In this section we elaborate on regulatory and multinational issues in employee benefits, including the requirements of the following pieces of legislation:
As noted above, the administration and design of group employee benefit plans have been affected by federal regulation through ERISA, EGTRRA 2001 (discussed in Chapter 21 "Employment-Based and Individual Longevity Risk Management"), the Age Discrimination in Employment Act, the Civil Rights Act (which includes pregnancy nondiscrimination), and the Americans with Disabilities Act. The Social Security Act was discussed in Chapter 18 "Social Security"; the Health Maintenance Organization Act will be discussed in Chapter 22 "Employment and Individual Health Risk Management", along with medical care delivery systems. Federal legislation is concerned with nondiscrimination in coverage and benefit amounts for plan participants. Some legislation relating to health care in general that also affects group underwriting practices is described in the box “Laws Affecting Health Care.” Individuals called to military duty and the families they leave behind have certain rights regarding group health and pension coverages. These rights are discussed in the box “Individual Coverage Rights When Called to Military Duty.”
The Age Discrimination in Employment Act (ADEA)Eliminated mandatory retirement on the basis of age by employers. was first passed in 1967 and is known primarily for eliminating mandatory retirement on the basis of age. That is, employees cannot be forced to retire at any age, with the exception of some executives who may be subject to compulsory retirement. Employee benefits are also affected by the ADEA because the law was amended to require that benefits must be continued for older workers. Most benefits can be reduced to the point where the cost of providing benefits for older workers is no greater than for younger workers except health care benefits. The act makes this an option; employers are not required to reduce benefits for older workers. Employers choosing to reduce some benefits for older workers generally do not reduce benefits except for workers over age sixty-five, even though reductions prior to age sixty-five may be legally allowed based on cost.
The employer may reduce benefits on a benefit-by-benefit basis based on the cost of coverage, or may reduce them across the board based on the overall cost of the package. For example, with the benefit-by-benefit approach, the amount of life insurance in force might be reduced at older ages to compensate for the extra cost of term coverage at advanced ages. Alternatively, several different benefits for an older worker might be reduced to make the total cost of the older worker’s package commensurate with the cost of younger workers’ packages.
Life and disability insurance may be reduced for older workers. Acceptable amounts of life insurance reductions are specified by law. For example, employees age sixty-five to sixty-nine may be eligible for life insurance benefit amounts equal to 65 percent of the amounts available to eligible employees under age sixty-five; employees age seventy to seventy-four may receive only 45 percent. Disability benefits provided through sick leave plans may not be reduced on the basis of age. Reductions in benefit amounts for short-term disability insured plans are allowed, but they are relatively uncommon in actual practice. Long-term disability benefits may be reduced for older workers through two methods. Benefit amounts may be reduced and the duration may remain the same, or benefit duration may be curtailed and amounts remain the same. This is justified on the basis of cost because the probability of disability and the average length of disability increase at older ages.
Medical benefits may not be reduced for older employees. Employers must offer older workers private group medical benefits that are equal to those offered to younger participants, even if active workers over age sixty-five are eligible for Medicare. Medicare is the secondary payer for active employees over age sixty-five, covering only those expenses not covered by the primary payer, the employee’s group medical insurance.
Traditionally, employee benefit plans have not been required to provide benefits for pregnancy and other related conditions. Including disability and medical benefits for pregnancy can significantly increase costs. However, in 1978 the Civil Rights ActRequires employers to provide the same benefits for pregnancy and related medical conditions as are provided for other medical conditions. was amended to require employers to provide the same benefits for pregnancy and related medical conditions as are provided for other medical conditions. If an employer provides sick leave, disability, or medical insurance, then the employer must provide these benefits in the event of employee pregnancy. Spouses of employees must also be treated equally with respect to pregnancy-related conditions. This federal regulation applies only to plans with more than fifteen employees, but some states impose similar requirements on employers with fewer employees.
As described in Chapter 13 "Multirisk Management Contracts: Homeowners", the 1990 Americans with Disabilities Act (ADA)Forbids employers with more than fifteen employees from discriminating against disabled persons in employment. forbids employers with more than fifteen employees from discriminating against disabled persons in employment. Disabled persons are those with physical or mental impairments limiting major life activities such as walking, seeing, or hearing. The ADA has important implications for employee benefits. The ADA is not supposed to disturb the current regulatory system or alter industry practices such as underwriting. Under ADA, therefore, disabled employees must have equal access to the same health benefits as other employees with the same allowances for coverage limitations. The guidelines allow blanket preexisting conditions, but they do not include disability-based provisions. For example, if the medical plan does not cover vision care, the employer does not have to offer vision care treatment to disabled employees. However, if vision care is provided by the plan, then vision care must also be offered to employees with disabilities. Recent Supreme Court cases clarified the intent of the ADA. Most important is the clarification that the ADA is concerned with a person’s ability to perform regular daily living activities and not his or her ability to perform a specific job.
Under the Family Medical Leave Act (FMLA)Requires an employer with fifty or more employees to grant an eligible employee (one who has been employed by the employer for at least twelve months) up to a total of twelve weeks of unpaid leave during any twelve-month period for one or more of the following reasons: the birth and care of the employee’s newborn child, for placement with the employee of a child for adoption or foster care, to care for an immediate family member (spouse, child, or parent) with a serious health condition, to take medical leave when the employee is unable to work because of a serious health condition. of 1993, an employer with fifty or more employees must grant an eligible employee (one who has been employed by the employer for at least twelve months) up to a total of twelve work weeks of unpaid leave during any twelve-month period for one or more of the following reasons:
This law may sometimes create conflicting interpretations, especially in relationship to workers’ compensation and disability leaves. Employee benefits administrators are advised to track the leave taken by employees under different programs and ensure compliance with the law.Rebecca Auerbach, “Your Message to Employers: Manage FMLA with Other Benefit Programs,” National Underwriter, Life & Health/Financial Services Edition, April 22, 2002. Compliance issues require clarifications; a recent Supreme Court decision clarified that only material denial of the FMLA statute should trigger penalties.This case, Ragsdale v. Wolverine worldwide, No. 00-6029 (U.S. March 19, 2002), hinged on the extent that employers are obligated to inform employees of their rights when they begin a leave of absence. Wolverine had given Tracy Ragsdale time off for cancer treatment, but when she was unable to return to work after thirty weeks, Wolverine ended her employment. Ragsdale filed suit, citing a FMLA regulation that a leave of absence counts against the employee’s FMLA allowance only if the employer specifically designated it as FMLA leave. She claimed she was still entitled to her twelve weeks of FMLA leave. The Court disagreed and declared that regulation invalid. One of the Court’s reasonings was that Ragsdale had not been harmed—she would not have been better off if Wolverine had designated her original leave as FMLA. See Steven Brostoff, “U.S. High Court Ruling Helps RMs,” National Underwriter Online News Service, March 20, 2002.
The Consolidated Omnibus Budget Reconciliation Act (COBRADirects that employers of more than twenty employees who maintain a group medical plan must allow certain minimum provisions for continuation of benefit coverage.) of 1986 directs that employers of more than twenty employees who maintain a group medical plan must allow certain minimum provisions for continuation of benefit coverage. COBRA’s continuation provisions require that former employees, their spouses, divorced spouses, and dependent children be allowed to continue coverage at the individual’s own expense upon the occurrence of a qualifying event (one that otherwise would have resulted in the loss of medical insurance). The qualifying events are listed in Table 20.3 "COBRA Qualifying Events for Continuation of Health Insurance". Most terminations of employment, except for gross misconduct, activate a thirty-one-day right to convert the health insurance that the employee or dependent had before the qualifying event (vision and dental benefits need not be offered). The employer can charge for the cost of conversion coverage, but the charge cannot exceed 102 percent of the cost of coverage for employees, generally (including the portion the employer paid). Some events require coverage continuation for eighteen months, and others require thirty-six months of coverage.
Table 20.3 COBRA Qualifying Events for Continuation of Health Insurance
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| Note: For each event, it is assumed that the person was covered for group medical benefits immediately prior to the qualifying event. |
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The employee has a valuable right with COBRA because continuation of insurance is provided without evidence of insurability. In addition, the group rate may be lower than individual rates in the marketplace. However, COBRA subjects employers to adverse selection costs and administrative costs beyond the additional 2 percent of premium collected. Many terminated healthy employees and dependents will immediately have access to satisfactory insurance with another employer, but many unhealthy employees may not. This is because of the preexisting condition clauses that many group insurance plans have (though this is less of a concern since the passage of HIPAA, as you will see below). After September 11, Congress worked on creating subsidies for the payment of COBRA premiums to laid-off employees. This law was part of the 2002 trade legislation. As of 2003, the law provides subsidies of 65 percent of the premiums to people who lose their jobs because of foreign competition.Jerry Geisel, “COBRA Subsidy Could Increase Beneficiaries: Survey,” Business Insurance, August 30, 2002. The American Recovery and Reinvestment Act (ARRA) of 2009—intended as a stimulus against the economic recession—contains significant provisions regarding COBRA benefits (similar to the 2002 trade legislation) for involuntarily terminated workers. This and other features of ARRA are discussed in the box “Laws Affecting Health Care.” The application of COBRA for military reservists called to active duty is explained in the box “Individual Coverage Rights When Called to Military Duty.”
Most active, permanent, full-time employees are eligible for group coverage. Employers that offer group medical insurance are required to offer it to active workers over age sixty-five, under the Age Discrimination in Employment Act (ADEA) discussed above. For these employees, Medicare becomes a secondary payer. Some employers choose to offer continuation of group medical benefits to employees who have retired. This coverage is like Medigap insurance (discussed in Chapter 22 "Employment and Individual Health Risk Management"), where Medicare is the primary payer and the group plan is secondary. Typically, the retiree plan is less generous than the plan for active workers because it is designed simply to fill in the gaps left by Medicare.
Historically, employers have paid medical premiums or benefits for retirees out of current revenues, recognizing the expense in the period that it was paid out. However, in 1993 the Financial Accounting Standards Board (FASB 106) began phasing in a requirement that employers recognize the present value of future retiree medical expense benefits on the balance sheet during the employees’ active working years rather than the old pay-as-you-go system. The negative effect of these new rules on corporate earnings has been significant. Consequently, most employers have been cutting back on health benefits promised to retirees, and only about a third of the companies that had retiree health care in 1990 still had them a decade later.
Title I of the Health Insurance Portability and Accountability Act (HIPPAProtects employees who change jobs from having to start a new waiting period before a preexisting condition is covered.) of 1996 protects employees who change jobs from having to start a new waiting period before a preexisting condition is covered. For example, before HIPAA, a person with diabetes might not want to change jobs, even for a much better position, because it would mean going for a time without coverage for daily insulin shots and possible complications of the illness. Many employees were trapped in such situations before HIPAA. After the enactment of HIPAA, a person with diabetes could change jobs, and health insurance providers, without fear of losing coverage on that specific condition.
HIPAA provides protection for both group and individual health insurance. In essence, it provides portabilityCarrying forward the qualification for preexisting conditions. of coverage: when an employee leaves one job and starts a new job, the coverage of health insurance under the new employer’s program cannot exclude benefits for preexisting condition, as long as the break in health coverage is no longer than sixty-three days. Portability does not mean carrying the actual coverage of the old employer to the new one, but rather carrying forward the qualification for preexisting conditions. For example, Joe was employed by Company A for ten years and had health coverage under that employer. He accepted a job offer from Company B. One month before changing his job, he broke his leg in a skiing accident. Under HIPAA, the new company cannot limit coverage for the injured leg. If Joe needs surgery on this leg in three months, the health coverage under Company B will pay for the surgery. Before HIPAA, Joe would have had to stay covered under his old employer, paying the full amount himself through COBRA, until the preexisting condition period of the new employer was met. That could have been six months, a year, or even longer.
Under HIPAA, an employer can impose only up to twelve months preexisting conditions exclusions for regular enrollment and up to eighteen months for late enrollment. During an exclusion period, the health plan has to pay for all other conditions except the preexisting condition. Prior group health coverage applies to these limits. Thus, if an employee’s only previous group health coverage was for six months with Company A, the preexisting conditions exclusion from new Company B would last for just six additional months rather than the full twelve. Under HIPAA, a preexisting condition is defined as a condition for which the employee received any treatment within the six-month period before enrolling with the new employer.
The details of HIPAA are complex, but the gist is that an employee without a break in health coverage will never have to meet a preexisting condition period more than once in a lifetime, if at all. When an employee leaves a job, the employer is required to provide a certificate of health coverage. This certificate is then taken to the next employer to ensure that no preexisting conditions are imposed on the employee. Employers who neglect to give the certificate are subject to penalties of $100 per day. More on HIPAA and other recent health care-related laws is featured in the box “Laws Affecting Health Care.” Further, the application of HIPAA for military reservists called to active duty is detailed in the box “Individual Coverage Rights When Called to Military Duty.”
The Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) provides rights and protections for participants and beneficiaries in group health plans. HIPAA was signed into law on August 21, 1996, and became effective for all plans and issuers beginning June 1, 1997. The act protects workers and their families by doing the following:
Newborns’ and Mothers’ Health Protection Act
The Newborns’ and Mothers’ Health Protection Act of 1996 requires plans that offer maternity coverage to pay for at least a forty-eight-hour hospital stay following childbirth (a ninety-six-hour stay in the case of a cesarean section). It was signed into law on September 26, 1996, and became effective for group health plans for plan years beginning on or after January 1, 1998.
All group health plans that provide maternity or newborn infant coverage must include a statement in their summary plan description advising individuals of the Newborns’ Act requirements: a mother may not be encouraged to accept less than the minimum protections available to her under the Newborns’ Act, and an attending provider may not be induced to discharge a mother or newborn earlier than forty-eight or ninety-six hours after delivery.
Women’s Health and Cancer Rights Act
The Women’s Health and Cancer Rights Act (WHCRA) contains protections for patients who elect breast reconstruction in connection with a mastectomy. It was signed into law on October 21, 1998, and became effective immediately. WHCRA requires that any plan offering mastectomy coverage must also include coverage for the following:
Under WHCRA, mastectomy benefits may be subject to annual deductibles and coinsurance consistent with those established for other benefits under the plan or coverage. Group health plans covered by the law must notify individuals of the coverage required by WHCRA upon enrollment, and annually thereafter.
Mental Health Parity Act
The Mental Health Parity Act (MHPA), signed into law on September 26, 1996, requires that annual or lifetime dollar limits on mental health benefits be no lower than any such dollar limits for medical and surgical benefits offered by a group health plan or health insurance issuer offering coverage in connection with a group health plan. The law does not apply to benefits for substance abuse or chemical dependency.
American Recovery and Reinvestment Act
Signed by President Barack Obama on February 17, 2009, the American Recovery and Reinvestment Act (ARRA, or H.R. 1) authorizes $787 billion in federal spending toward infrastructure, direct aid, and tax cuts as a stimulus for the U.S. economy in recession. Within the framework of that objective, it includes provisions affecting health care. H.R. 1 allows up to nine months of COBRA premiums to be subsidized at 65 percent for workers involuntarily terminated between September 1, 2008, and December 31, 2009, whose income is under $125,000 for individuals or $250,000 for families (to receive full benefits). Workers involuntarily terminated during this period who could not initially afford COBRA continuation are given an additional sixty days to elect COBRA coverage through the subsidy. This provision is designed to help an estimated 7 million people maintain health insurance and is expected to account for $24.7 billion of the ARRA funds. H.R. 1 also directs about $338 million in Medicare payment reductions for teaching hospitals, hospice care, and long-term-care hospitals. In another provision, the act aims to invest $19 billion in health information technology, thus encouraging the use of electronic health records for the exchange of patient health information. Ideally, this would see 90 percent of doctors and 70 percent of hospitals convert to electronic health records over the next decade, saving taxpayers $12 billion in the long run. Finally, ARRA sets aside $1.1 billion for federal agencies to draw upon for conducting studies on cost-benefit comparisons of various health care treatments.
Sources: Publications of the U.S. Department of Labor, Employee Benefits Security Administration at http://www.dol.gov/ebsa/faqs/faq_consumer_hipaa.html; “Link to H.R. 1 Conference Report Summary,” National Underwriter Online News Service, February 13, 2009, http://www.lifeandhealthinsurancenews.com/News/2009/2/Pages/Link-To-HR-1-Conference-Report-Summary.aspx, accessed March 13, 2009; Allison Bell, “Obama Signs H.R. 1,” National Underwriter, Life/Health Edition, February 19, 2009, http://www.lifeandhealthinsurancenews.com/News/2009/2/Pages/House-Passes-HR-1-Ball-On-To-Senate.aspx, accessed March 13, 2009.
With so many U.S. armed forces in Iraq and Afghanistan, the Department of Labor answers the following questions about the benefits-related rights and responsibilities of those called to active duty and their civilian employers.
My family had health coverage through my employer when I was called for active duty in the military. What are my rights concerning health coverage now?
If you are on active duty for more than thirty days, you and your dependents should be covered by military health care. For more information on these programs, contact your military unit.
In addition, two laws protect your right to continue health coverage under an employment-based group health plan. The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides health coverage continuation rights to employees and their families after an event such as a reduction in employment hours. Also, the Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994 is intended to minimize the disadvantages that occur when a person needs to be absent from civilian employment to serve in the uniformed services.
Both COBRA and USERRA generally allow individuals called for active duty to continue coverage for themselves and their dependents under an employment-based group health plan for up to eighteen months. If military service is for thirty or fewer days, you and your family can continue coverage at the same cost as before your short service. If military service is longer, you and your family may be required to pay as much as 102 percent of the full premium for coverage. You should receive a notice from your plan explaining your rights.
The Health Insurance Portability and Accountability Act (HIPAA) may give you and your family rights to enroll in other group health plan coverage if it is available to you (e.g., if your spouse’s employer sponsors a group health plan). You and your family have this opportunity to enroll regardless of the plan’s otherwise applicable enrollment periods. However, to qualify, you must request enrollment in the other plan (e.g., your spouse’s plan) within thirty days of losing eligibility for coverage under your employer’s plan. After special enrollment is requested, coverage is required to be made effective no later than the first day of the first month following your request for enrollment. If you are on active duty more than thirty days, coverage in another plan through special enrollment is often cheaper than continuation coverage because the employer often pays part of the premium. For more information on the interaction of COBRA and HIPAA, see IRS Notice 98-12: “Deciding Whether to Elect COBRA Health Care Continuation Coverage After the Enactment of HIPAA,” on the Employee Benefits Security Administration (EBSA) Web site at http://www.dol.gov/ebsa, which can be found at the link Publications. You can also call toll-free (1.866.444.EBSA[3272]) for a free copy.
Note: When considering your health coverage options, you should examine the scope of the coverage (including benefit coverage and limitations, visit limits, and dollar limits); premiums; cost-sharing (including copayments and deductibles); and waiting periods for coverage.
My family and I had health coverage under my employer’s group health plan before I was called on active duty. We let this coverage lapse while I was away and took military health coverage. When I return to my employer from active duty, what are our rights to health coverage under my old plan?
Under USERRA, you and your family should be able to reenter your employer’s health plan. In addition, your plan generally cannot impose a waiting period or other exclusion period if health coverage would have been provided were it not for military service. The only exception to USERRA’s prohibition of exclusions is for an illness or injury determined by the Secretary of Veterans Affairs to have been incurred in, or aggravated during, performance of service in the uniformed services, which is covered by the military health plan.
While I am on active duty, is my employer required to continue to make employer contributions to my 401(k) plan?
There is no requirement for your employer to make contributions to your 401(k) plan while you are on active duty. However, once you return from military duty and are reemployed, your employer must make the employer contributions that would have been made if you had been employed during the period of military duty. If employee contributions are required or permitted under the plan, the employee has a period equal to three times the period of military duty or five years, whichever ends first, to make up the contributions. If the employee makes up the contributions, the employer must make up any matching contributions. There is no requirement that the employer contributions include earnings or forfeitures that would have been allocated to the employee had the contributions been made during his or her military service.
Sources: Adapted from “Reservists Being Called to Active Duty,” U.S. Department of Labor, Employee Benefits Security Administration, December 2007, http://www.dol.gov/ebsa/newsroom/fsreservists.html, accessed April 13, 2009.
Multinational corporations manage the human resource risk across national boundaries. The most common concern of multinational employers is the benefit needs of expatriatesU.S. citizens working outside the United States., U.S. citizens working outside the United States. However, the employer is also concerned with managing benefits for employees who are not U.S. citizens but who are working in the United States. In addition, benefits must be considered for employees who are not U.S. citizens and who work outside the United States.
The corporation designs multinational benefit policy to achieve several objectives. First, the plans need to be sufficient to attract, retain, and reward workers in locations around the world where a corporate presence is required. The plan needs to be fair for all employees within the corporation itself, within the industry, and within the country where employees are located. In addition, the multinational benefit policy needs to facilitate the transfer of workers across national boundaries whenever necessary with a minimum of overall transaction costs.
Typically, the multinational employer tries to protect the expatriate from losing benefits when the employee transfers outside the United States. A premium may be paid at the time of the move to compensate the employee for international relocation. The corporation often provides the expatriate with the same life, long-term disability, medical, and pension benefits as those provided to their U.S. employees. However, in some cases the employee may receive medical care or short-term disability benefits like those of the host country. When employers provide benefits in several international locations, they may use an international benefit networkCan be used to cover employees across countries under one master insurance contract when employers provide benefits in several international locations. to cover employees across countries under one master insurance contract. This can simplify international benefit administration. The employer must also consider the social insurance systems of the host country and coordinate coverage as necessary with the employee’s home country’s system.
Cultural and regulatory factors differ among countries and affect benefit design, financing, and communication. This makes international employee benefits management a dynamic and challenging field. With the continued globalization of business in the new millennium, career opportunities in international benefits management are likely to grow.
In this section you studied federal legislation affecting employee benefit plans and employment changes as well as international employee benefits coverage and concerns:
