uncertainty that lingered until a Supreme Court decision upheld the legislation's constitutionality, and the re-election of President Barack Obama put to rest most repeal efforts. Although many businesses kick-started plan reviews and strategy considerations, they have since “backed off because there is this whole mountain of additional guidance they are still waiting for,” Lawrence says.

Among the delayed decisions are how “employees” are defined for purposes of healthcare coverage, how wellness programs might be used to cut costs, and even whether they should eliminate coverage altogether and pay the penalty levied on them for doing so.

“It is important to get a handle on your workforce and who is, or isn't, a true employee for purposes of the statute” adds Neil Ekblom, an attorney with the law firm LeClairRyan.

HEALTHCARE SURVEY RESULTS

The following is from the third annual healthcare reform survey conducted by Willis Group Holdings, a global risk advisor, insurance, and reinsurance broker.

The Employers Are Concerned With Costs but Many Underestimate the True Cost of Compliance

Though “cost” is slated as the biggest compliance concern (60% of employers say that avoiding cost increases is the most important consideration for their businesses), over half of surveyed employers have not determined the cost of Health Care Reform compliance, and the majority of employers believe that Health Care Reform has not impacted the cost of their plans.

However, among the employers who have calculated (or are in the process of calculating) the cost, 61% indicate that the total impact of all Health Care Reform changes has increased costs (with 17% of responding employers noting that costs have increased by over 5%).

Most Employers Intend to ‘Play' Under the ‘Pay or Play' Model

Survey responses indicate that employers continue in the “compliance-as-we-go” approach and are less inclined to manage health benefits as part of total rewards (i.e., salary, vacation, bonuses, retirement). Their preference is to “play” under the mandate.

Employers are Much More Likely to Voluntarily Relinquish Grandfathered Status

There is a sizable increase in the number of employers voluntarily choosing to forgo grandfathered status (39%) as opposed to the number of employers who chose to voluntarily relinquish that status last year (13%). This increase is due to the desire to control more aspects of plan design/co-pays/coinsurance/premiums. The pace at which employers have voluntarily or involuntarily lost grandfathered status far surpasses the Department of Health & Human Services' expectations. This continues the trend that was highlighted in last year's survey.

The Preamble to June 2010 Regulations speculated that by the end of 2011, 78% of employers would retain grandfathered status; by the end of 2012, 62% would retain grandfathered status; and by the end of 2013, 49% would retain grandfathered status.

Also similar to last year, many of this year's survey responses indicate employer confusion about cost, and though the 2014 Exchange Enrollment period is approaching, 2/3 of employers doubt that the exchanges will be ready for enrollment. In response to that uncertainty, 20% of employers expect that other employers will terminate group health plans in order to trigger a migration to exchanges, and 30% of employers expect employees of other companies to be “encouraged” to join the state-based exchanges.

Source: Willis Group Holdings.

Determining who is a full-time employee versus an independent contractor or service provider isn't as easy as it may seem, he says, explaining that the IRS's approach to the distinction relies on nearly 20 different factors. 

This creates added risk for businesses because “the government is going to want to make examples of companies at some point, to get the message across that they can't avoid the act by simply labeling everybody independent contractors,” Ekblom says.

Whistleblower provisions are also troubling to Ekblom, with vague wording, such as “reasonable belief” that leaves open a possible risk for abuse. “What is reasonable? It's a very broad category of what can be considered to be retaliation,” he says. “It could be anything from a reassignment to a different location or smaller room. That is going to be a more important provision than people realize.”

The “To-Do” List

Companies need to set a clear policy with their human resources department to ensure that they are alerted to any indication of non-compliance and have ample opportunity to head off disagreements before they lead to a formal complaint, he adds.

“There will be all sorts of ways for employers to get in trouble, even if they have very conventional insurance plans,” Friedman says. “They may be charging too much for premiums. They may not be covering all the employees they need to cover. They can wind up paying penalties that are quite large. There are now compliance burdens and real worrisome sanctions.”

He says companies will also need to worry about reputation risk, especially if the government takes a “name and shame” approach for non-compliance. “They are going to want to make some headlines and make some employers look bad, because then it will make it look like these government agencies are doing something to protect the rights of healthcare for the working public,” he says. “Generally, employee benefit issues are not front-page issues. When they are, organizations need to sit up and take notice.

Friedman recommends that management starts now, if it hasn't already, to protect their company. They need to review all plan documents, assess them in light of healthcare reform, and update as necessary. They should also ensure that accurate, up-to-date information on plans and options are distributed to all employees.

Other information that needs to be assessed are policies on who is eligible (and ineligible), when coverage starts and ends, how coverage is treated when an employee goes on leave, is COBRA coverage administered correctly, and whether rules covering family status changes are interpreted properly. “There is an awful lot to take a look at,” he says.

Designating responsibilities, and ensuring proper training, is vital, as is establishing a point person for accountability, Friedman says. “The appropriate people may reside in many different areas of the organization,” he says. “But there needs to be someone who is guiding folks along so that if the DOL does come knocking on your door they will be ready. Regulators love process. If they see process in place, they are less apt to take you to task on certain issues.”