Federal Agencies Provide Feedback on Benefits Rules

---

September 10, 2007

How would you like the chance to ask government officials questions about any topic within their authority? The American Bar Association's Joint Committee on Employee Benefits (ABA JCEB) has this opportunity every year, and the 2007 responses provide further guidance to both employers and insurance professionals.

The ABA JCEB received comments from five agencies:

• The IRS
• The DOL
• The Department of Health and Human Services (HHS)
• The Centers for Medicare and Medicaid Services (CMS)
• The Equal Employment Opportunity Commission (EEOC)

While the responses are unofficial and nonbinding, they do provide insight into how these agencies would rule in similar circumstances.

IRS

Highlights include:

• Upon the death of the participant and the participant’s dependents, the following actions would be prohibited if a balance remains in the HRA:
• Paying it to a beneficiary or the estate
• Purchasing a life insurance policy and transferring it to the beneficiary
• Otherwise transferring money or property to another entity or persons
• When the qualifying event of divorce or ceasing to be a dependent occurs, an employee may not pay for that coverage on a pre-tax basis because the ex-spouse and ex-dependent are no longer tax dependents.
• One spouse’s dependent care FSA election is reduced in order to pass a midyear nondiscrimination test. The other spouse could increase an election under his or her employer’s plan, as long as that plan allows such an election change and their combined benefit is less than the $5,000 statutory maximum.
• Two spouses work at different employers, each with Dependent Care FSAs. After making elections, they realize that their combined election exceeds the $5,000 statutory maximum. If they can substantiate this fact, the mistake of fact justifies one spouse changing the election.

DOL

Highlights include:

• An employer that allows employees to pay 100 percent of the cost of coverage when on leave or on strike (instead of 102 percent) still must offer COBRA because the premium increase transforms those events into qualifying events.
• An employer sends a COBRA notice that is returned as undeliverable. The DOL refused to mandate that the employer must undertake additional actions to locate a current address in order to satisfy the standard that the notice “the notice in a manner reasonably calculated to ensure actual receipt.” Instead, it observed that it depends on the facts and circumstances of the situation.
• As long as all of the relevant information is included, a plan administrator may send an election notice before the qualifying event occurs.
• Recent changes in the law permit rollovers from Health FSAs to Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Such rollovers do not turn the HSAs into ERISA plans unless the rollovers are mandatory.

HHS

Highlights include:

• A person’s death would not invalidate a HIPAA disclosure authorization of protected health information (PHI), but it could be revoked by an executor or administrator of the estate.
• An employer sponsoring a health plan and administering enrollment and eligibility can discipline an employee for enrollment fraud because such information is not PHI.
• A plan may disclose PHI to an electronic personal health record vendor without violating HIPAA if a Business Associate Agreement is in place. This would be considered to be a permitted "health care operations" disclosure.
• A health plan may require completion of a health risk assessment in order for employees to participate in a health plan. This does not violate HIPAA but it could violate the Americans with Disabilities Act (ADA), on which the HHS refused to comment.

EEOC

Highlights include:

• Just because a wellness programs complies with the Final HIPAA Nondiscrimination rules does not mean they will comply with the ADA. The EEOC continues to study the issue and gather data. The primary concern relates to when penalties become large enough to make the wellness program for all practical purposes involuntary. Section 102(d)(4)(B) prohibits any medical examinations or inquiries, unless they are voluntary.