Although the pace of new legislation affecting health and other welfare benefits has slowed after the first two years of the Obama Administration, plan sponsors will find no shortage of developments to monitor and implement in 2012. This alert provides a very brief review of recent developments and matters to watch in the new calendar year.

Health Care Reform. The health care reform initiatives introduced in the Affordable Care Act (ACA) continue to top the agenda of legal developments affecting health and welfare benefit plans.

  • Constitutional Challenges. With lower courts split on various issues, the U.S. Supreme Court has scheduled arguments for March to review whether the ACA’s individual mandate and its expansion of Medicaid are constitutional. Most of the attention has focused on whether the individual mandate lies within Congress’s power under the Commerce Clause of the U.S. Constitution. If the Court finds that the individual mandate does not pass constitutional muster, it will consider whether other provisions of the ACA must be stricken down with it. As a result, the case has the potential to validate or invalidate some or all of this signature piece of legislation. But the Court will also be considering whether it is even appropriate, under the Anti-Injunction Act, for federal courts to review challenges to the individual mandate before the mandate takes effect. The drama surrounding the case will likely remain high for several months after oral arguments until the Court announces its decision.
  • Summary of Benefits and Coverage. The government has postponed the deadline for furnishing plan participants an abbreviated summary of a plan’s provisions regarding health benefits and coverage until final rules on these summaries are issued.
  • W-2 Reporting. The IRS has revised and supplemented its guidance on the requirement to report the cost of employer-sponsored health coverage provided to an employee on his or her Form W-2.
  • Essential Health Benefits. Because the ACA restricts health plans from imposing lifetime and annual dollar caps on “essential health benefits,” plan sponsors have been keenly interested in how that term will be defined. The term is also used in defining the coverage that must be offered through a state insurance exchange in 2014. Recent guidance focuses on deriving essential health benefits from certain benchmark plans on a state-by-state basis, but leaves the door open for variations. Plan sponsors may look for more concrete guidance applicable to the dollar cap issue.
  • State Exchanges. States have been determining whether and how they will design and implement exchanges that will make insurance providing essential health benefits available on the individual and small group markets. The federal government issued several sets of guidance on state exchanges in 2011. Activity on these exchanges may heat up or halt mid-year, depending on the outcome of the health care reform litigation.
  • Early Retiree Reinsurance Program (ERRP). Anticipating the exhaustion of the $5 billion fund established to encourage employers to maintain health coverage for early retirees, the Centers for Medicare and Medicaid Services (CMS) announced it will no longer accept submissions for reimbursement that include any claims incurred after December 31, 2011. Employers should be keeping their submissions for reimbursement up-to-date and be careful to exclude all claims incurred in 2012. Employers should also make sure to apply ERRP reimbursements in accordance with guidance issued last year.

HIPAA/HITECH. The Health Information Technology for Economic and Clinical Health Act (HITECH) requires CMS to undertake audits for compliance with the privacy and security requirements of the Health Insurance Portability and Accountability Act (HIPAA). CMS has engaged KPMG to assist it with these audits and plans to examine up to 150 covered entities by December 31, 2012. The stated aim of the audits is to gather information about problem areas and correction mechanisms, but CMS has reserved the right to undertake an enforcement audit if it uncovers serious issues. The initial phase of the audit targets covered entities under HIPAA, but later audits may apply to business associates.

It is widely expected that CMS will issue, in 2012, comprehensive regulations regarding the modifications that HITECH made to the HIPAA privacy and security rules. Plan sponsors (and other covered entities and business associates) will need to account for that guidance in their HIPAA compliance programs.

MEWAs. The Department of Labor has proposed new reporting and enforcement rules to facilitate the early identification and termination of illegitimate multiple employer welfare arrangements (MEWAs). When finalized, the rules will, for example, require a MEWA (or an entity claiming not to be a MEWA because of the collective bargaining exemption) to file a Form M-1 at least 30 days before beginning operations or extending its operations to a new state.

Recovery from Third Parties. In the case of US Airways Inc. v McCutchen, the Third Circuit Court of Appeals has ruled that, at least in certain circumstances, an ERISA plan must share equitably in the expenses that a claimant incurs in recovering amounts from a responsible third party. Plans enforcing their subrogation rights may be mindful of this decision.

Trade Adjustment Assistance Extension Act. Employees who qualify for assistance under the Trade Act or receive pension benefits from the Pension Benefit Guaranty Corporation qualify for a tax credit to help subsidize the cost of health coverage and an extension of COBRA coverage. Certain enhancements to these rules expired on February 12, 2011. The Trade Adjustment Assistance Extension Act, enacted last fall, retroactively raises the level of the tax credit from 65 percent to 72.5 percent of the cost of coverage. It also extends the period in which Trade Act-eligible individuals may extend COBRA coverage through the end of 2013, although that extension appears to apply prospectively only.

Members of Ballard Spahr’s Employee Benefits and Executive Compensation Group will be carefully monitoring these developments over the course of 2012. If you have questions on any of the recent or prospective matters, please contact Edward I. Leeds at 215.864.8419 or, or the member of the group with whom you work.