UNDERSTANDING ERISA

1. UNDERSTANDING ERISA What is it , Where did it come from and where is it going? Constance N. Zarkowski, Esq.

2. ERISA Employee Retirement Income Security Act of 1974 29 USCS §1000, et seq.

3. ERISA WHAT WHO WHERE WHEN WHY HOW

4. ERISA WHERE Did it Come From?

5. THE FOUNDING FATHERS DID NOT WANT STRONG CENTRAL GOVERNMENT Commerce Only Regulated by the States

6. THE CONSTITUTIONAL POWERS: ARTICLE I Section 8. The Congress shall have the power to: regulate commerce with foreign nations, And among the several States… Example: Mud Flaps case…. AMENDMENT X. The powers not delegated to the United States by the Constitution, nor prohibited by it to the States are reserved to the States respectively, or to the people.

7. EXCEPTIONS: ARTICLE I. The Congress shall have Power to…provide for the common Defense and general Welfare of the United States; Example: FAA “pre-empts the field” under the General Welfare clause Congress is attempting to pre-empt the field of health insurance under the General Welfare Clause…may use ERISA

8. ERISA WHY Did it come about?

9. HISTORY • Hospitalization for individuals & families • As employment benefits for employees to circumvent wage controls during the war

10. CORRECT EMPLOYER ABUSE • Retirement Plans had no vesting • Employers terminated employees just short of age 65 retirement date

11. ERISA HOW Was it implemented?

12. EMPLOYER BENEFITS • Immunity for benefits plans • Allow self-funding • Allow aggregation of small employers into Multiple Employer Trusts (METs)

13. WHAT IT DID FOR EMPLOYEES • Created vesting for Retirement Plans • Prohibited discrimination in employee benefits • Allowed small employers to offer benefits • LATER: • HMO mandate • COBRA/HIPPA for continuation and portability

14. WHAT IT DID FOR EMPLOYERS • Created Immunity related to Benefits Plans • Allowed Self Funding • Allowed small employers to pool together

15. UNINTENDED CONSEQUENCES • Created Immunity for Insurance Companies who offer employer sponsored benefits • Prohibits lawsuits for Bad Faith • Requires lengthy appeals process for denied benefits – appeals are decided by the same employer denying the benefits • Requires Federal Court lawsuit to override • No right to jury trial

16. ERISA WHO’sin charge?

17. The Federal Government Executive Branch: DOL – HHS - CMS enforces laws Judicial Branch: Interprets regulations & Constitutionality of laws Legislative Branch: Congress Makes new laws

18. WHO CONTROLS Federal Laws ERISA IRS DEPARTMENT OF LABOR State Laws Departments of Insurance (McCaren-Ferguson) Local City/County Laws (Forget about it!)

19. WHO CONTROLS Federal Law DEPARTMENT OF LABOR IRS Federal Question has to be heard in federal court

20. WHO CONTROLS INSURANCE COMPANIES? “SAVINGS CLAUSE” McCarran Ferguson Act DETERMINES WHICH REGULATORY AGENCY APPLIES Reserves the “Business of Insurance” to the states

21. WHO CONTROLS Local City/County Laws (Forget about it!) San Francisco Mandate

22. WHO CONTROLS • San Francisco's municipal health insurance mandate. • The 9th Circuit Court of Appeals upheld the mandate in September 2008 • The local restaurant association has taken the fight to the Supremes.  • The association suffered a setback in March 2009, as the high court refused to enjoin enforcement of the law pending appeal.  • We'll see this fall whether the Supremes will hear the case.  • The challenge comes out of ERISA pre-emption jurisprudence.  • The Circuit Court's response last fall, per the local paper:  • "San Francisco was exercising its legal authority to protect its residents' welfare and was not regulating employee benefit plans, because employers have a choice of insuring their own workers or paying a fee to the city."

23. WHO REGULATES • Feds Regulate Employer-Sponsored Plans Department of Labor • State regulates insurance companies Department of Insurance • State regulates HMO’s Department of Managed Care • U.S. Supreme Court sorts it all out Pegram v. Herdrich / Rush v. Moran

24. PATIENT’S RIGHTS UNDER ERISA (Few and None) • Right to sue health plan/HMO for Denied Benefits? • Right to 2nd opinion • Right to jury trial • Right to sue for damages from denied benefit NO NO NO NO

25. KEY CASES SUPREME COURT DECIDES IF ERISA REGULATES ALL FACETS OF EMPLOYER-SPONSORED HEALTH PLANS: • Pegram v. Herdrich[OVERRULED] • Health plan can be sued if state law allows* • Cicio v Vytra Healthcare – (2001) [OVERRULED by Aetna v. Davila] • Can sue health plan for medical decision damage

26. KEY CASES • Rush v. Moran (2002) • Does ERISA (Federal Law) supercede state regulations for all health plans? No • HMO plans are “insurance” and thus can be regulated by the state under McCarren-Ferguson when the regulations pertain strictly to the care provided (i.e. payment for second opinion review)  KENTUCKY ASSOCIATION OF HEALTH PLANS, INC., et al. v. MILLER – (2003) • the Supreme Court established a two-part test to determine whether a state law regulates insurance within the purview of ERISA section 514(b): "First, the state law must be specifically directed toward entities engaged in insurance. [Citations.] Second ... the state law must substantially affect the risk pooling arrangement between the insurer and the insured.

27. KEY CASES • Newer Decisions: • Aetna Health Inc. v. Davila (2006) – • sued respective plan administrators under Texas Health Care Liability Act (THCLA), in state court, alleging that they suffered injuries due to administrators' decisions not to provide coverage. ERISA pre-empted state law. • Yodzis v. Tilak (2009) – [Not Published] • ERISA includes "expansive" preemption provisions "which are intended to ensure that employee benefit plan regulation would be 'exclusively a federal concern.”

28. ERISA WHAT Does it do?

29. DEFINITIONS • PLAN SPONSOR = Employer • PLAN ADMINISTRATOR = Employer or appointed by employer* • PLAN PARTICIPANT = Employee • PLAN BENEFICIARY = Employee and/or dependant(s) Plan Sponsor & Plan Administrator must be disclosed to Plan Participants & Beneficiaries *Not the same as third party administrator,TPA or claims administrator

30. ERISA • The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire. There also are provisions aimed at assuring that plan funds are protected and that participants who qualify receive their benefits. * • ERISA covers retirement, health and other welfare benefit plans (e.g., life, disability and apprenticeship plans). • ERISA provides that those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct. * How’s that working for Plans that invested in real estate & stock market?

31. ERISA • The law also contains detailed provisions for reporting to the government and disclosure to participants. • ERISA has also been expanded to include the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and amended to provide for the continuation of health care coverage for employees and their beneficiaries. • The Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended ERISA to make health care coverage more portable and secure for employees. • EXCEPTIONS TO ERISA • Health benefits offered through federal, state or local government plans or church plans.

32. ERISADISCLOSURES • WORKERS’ RIGHT TO HEALTH PLAN INFORMATION • Under ERISA, workers and their families are entitled to receive a summary plan description (SPD). The SPD is the primary document that gives information about the plan, what benefits are available under the plan, the rights of participant and beneficiaries under the plan, and how the plan works. • Among other information, the SPD of health plans must describe: • Cost-sharing provisions, including premiums, deductibles, coinsurance and copayment amounts for which the participant or beneficiary will be responsible • Annual or lifetime caps or other limits on benefits under the plan • The extent to which preventive services are covered under the plan

33. ERISADISCLOSURES • Whether, and under what circumstances, existing and new drugs are covered under the plan • The law also contains detailed provisions for reporting to the government and disclosure to participants. • ERISA has also been expanded to include the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and amended to provide for the continuation of health care coverage for employees and their beneficiaries. • The Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended ERISA to make health care coverage more portable and secure for employees.

34. ERISADISCLOSURES • Whether, and under what circumstances, coverage is provided for medical tests, devices and procedures • Provisions governing the use of network providers, the composition of provider networks and whether, and under what circumstances, coverage is provided for out-of-network services • Conditions or limits on the selection of primary care providers or providers of specialty medical care • Conditions or limits applicable to obtaining emergency medical care • Provisions requiring preauthorizations or utilization review as a condition to obtaining a benefit or service under the plan. • The SPD must also explain how plan benefits may be obtained and the process for appealing denied benefits.

35. ERISADISCLOSURES • ERISA requires that SPD’s be updated periodically • ERISA requires disclosure of any material reduction in covered services or benefits to participants and beneficiaries generally within 60 days of the adoption of the change through either a revised SPD or a summary of material modification (SMM) • Material changes that do not result in a reduction in covered services or benefits must be disclosed through an SMM or revised SPD not later than 210 days after the end of the plan year in which the change was adopted.

36. ERISACLAIMS PROCEDURES • Group health plans must establish and maintain reasonable claims procedures that allow participants and beneficiaries to apply for and receive the plan’s promised benefits. • The Department of Labor issued rules setting minimum standards for benefit claims determinations for ERISA plans (including insured and self-funded plans). • Many plans hire benefits professionals or insurance companies to process claims – Employer ultimately responsible.

37. ERISACLAIMS PROCEDURES TIMEFRAMES FOR DECIDING CLAIMS, CONTENTS FOR NOTICES OF BENEFIT DENIALS AND THE STANDARDS FOR APPEALS OF BENEFIT DENIALS • Varies based on the type of claim filed: • urgent care, as soon as possible but not later than 72 hours after the plan receives the claim; • pre-service claims, within a reasonable period of time not later than 15 days after the plan receives the claim; • post-service claims, within a reasonable period of time not later than 30 days after the plan receives the claim; and • disability claims, within a reasonable period of time not later than 45 days after the plan receives the claim.

38. ERISACLAIM PROCEDURES • FOR CLAIMS THAT ARE APPEALED TIME FRAME ALSO VARIES BASED ON TYPE OF CLAIM: • Urgent care claims, as soon as possible but not later than 72 hours after the plan receives the request to review a denied claim; • Pre-service claims, within a reasonable period of time not later than 30 days after the plan receives the request to review a denied claim; • Post-service claims, as soon as possible but not later than 60 days after the plan receives the request to review a denied claim; and • Disability claims, within a reasonable period of time but not later than 45 days after the plan receives the request to review a denied claim.

39. ERISACLAIM PROCEDURES • The notice of a claim denial, referred to as an adverse benefit determination, must contain the following information: • Specific reasons for denial; • A reference to the specific plan provision(s) relied upon for the denial; • (If denied for a lack of information, the notice must include a description of any additional material(s) needed to perfect the claim and an explanation of why such additional material is necessary); • A description of the plan’s review procedures (for example, how appeals work); • If used, either a description of rules, guidelines, or protocols relied upon in denying the claim, or that a copy of such items will be provided free upon request;

40. ERISACLAIM PROCEDURES • If denial is based on medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the denial, applying the terms of the plan to the claimant’s medical circumstances, or a statement that an explanation will be provided free of charge upon request; and • A description of the claimant’s right to go to court to recover benefits due under the plan

41. ERISACLAIM PROCEDURES • The notice of a claim denial on appeal must include the same information as noted above (except the description of the plan’s appeal process) as well as: • A statement of the claimant’s right to receive, free of charge, relevant documents (documents and records upon which the decision is based and other documents prepared or used during the process)*; and • A description of any voluntary processes offered by the plan to resolve claims disputes. • *ADMINISTRATIVE RECORD

42. ERISACLAIM PROCEDURES • The minimum standards for appeals are: • Claimants must be given 180 days to file an appeal • A de novo review, that is, a review that affords no deference to the initial determination, must be conducted; • When the denial is based on determinations of whether a particular treatment, drug or other item is experimental, investigational, or not “medically necessary,” the reviewer must consult with a qualified health professional (and others as needed); • No more than 2 appeals levels are allowed; and • Mandatory binding arbitration of claims is generally prohibited.

43. ERISAEMPLOYER RESPONSIBILITY • Summary Plan Description (SPD)* informs participants about the plan features and what to expect of the plan. Among other things, the SPD must include basic information such as: • • Plan name, address, and contact information; • • What the plan benefits are; • • How to get the benefits; and • • Duties of the plan and/or employee. • * In addition to the SPD, participants can also request the plan document, insurance contracts, and other documents under which the plan is operated. A reasonable copying fee may be charged.

44. ERISAEMPLOYER RESPONSIBILITY • More specific information must also be provided, including: • The plan’s claims procedure (either in the document or as separate attachment); • A participant’s basic rights and responsibilities under ERISA (model language is provided in the SPD rules); • Information on any applicable premiums, cost-sharing, deductibles, co-payments, etc.; • Any caps (annual or lifetime) on benefits;

45. ERISAEMPLOYER RESPONSIBILITY • Procedures for using network providers (if PPO/HMO) and composition of network; • Conditions regarding pre-certification; • A description of plan procedures governing Qualified Medical Child Support Orders (see below); and • Notices and descriptions of certain rights under the Health Insurance Portability and Accountability Act (HIPAA) and other health coverage laws.

46. ERISAEMPLOYER RESPONSIBILITY • SPD must be given to employees within 90 days after they are covered by the plan. • SPDs must also be redistributed every 5th year and provided within 30 days of a request. The SPD must be current within 120 days. • COBRA NOTICE; • HIPAA NOTICE; • Womens’ Health and Cancer Rights Act (WHCRA); and • Mental Health Parity Act (MHPA)

47. ERISARESOURCES The U.S. Department of Labor’s Employee Benefits Security Administration offers more information on its Web site and through its publications. The following are available by contacting EBSA at 1.866.444.EBSA (3272) or on the EBSA Web site (www.dol.gov/ebsa). For Employers Compliance Assistance Guide – Health Benefits Coverage Under Federal Law An Employer's Guide to Group Health Continuation Coverage Under COBRA – The Consolidated Omnibus Budget Reconciliation Act of 1986 Reporting and Disclosure Guide for Employee Benefit Plans Exemption Procedures under Federal Law Qualified Medical Child Support Orders Compliance Guide – Group Health and Disability Plans Benefit Claims Procedure Regulation VFCP Fact Sheet • FAQs DFVCP Fact Sheet • FAQs

48. ERISA REGULATION Organization Chart Employee Benefits Security Administration EBSA oversees nearly 700,000 private-sector retirement plans, approximately 2.5 million health plans, and other welfare benefit plans that that provide benefits to approximately 150 million Americans. EBSA is responsible for administering and enforcing the provisions of ERISA.

49. ERISA REGULATION ERISA Civil Violations Examples include: • Failing to operate the plan prudently and for the exclusive benefit of participants. • Using plan assets to benefit certain related parties to the plan, including the plan administrator, the plan sponsor, and parties related to these individuals. • Failing to properly value plan assets at their current fair market value, or to hold plan assets in trust. • Failing to follow the terms of the plan (unless inconsistent with ERISA). • Failing to properly select and monitor service providers. • Taking any adverse action against an individual for exercising his or her rights under the plan (e.g., being fired, fined, or otherwise being discriminated against).

50. ERISA REGULATION Health Fraud/Multiple Employer Welfare Arrangements (MEWAs) • A Multiple Employer Welfare Arrangement (MEWA) is a welfare benefit plan or other arrangement which is set up to benefit the employees of two or more employers. When small employers are either unable to find or can't afford the cost of health care coverage for their employees, they may look to MEWAs for coverage. There are instances where MEWAs have been unable to pay claims as a result of insufficient funding and inadequate reserves, or in the worst situations, where they were operated by individuals who drained the MEWA's assets through excessive administrative fees or by outright theft. EBSA's emphasis is on abusive and fraudulent MEWAs created by unscrupulous promoters which sell the promise of inexpensive health benefit insurance, but default on their obligations. The goals of this project are to shut down these abusive MEWAs and to proactively identify known fraudulent MEWA operators to ensure they do not terminate one MEWA just to open another in a different state. • EBSA also investigates related criminal activities involving welfare benefit plans. Numerous schemes investigated by EBSA in the last few years have involved mail fraud, wire fraud, bankruptcy fraud, and other ERISA crimes. These criminal MEWA cases, which are prosecuted for the department by U.S. Attorneys' offices, have resulted in jail sentences and court ordered restitution against fraudulent MEWA operators.