ERISA Does Not Preempt State’s Unfair Trade Practices and Mental Health Parity Laws
In Hansen v. Group Health Plan Cooperative, the Ninth Circuit Court of Appeals ruled that a state’s unfair trade practices and mental health parity laws will not be preempted by ERISA unless certain requirements are met.
Facts: A group of psychiatric service providers sued an insurance company under the state’s unfair trade practices law, claiming that the insurer’s use of certain screening criteria for mental health care coverage: (i) is inherently unfair and deceptive because the treatment guidance is biased against mental health care; (ii) deceptively uses the guidance to avoid paying for mental health care coverage; and (iii) the insurer unfairly competes by employing its own psychotherapists. The providers also claimed violations of the state’s mental health parity law.
Law: In general, ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” However, ERISA’s “savings clause” says ERISA does not preempt “any law of any State which regulates insurance, banking, or securities.” With regards to insurance laws, a law is not preempted if it satisfies the following two elements: (i) it must be “specifically directed toward entities engaged in insurance”; and (ii) it “must substantially affect the risk pooling arrangement between the insurer and the insured.”
Decision: The court began by noting that “Once completely preempted, a state-law claim ceases to exist.” However, the court noted that under an earlier U.S. Supreme Court ruling, a state-law is completely preempted only if “(i) the plaintiff, at some point in time, could have brought the claim under ERISA; and (ii) there is no other independent legal duty that is implicated by the defendant’s actions.”
Therefore, the controlling question is whether a claim relies on the violation of a legal duty that arises independently of the plaintiffs’, or their assignor’s, ERISA plan rights.
The court then stated that any duty for the insurer to refrain from unfairly harming its competitors arises under state law, not under the terms of an ERISA plan. The court therefore ruled that the lawsuit was not preempted by ERISA and allowed the providers to continue their state law claims.
No Breach of ERISA Fiduciary Duty for Employer’s Failure to Provide Notice of Life Insurance Conversion Rights
The Sixth Circuit Court of Appeals, in Vest v. Resolute FP US Inc., has affirmed a district court’s decision to dismiss a breach of fiduciary duty claim based on a sponsoring employer’s failure to disclose information about conversion rights.
Background. In Vest, an employee worked for the defendant/employer and was a participant in its life insurance plan. The defendant’s plan provided employees with base coverage equal to their annual salary and allowed employees to purchase optional supplemental coverage. The employee purchased an additional $300,000 of supplemental life insurance coverage.
Following the onset of complications from diabetes, the employee stopped working in September 2015 and began receiving short- and then long-term disability benefits. In May 2016, the defendant ended the employee’s supplemental life insurance coverage. The defendant, however, did not provide the employee with information concerning the deadline for him to exercise his right to convert the supplemental coverage that was ending. The employee died in October 2016, and the insurer paid his beneficiary/widow, i.e., the plaintiff in this lawsuit, only the base coverage amount.
The plaintiff responded by suing the defendant in federal district court, alleging that it breached its fiduciary duty to disclose information under ERISA by failing to notify her late husband about his conversion rights with respect to the supplemental life insurance coverage. The district court ultimately held that the defendant had no fiduciary duty to inform the decedent about his conversion rights and dismissed the plaintiff’s complaint for failure to state a claim.
Sixth Circuit. The Sixth Circuit affirmed the district court’s decision, noting that ERISA’s fiduciary duty to disclose information is well defined. In the instant case, the court found that the plaintiff’s claim contained no factual allegations indicating that the defendant knew that the decedent’s conversion rights would be important to him and “that [its] silence might be harmful.” Moreover, the Sixth Circuit noted that nothing required the defendant to disclose the information at issue, and that neither ERISA nor the DOL’s regulations required summary plan descriptions to include information about conversion rights.
HHS’s Final Rule Increases Penalty Amounts for HIPAA Noncompliance
HHS has issued a final rule to implement certain inflation adjustments to the civil monetary penalties imposed on violations of the administrative simplification rules of the Health Insurance Portability and Accountability Act (“HIPAA”).
Background. The inflation adjustments are required under the Federal Civil Penalties Inflation Adjustment Act of 2015 (the “Act”). Among other things, the Act:
- Provided an initial “catch-up” adjustment for civil monetary penalties.
- Requires HHS to annually adjust the penalties for inflation (using a cost-of-living formula), by January 15 of each year.
In February 2017, HHS published a final rule that provided an annual inflation adjustment to the civil monetary penalties.
The final regulations, which become effective October 11, 2018, include the 2018 annual inflation adjustment to HHS’s civil penalties.
Final Rule. The adjusted penalty amounts apply to HIPAA penalties assessed on or after October 11, 2018, if the violation occurred on or after November 2, 2015 (i.e., the Act’s enactment date). The HIPAA penalty amounts in effect before September 6, 2016, apply if:
- The violation occurred before November 2, 2015; or
- The penalty was assessed before September 6, 2016.
HHS’s final rule is available at: https://www.govinfo.gov/content/pkg/FR-2018-10-11/pdf/2018-22005.pdf
Massachusetts Unveils New Reporting Requirement
Massachusetts has sent emails to many employers in the state, informing them that they are responsible for completing the new Health Insurance Responsibility Disclosure (“HIRD”) form by the end of November.
The new HIRD form collects employer-level information about employer-sponsored health plans, in order to assist MassHealth in identifying members who can participate in such plans and who may be eligible for premium assistance from MassHealth. In most instances, the HIRD form will eliminate the need for employers to complete a separate premium assistance application for the employee.
HIRD reporting is administered by MassHealth and the Department of Revenue (“DOR”) through the MassTaxConnect (“MTC”) web portal. State law requires every employer in Massachusetts with six or more employees to annually submit a HIRD form, regardless of whether they offer healthcare coverage.
The information required on the new HIRD form includes:
- Plan eligibility requirements
- Whether the plan meet the Massachusetts Minimum Creditable Coverage requirements;
- The coverage levels offered (e.g., single, employee plus one, and family);
- Total employer and employee premiums;
- The in-network deductible; and
- The maximum out of pocket expenses
The HIRD must be completed annually by November 30 of the year for which it is being filed. Employers offering multiple plan options must disclose each plan. Under the law, an employer who knowingly falsifies or fails to file any required HIRD information may be subject to a penalty of not less than $1,000 or more than $5,000 for each violation. However, we have been informed by a DOR official that penalties might not be assessed for late 2018 filings.
The FAQs for the new requirements can be found at: https://www.mass.gov/files/documents/2018/10/24/health-insurance-responsibility-disclosure-FAQ.pdf