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Supreme Court Unanimously Rules in Favor of Church-Affiliated Hospitals for ERISA Exemption

On June 5, 2017, the Supreme Court unanimously ruled in favor of three church-affiliated health care system retirement plan sponsors holding that such plan are covered by the exemption for church-affiliated plans under the Employee Retirement Income Security Act of 1974 (ERISA).

The Court's Holding

The Court issued its 8-0 decision in the Advocate Health Care Network, et al. v. Stapleton, et al case[1] (referred to as “Stapleton” or the “Stapleton case”) ruling that a retirement plan qualifies for church plan exemption under ERISA if the plan is maintained by a principle-purpose organization.  The Supreme Court’s highly anticipated ruling puts an end to the “established” or “maintained” argument and determines that a plan maintained by a qualifying church agency is a church plan regardless of whether a church first established the plan.  Qualification as a church agency requires the church agency to have its principal purpose (or function) in the administration or funding of retirement benefits or welfare benefits.  

What Is A Church Plan?

The church plan ERISA exemption, codified at 29 U.S.C. § 1002(33)(A), grants an ERISA exemption to church plans.  A “church plan means a plan established and maintained…for its employees (or their beneficiaries) by a church or by a convention or association of churches.” (emphasis added).  ERISA further provides that a plan established and maintained by a church includes a plan maintained by a qualifying church agency.  Plan participants in the Stapleton case asserted that ERISA meant that a church plan qualified for ERISA exemption only if the plan was first established by a church while the hospital plan sponsoring entities argued that ERISA meant that a church plan qualified for ERISA exemption by virtue of being maintained by a church agency.

So, What Does This Mean?

The Supreme Court’s ruling means that Internal Revenue Service (“Service”), Department of Labor (“DOL”), and Pension Benefit Guaranty Corporation (“PBGC”) interpretations, agency rulings, and treatment of church plans will not be disturbed.  The Third, Seventh, and Ninth Circuit Courts previously ruled that Service, DOL, and PBGC treatment of these plans were unpersuasive and lacking deference. 

For years, the Service, DOL, and PBGC have treated plans maintained by church agencies as church plans regardless of whether these plans were first established by a church.  The Service has issued numerous Private Letter Rulings (which church plans have relied on for ERISA exemption) in addition to internal memorandum affirming church plan status for plans maintained by church agencies.  The DOL has issued memorandum and advisory opinions for plans maintained by church agencies and the PBGC has favorably treated church plans through providing defined benefit church plans exemption from paying required insurance premiums and even refunding a portion of previously paid insurance premiums by plans that have converted to church plans. 

The Supreme Court’s ruling also means that -- for now -- religiously affiliated entities (like the hospital plan sponsors in Stapleton) can continue to enjoy church plan exemption provided they meet the principal-purpose organization requirement.  To that point, the Supreme Court’s ruling does not deem the hospitals in the Stapleton case as principal-purpose organizations. Thus, while the church plan definition under ERISA has been resolved, what entities qualify as principal-purpose organizations (i.e. qualified church agencies) remains unresolved. 

As such, the hospital plan sponsors are not entirely off the hook for ERISA coverage.  When the three (3) cases consisting of Stapleton are remanded (or sent back) to the lower courts, the hospitals’ qualifying status as a principal-purpose organization will be decided.  If the hospital plan sponsors are not deemed principal-purpose organizations, they will not qualify for ERISA church plan exemption which could ultimately result in further appeals and additional Supreme Court review.  Entities sponsoring church plans should continue to monitor the Stapleton cases as the issues in these cases are far from finalized.   


[1] Advocate Health Care Network, et al. v. Stapleton, et al., No. 16-74 (appealed from the Seventh Circuit’s March 17, 2016 decision affirming that Advocate Health Care Network, as a church-affiliated organization, was not exempt from ERISA); Saint Peter’s Healthcare System, et al. v. Kaplan, No. 16-86 (appealed from the Third Circuit’s December 29, 2015 decision affirming that as a church agency, Saint Peter’s Healthcare System could not establish an ERISA-exempt plan because Saint Peter’s was not a church); and Dignity Health, et al. v. Rollins, No. 16-258 (appealed from the Ninth Circuit’s July 26, 2016 decision affirming that Dignity Health was not established by a church or by a convention or association of churches).


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To the Senate We Go: What's Going On With Health Care Behind Closed Doors?

On May 4, the U.S House of Representatives went to the floor for a second time to vote on the American Health Care Act (AHCA) -- just 6 weeks after House Speaker Paul Ryan pulled the bill for not having enough Republican support and conceding that “[w]e’re going to be living with Obamacare for the foreseeable future.”  Needing 216 votes to pass the House, the AHCA passed by a narrow margin of 217-213, with a vote along party lines.  

After passing the House, the bill headed off to the Senate, where expectations as to timing are slow and steady.  The Senate is set on writing their own bill -- not on making revisions to the House's version.  According to Bloomberg, the rewritten bill will carry less of a punch than the House bill, with a repeal effective date of 2020.  In 2018 - 2019, the bill will take action to stabilize the individual marketplaces.  But, most of the bill's changes -- or rewrites -- are happening behind closed doors, with sequestered Senators.

So so we know anything else about the Senate's health care bill?

The Congressional Budget Office Score

On May 24, 2017, the Congressional Budget Office released its report (CBO Score) on the House's AHCA bill. The CBO Score indicated that 14 million more people would be left uninsured if the House version were passed than if the Affordable Care Act (ACA) stayed in place.  That number would rise to 23 million more in 2026.  Losses in coverage would primarily impact those on Medicaid, those on individual policies, or those with pre-existing conditions who do not maintain consistent coverage.  

Older individuals will pay up to 10 times more for premiums than young adults, and more than 9 times than ACA premiums. The CBO Score continues by stating that over time, it will be difficult for less healthy people -- including individuals with pre-existing conditions -- to afford insurance as the premiums will continue to increase.

Nonetheless, the House bill still achieves enough deficit savings -- $119 billion -- to allow the House bill to proceed to the Senate for consideration.

As reported by Time, Republican Senators have conceded that the release of the CBO Score has complicated their effort to come to agreement on amendments to the AHCA, and repealing the ACA. However, as reported by NBC News, Senator Ted Cruz (R-Texas) stated, "[t]he CBO score of the House is one factor, but I think in any universe the Senate bill will be significantly different from the House bill."  In other words, that's not the Senate's CBO Score.  However, the Senate must take the points the CBO raised and consider them in their re-write.

Hot Buttons for Contention

Medicaid is one of the largest points of contention, bigger than pre-existing conditions.  With approximately 20 Republican Senators coming from states with Medicaid expansion, the House's version of the AHCA will have great difficulty passing the Senate. However, that does not mean that re-drafting is a slam dunk.  

Republican Senators cannot decide whether Medicaid expansion should be curtailed or further expanded. One specific point of contention facing the Senators is whether to convert open-ended federal funding for beneficiaries into a system of capped payments to the states, thus affecting approximately 70 million Americans.  This is a difficult approach as states distribute monies differently based upon population health, provider markets, policy choices, and other factors, as reported by Modern Healthcare.  

Another urgent challenge for Senators is to determine a solution to stabilize the individual insurance markets, which are headed for trouble as insurance companies are announcing plans to pull out or to increase premiums in 2018. Senator Lamar Alexander (R-TN) has suggested that a temporary solution may include supporting the individual markets until the Republican plan is in full force, hence the 2020 effective date of the repeal.  Thirteen Senators have begun to work with large insurance carriers -- including Aetna, Humana, and UnitedHealth Group -- all of which have reduced their participation in the Exchanges, as Senators are seeking input from the industry on stabilization.

Senator John McCain (R-Arizona) laid out his concerns, rather succinctly, to NBC News, which perhaps sums up where the Senate currently stands on the repeal of the ACA, and the amendment of the AHCA, all to be passed by September 30 fiscal year:

Here's the reality: We've got eleven weeks between now and the end of September . . . . We've got the repeal of Obamacare, we're talking about tax reform, we're talking about a defense bill, we're talking about ... there's about three other things — a looming debt limit. How do you pack all that in? And so far, I've seen no strategy for doing so. I'm seeing no plan for doing so.

In an exclusive interview with Reuters, U.S. Senate Majority Leader Mitch McConnell said, "I don't know how we get to 50 [votes] at the moment.  But that's the goal.  And exactly what the composition of that (bill) is I'm not going to speculate about because it serves no purpose."  Further, McConnell stated that expectations for tax legislation passage were "pretty good," although difficult, but "not in [his] view quite as challenging as healthcare."

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The AHCA: What Does this Bill Replace, Repeal and Amend?

On May 4, 2017, the U.S. House of Representatives went to the floor for a second time for a vote on the American Health Care Act (AHCA) – just six weeks after House Speaker Paul Ryan pulled the AHCA for not having enough Republican support and conceding that “[w]e’re going to be living with Obamacare for the foreseeable future.”  Since March, the AHCA has undergone some revisions to cure the Republican divide in the House.  To pass the House, the Republicans needed 216 votes. The revisions worked, narrowly, and the bill passed the House, achieving a party-line vote of 217-213.  The bill is now off to the Senate, where a simple majority will be needed, before the bill goes to the President’s desk for signature.

Does the AHCA achieve the Republicans seven-year promise of “Repeal and Replace?”  Not quite.  Essentially, the Republicans are unable to repeal and replace the entire Affordable Care Act (ACA) because they chose the path of budget resolution.  Back in early January, to avoid a filibuster from the Democrats, the House approved a budget resolution allowing Congress to repeal certain key provisions of the ACA.  This same resolution passed the U.S. Senate on January 12, 2017.  Because the Republicans are utilizing the budget resolution process for repeal, only certain provisions of the ACA can repealed, including provisions with respect to the insurance marketplaces, Medicaid-expansion, and the employer and individual mandates, among others.  The provisions that may be repealed under budget resolution must be fiscally relevant and reduce the deficit, i.e., tied to budget issues -- such as federal spending and taxation.  We’ll be hearing quite a bit about this process as this bill moves to the Senate, and then back to the House for approval after the Senate more than likely makes its own revisions to the AHCA.  However, until this process is complete, and the final bill makes it to the President’s desk, the ACA is still the law of the land.

So What Provisions of the ACA Have Been Impacted By the AHCA?

The AHCA primarily targets Article I of the ACA -- Affordable and Available Coverage – which includes the individual mandate, the employer mandate, the premium and cost sharing subsidies, and the insurance exchanges.  The AHCA also targets Article II of the ACA – Medicaid, and Article IX of the ACA – the revenue or tax provisions. 

So what are some of the key provisions that have changed?  Here are some of the highlights:

·       Retroactively effective to 2016, the AHCA repealed the penalties under both the individual and employer mandates. 

·       Beginning with open enrollment for 2019, for any individual who has had a lapse of coverage of more than 63 days in the previous 12 months, the insurer may impose a 30 percent surcharge to the premium cost for that individual for the next 12-month period. 

·       Individual and small group market plans no longer will have to fit into the actuarial tiers of bronze, silver, gold, and platinum.

·       The AHCA created a Patient and State Stability Fund where over the next eight years, $40 million will be appropriated to help fund high-risk pools, reinsurance, maternity, mental health, and substance abuse care.

·       Beginning in 2020, age-based tax credits will become available to individuals who are not eligible for insurance through their employer or a government program.  These credits are refundable and advanceable.  Additionally, these credits will be phased out for those individuals with incomes above $75,000, or joint filers with incomes above $150,000. 

·       Age restrictions would continue to apply.  However, the age ratio limit would be increased from 3:1, as it is now established, to 5:1.

·       The AHCA rescinded any remaining funds in the Prevention and Public Health Fund.

·       The AHCA barred for one year any funding to Planned Parenthood.

·       The AHCA added liberal rules for both health flexible spending accounts and health savings accounts.

·       The Cadillac tax is delayed from a 2020 effective date to taxable periods beginning after December 31, 2025. 

·       The 3.8 percent tax on investment income for those individuals making over $200,000 yearly (or couples making $250,000 yearly) has been eliminated.

·       The 0.9 percent payroll tax for individuals making over $200,000 yearly (or couples making $250,000 yearly) will be eliminated after 2023.

·       States may opt for a block grant rather than a per capita grant with respect to Medicaid funds. 

Please see previous Blog:  The AHCA Passes By A Narrow Margin:  What Does the Bill NOT Repeal and Replace?  And Who's MacArthur? for more information about the AHCA and changes to the ACA.  

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The AHCA Passes By A Narrow Margin: What Does the Bill NOT Repeal and Replace? And Who's MacArthur?

On May 4, 2017, the U.S. House of Representatives went to the floor for a second time for a vote on the American Health Care Act (AHCA) – just six weeks after House Speaker Paul Ryan pulled the AHCA for not having enough Republican support and conceding that “[w]e’re going to be living with Obamacare for the foreseeable future.”  Since March, the AHCA has undergone some revisions to cure the Republican divide in the House.  To pass the House, the Republicans needed 216 votes. The revisions worked, narrowly, and the bill passed the House, achieving a party-line vote of 217-213.  The bill is now off to the Senate, where a simple majority will be needed, before the bill goes to the President’s desk for signature.

What Does the AHCA Not Repeal and Replace? 

In its present form, at the time this article went to press, the AHCA only repeals and replaces about 10 percent of the ACA.  The AHCA only amends, repeals, and/or replaces a few of the ACA's titles, focusing primarily on Title I, which includes the individual mandate, the employer mandate, the premium and cost sharing subsidies, and the insurance exchanges, along with Article II (Medicaid) and Article IX (the revenue or tax provisions).   

The AHCA does not target many of the ACA’s market reforms, such as:

·       Cost-sharing limits on essential health benefits for non-grandfathered plans (see MacArthur Amendments below)

·       Coverage for adult children up to age 26

·       Prohibition on lifetime and annual limits for essential health benefits (see MacArthur Amendments below)

·       Prohibition on health status underwriting (see MacArthur Amendments below)

·       Nondiscrimination rules based on race, nationality, disability, sex or age

·       Guaranteed availability and renewability of coverage

·       Pre-existing conditions (see MacArthur Amendments below)

What are the MacArthur Amendments? 

On April 23, 2017, after the AHCA was put to rest after a disappointing March showing, Tom MacArthur (R-NJ) breathed new life into the bill with what are now known as the MacArthur amendments.  The MacArthur amendments address the ability for states to waive certain provisions of the AHCA to lower premiums and to expand the number of the insured within their state.  States may apply for waivers from the AHCA’s essential health benefits requirements.  Under the essential health benefits, insurers are required to cover ten categories of benefits, including – for example – prescription drugs, maternity and newborn care, emergency services and laboratory services.  By applying for these waivers, states may establish less generous minimum essential benefits than the federal law requires.  This will not only affect the benefits offered, but also could affect the dollar limits tied to these benefits. 

Additionally, states may request waivers for the community rating rules, which only apply to those individuals who do not maintain continuous coverage.  However, states are not allowed to rate based on the following:

·       Gender

·       Age (except for reductions in the 5:1 ratio, which is the new ratio established by the AHCA)

·       Health status (unless the state has established a high-risk pool or is participating in a federally-established high-risk pool)

Thus, for states who are granted a waiver for community rating, insurers in those states may underwrite based upon health status for one year for individuals who have not maintained continuous coverage, but only if that state has established a high-risk pool or participates in a federally-sponsored high-risk pool.  Insurers cannot exclude those with pre-existing conditions, but they can charge much higher premiums that could essentially exclude these individuals, based on high-risk underwriting. 

 On May 3, 2017, Fred Upton (R-MI) and Bill Long (R-MO) drafted the Upton-Long Amendment, which adds financial support to the MacArthur waivers.  This amendment creates an $8 million fund over the next five years for community rating waiver states.  This fund will be used to offset the higher premium costs for those individuals with pre-existing conditions who have had a lapse in coverage and who may be charged higher premiums based on health status underwriting.  

The AHCA is now off to the Senate, and will more than likely face additional amendments.  If it passes the Senate in a revised form, it will return to the House for additional discussion and debate.  We have some volleying back and forth before the bill makes it to the President's desk for signature.  Until then, the ACA is still the law of the land.  As as businesses, we must conduct ourselves accordingly.  


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After Re-Defining ERISA-Fiduciary Duties, Tussey Returned to the Eighth Circuit

Tussey was back before the Eighth Circuit to determine what ABB’s breach cost the ABB, Inc. 401(k) defined contribution saving plans, one plan for union employees and the second for non-union employees (collectively “the Plans”).  The Eighth Circuit—in its second opinion in Tussey, et al. v. ABB, et al., Nos. 15-2792 and 16-1127, 2017 WL 929202 (8th Cir. Mar. 9, 2017)— issued further guidance on plan fiduciary deference and measuring plan losses. 

Procedural History

Tussey first came to the Eighth Circuit in 2013 on the cross-appeal of both parties following the Western District of Missouri’s (“District Court”) 2012 ruling that ABB and Fidelity breached fiduciary duties owed to Plan participants.  The District Court originally ordered ABB to pay $13.4 million for failing to control recordkeeping costs and $21.8 million for Plan losses stemming from bad-faith Plan investment options/mapping.  The District Court ordered Fidelity to pay $1.7 million for lost float income and held both ABB and Fidelity jointly and severally liable for more than $13.4 million in attorney fees and costs. 

On appeal in 2014, the Eighth Circuit vacated the District Court’s finding of breach of duty by ABB on liability for plan investment options/mapping.  Remanding this issue, the Eighth Circuit held that the District Court should have afforded more deference to the ABB fiduciaries pursuant to the Plan document and found that the damages calculations were speculative and exceeding the Plan participants’ losses.  In dictum (or non-binding language), the Eighth Circuit suggested measuring damages for investment options/mapping by comparing the difference between the performance of certain funds and the minimum return of a subset of managed allocation funds ABB could have chosen without breaching their fiduciary duties.  The Eighth Circuit reversed the judgment against Fidelity and vacated the attorney fees award in favor of Tussey counsel pending resolution of the remand.  The Eighth Circuit affirmed ABB’s liability for breaching its fiduciary duties as to the recordkeeping claim. 

On remand, the District Court again found that ABB breached its fiduciary duties with regards to investment options/mapping but concluded that the Plan participants failed to prove losses under the measure of damages theory advanced by the Eighth Circuit in dictum.  The District Court thus reduced the attorney fee award in favor of Tussey counsel to $10,768,474.00 through trial and added $900,000.00 for work on the appeal for a total of $11,668,474.00.  Both parties cross-appealed—the Tussey parties challenging the District Court’s measure of damages and ABB challenging the attorney fee award for trial and appeal work.

Fiduciary Duties

Before the Eighth Circuit on the second appeal, ABB argued that they did not actually breach their fiduciary duties thus a determination of how much the Plans lost in value was unnecessary.  ABB argued that the District Court’s finding that ABB’s decision to move investment funds and change asset mapping was motived by a desire to benefit Fidelity and ABB, was speculative and equated the effect of a decision with its purpose.  However, the Eighth Circuit found that there was strong evidence to support the District Court’s finding.  Evidence showed that the director of ABB’s Pension Review Committee and ABB’s Director of employee benefits openly communicated with Fidelity about pricing implications for changes to the Plans’ investment lineup and requested specific dollar amounts for reduced fees to change Plan asset mapping.  Additionally, the Eighth Circuit re-affirmed the District Court’s finding that ABB failed to monitor and control Fidelity’s recordkeeping fees and paid Fidelity excessive revenue sharing from Plan assets.

In an attempt to rebut liability, ABB re-argued that the District Court ignored the discretion they were entrusted in directing Plan investment options pursuant to the Plan document.  However, the Eighth Circuit found that ABB overstated the deference it was entitled.  While a plan administrator is entitled to discretion with regards to its reasonable investment choices, this does not prevent a court from reviewing a plan administrator’s motivations.  As such, the Eighth Circuit found that the District Court was not second-guessing whether ABB’s decision was reasonable but was observing ABB’s decisions to determine the motivation for the actions taken.  Viewed in whole, the Eighth Circuit found that ABB’s actions suggested that they were driven by a desire to benefit themselves not the Plan.  Explaining that improper motive can lead to a plan fiduciary abusing its discretion and breaching its duties, the Eighth Circuit found that this is true even if a fiduciary acting for the right reasons could end up in the same place as a fiduciary lead by improper motive.  A fiduciary has no choice as to whether he or she will favor the plans’ interest or their own and must always act in the best interest of the plan.  Accordingly, the Eighth Circuit found that ABB was not entitled to deference in the District Court’s review of their motives and affirmed that ABB abused its discretion and breached its fiduciary duties for Plan investment options/asset mapping.   


The Eighth Circuit found that the District Court arrived at its damage calculation by: (1) awarding the amount the participants who had invested in the original fund would have received had it not been replaced by the replacement fund and (2) the participants remained invested in the original fund for the entire period.  The Eighth Circuit found that it was a reasonable inference that participants who invested in the replacement fund would have invested in the original fund had it not been removed from the Plan’s investment platform.  To clarify itself, the Eighth Circuit stated that its 2014 proffered measure of damages was a suggestion and the District Court was tasked with determining the exact method of calculating losses or the measure of damages.  In properly resolving this issue, the Eighth Circuit found that the District Court should have considered other ways of measuring the Plans’ losses from ABB’s breaches in addition to entertaining Plan participants’ arguments regarding the measure of damages.    

The Eighth Circuit opined that its prior ruling did not limit the kind of managed allocation funds (i.e. static or dynamic) that the District Court could have used in its measurement.  Additionally, the Eighth Circuit found that comparing the returns from the original fund with what the Plans would have earned from the replacement fund was appropriate because while the funds were designed for different purposes (and would thus not result in similar returns) the point of the comparison was to determine the effect of owning one fund rather than the other, not to compare the difference in returns.  Thus, the Eighth Circuit directed the District Court to determine a measure of damages for Plan losses and the correlating amount of those damages. 

Attorney Fees and Costs

The Eighth Circuit again vacated the award of attorney fees and remanded the issue to the District Court to resolve depending on the outcome of pending liability issues.

Take Away

The Eighth Circuit has further clarified the scope of plan fiduciary deference with regards to investment options and determinations.  Fiduciary motive is inescapable even if its results produce a positive plan outcome.  While wrongful motive resulting in positive plan outcome does not per se cause actionable plan losses, the wrongful motive is still a breach of fiduciary duty.  Plan fiduciaries must ensure that their motives and actions (whether actual action or action that can be inferred from the circumstances) show that they are motivated to act in the best interest of the plan.  Additionally, in the Eighth Circuit, courts have wide discretion to measure plan losses.  Courts can look at the effects of participants owning one kind of fund over another and are not necessarily limited to funds that have similar returns.      

Link to Opinion:

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From the Pens of House Republican Leadership: The American Health Care Act

On March 6, 2017, House Republican leadership proposed the American Health Care Act, which repeals and replaces certain provisions of the Affordable Care Act.  The American Health Care Act emerges from budget reconciliation bills from the House Ways and Means Committee and the Energy and Commerce Committee, resulting from the budget resolution passed by both houses of Congress in mid-January 2017. 

The committees shall begin review and revision of the proposed bill on March 8, 2017.  Then, the bill will proceed to both the House Budget Committee and the House Rules Committee, and then to the House for a vote.  Thereafter, the bill will proceed to the Senate for a vote.  If the Senate makes any amendments to the bill, it will return to the House.  After House conference on the amendments, the bill will make its way to the President’s desk for signature. 

Some key provisions in the American Health Care Act are:

(1)    Under the new bill, health plans must still:

a.      Cover preexisting conditions

b.      Cover adult children up to age 26

c.       Cap out-of-pocket expenses

d.      Guarantee availability and renewability of coverage

e.      Prohibit health status underwriting

f.       Prohibit lifetime and annual limits

g.       Prohibit discrimination on the basis of race, nationality, disability, age, or sex

(2)    The Individual Mandate is replaced with continuous coverage:

With limited exception for certain enrollments in 2018, beginning in 2019, individuals must prove that they did not have a gap in creditable coverage of over 63 continuous days to avoid a 30% premium surcharge. 

(3)    The Individual Mandate and the Employer Mandate are eliminated retroactively for years beginning with 2016.

(4)    The Cadillac tax is no longer effective after December 31, 2019, and before January 1, 2025, but will apply for taxable periods beginning after December 31, 2024.

(5)    The legislation provides for tax credits for health insurance, which are advanceable, refundable tax credits available for the purchase of state-approved, major medical health insurance and unsubsidized COBRA coverage.  The credits are adjusted by age, not income. 

(6)    The legislation essentially doubles contribution limits to Health Savings Accounts beginning in 2018.

(7)    The legislation repeals limitations on contributions to flexible savings accounts beginning in 2018.

(8)    Medicaid expansion is restructured, if not halted, by 2020.  States will continue to receive extra federal funding until 2020, through a per-capita cap basis. 

The Congressional Budget Office has not yet released cost estimates of the American Health Care Act, and it appears as if the legislation will proceed without the cost estimate.  Much has to occur before this proposed legislation becomes law.  However, like all else, it deserves our attention. 

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Marketplace Shockwaves: Insurer Exits Leave Marketplaces Vulnerable

Early this month, Aetna announced that in 2018, it will not expand its Health Insurance Marketplace ("Marketplace" or "Exchange") coverage, and is evaluating whether it will completely pull out of the Marketplaces created by the Patient Protection and Affordable Care Act (“ACA”).  Insurer scale backs and exits have become a trend as insurers have been reporting record number losses with enrolled participants that are sicker and require costlier treatments than expected.  Also, insurers are uncertain when the ACA will be repealed, if and when the ACA will be replaced, and what will be offered.  

In 2017, Aetna withdrew from eleven (11) of the fifteen (15) states it offered Marketplace coverage citing huge profit losses.  Aetna currently only offers Marketplace coverage in Delaware, Iowa, Nebraska, and Virginia.  In Nebraska, Aetna is one (1) of only two (2) insurers operating in the Marketplace.  In addition to Marketplace coverage, Aetna also offers Medicaid coverage in sixteen (16) states across the South, Midwest, and Northeast. 

Aetna’s Chief Executive Officer Mark Bertolini has said that the ACA is in a death spiral, meaning the Marketplaces are collapsing under a large pool of sick participants that have few insurer options and rising premiums.  Bertolini has also said that, depending on the market, between one percent to five percent (1%-5%) of Aetna’s customers account for fifty percent (50%) of its costs.  Aetna has stated that is has sustained approximately four hundred and thirty million dollars  ($430,000,000) in losses since 2014 through its operations in the Exchanges. 

While Aetna will not be expanding its operations in the Exchanges, it appears poised to continue to offer individual policies in many states.  However, these policies are sold outside the Marketplaces and are not eligible for federal subsidies.  Humana, which had already significantly lowered its 2017 participation in the Marketplaces, recently announced it was completely leaving the Marketplaces in 2018.  Humana cited poor profits as the reason for exiting the Exchanges.  Humana’s recent announcement could be an indicator of more insurer exits from the Marketplaces.  

According to health insurance analysts, Aetna is one of the top ten insurers operating in the United States.  Humana has also been named as a top ten insurer in the United States by health insurance analysts.  In 2017, Aetna and Humana ended their merger plans following a District Court ruling that granted the Department of Justice’s (“DOJ”) injunction to prevent the merger.  The District Judge in the case called Aetna’s decision to scale back its 2017 Marketplace operations deceitful and aimed at bolstering Aetna’s position in the litigation with the DOJ.  It has been reported that the DOJ warned Aetna that it would attempt to block an Aetna-Humana merger prior to initiating litigation.  Financial analysts calculate that the failed Aetna-Humana merger cost Aetna upwards of $1.8 billion. 

Most of the larger insurers have scaled back coverage for 2017.  Molina Healthcare, which is also a large insurer, has fared well in the Marketplaces compared to other insurers, according to insurance analysts.  However, February 2017 financial filings for Molina Healthcare reveal that the insurer netted profits of about eight million ($8,000,000) in 2016, down from one hundred forty-three million ($143,000,000) in 2015.  Molina Healthcare has announced that it plans to evaluate its participation in the 2018 Marketplaces.  This shows that insurer profits very wildly from year-to-year in the Exchanges and for now insurers’ doubts are not going away.

With the combined market value in the health insurance industry held by large insurers like Aetna, these insurers’ decisions impact the Marketplaces.  Large insurers leaving the Marketplaces create coverage voids that can lead to Marketplace destabilization and eventual collapse.  Mergers between large insurers reduces competition and creates monopolies.  Even seemingly innocuous statements by these insurers about the Marketplaces, or their companies’ operations in the Marketplaces, can cause speculation.  Large insurers are a vital part of the Marketplaces.  Without their full participation, the future of the Marketplaces is uncertain.    

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Department of Labor Moves to Delay Fiduciary Rule

On Thursday, February 9, 2017, the Department of Labor (DOL) filed a notice with the Office of Management and Budget (OMB) to delay the effective date of the final Conflict of Interest Rule that re-defines who is a fiduciary (the Fiduciary Rule).  While the exact language of the notice will not be known until the OMB’s review is complete and the proposed rule is sent to the Federal Register, many sources are reporting that the notice delays the effective date of the Fiduciary Rule for one hundred eighty (180) days.  The OMB usually takes around ten (10) to fifteen (15) days to review a regulation, and the comment period will reportedly be as short as fifteen (15) days, meaning that the notice delaying the effective date of the Fiduciary Rule by one hundred eighty (180) days could be official as soon as early March.

The DOL is also working on a second notice to be filed with the OMB, which if approved, will start a new notice and comment period for the Fiduciary Rule.  By pushing out the effective date of the Fiduciary Rule one hundred and eighty (180) days, the DOL now has time to hold another notice and comment period before the rule takes effect.  During this notice and comment period, the DOL will hear concerns on the Fiduciary Rule.  This is likely a result of the executive order issued by President Trump.

On February 3, 2017, President Trump signed an executive order, ordering the DOL to review the Fiduciary Rule.  The executive order more specifically required the DOL to examine (a) whether the Fiduciary Rule is likely to harm investors by reducing access to retirement products, (b) cause dislocation or disruption within the retirement service industry, and/or (c) is likely to cause an increase in litigation.

The executive order does not delay, amend, or withdraw the enforcement of the Fiduciary Rule which goes into effect in April, 2017, instead it orders the DOL to examine the Fiduciary Rule for the above issues.  As stated above, it is likely that as a result of the President’s executive order, and the DOL’s instructed review of the Fiduciary Rule, that the DOL determined that the rule should be delayed and subject to future comment.

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We Have A Mistake In Our Retirement Plan - What Do We Do?

By:  Jennifer S. Kiesewetter, Esq. and Shunta Tidwell, J.D.


Plan Sponsors often make mistakes, many of which are inadvertent, regarding employees’ defined benefits and contribution plans. Once the Internal Revenue Service (“IRS”) discovers these mistakes, it could audit the plan assessing penalties accordingly.  Additionally, the tax qualification of the plan could be jeopardized. 

If a Plan Sponsor makes a mistake regarding the company’s defined benefit or defined contribution plan, the Plan Sponsor should remedy the mistake through the Employee Plans Compliance Resolution System (“EPCRS”) to avoid potential penalties, tax liabilities, and possible disqualification.

Under the EPCRS, the correction method should be reasonable, appropriate, and resemble a type of method provided for in the Code respective of facts and circumstances. The EPCRS offers three (3) programs for Plan Sponsors to correct plan errors: (1) Self-Correction Program (“SCP”); (2) the Voluntary Correction Program (“VCP”); and (3) the Audit Closing Agreement Program (“Audit CAP”).

Once the correction is approved, the IRS will issue a compliance statement, which details the mistakes identified by the Plan Sponsor and the correction methods approved by the IRS.   The Plan Sponsor then has 150 days from the issuance of the compliance statement to correct the identified mistakes.  This statement does not protect the plan from the effects of the other failures not identified under the EPCRS program that the IRS could discover, for example, during an audit.  However, while the IRS is processing the EPCRS submission, the IRS will not audit the plan, except under unusual circumstances. 

Regardless of the applicable program, if the proposed correction method under the chosen EPCRS program is not approved or if the IRS needs more information, the IRS will contact the Plan Sponsor and assist with finding an acceptable correction method.  If an agreement on a proper correction method cannot be obtained, the IRS will not issue a compliance statement or refund the user fee for the VCP application submission.

Should a Plan Sponsor’s defined benefit or defined contribution plan possess a failure, the Plan Sponsor should determine if that failure can be corrected under the EPCRS and proceed accordingly.  Remember, it is always better to be proactive instead or reactive.

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DOL Fiduciary Rule? No Certainty

Authors:  Jennifer S. Kiesewetter, Esq. and Minyon Bolton, JD

The U.S. Department of Labor’s (“DOL”) April 6, 2016 new fiduciary rule (“Fiduciary Rule” or “Rule”) is under attack.  Although the Rule became effective on June 7, 2016, it has an April 10, 2017 applicability date.  With the Republicans now occupying a majority in the House of Representatives and Senate and Donald Trump’s inauguration as the 45th President, no certainty exists as to the occurrence of the Rule’s pending applicability date. 


The Executive Branch has already issued responses to the Rule.  On January 20, 2017, the White House issued a Memorandum from Reince Priebus to the heads of executive departments and agencies requesting a 60-day delay, in part, for the effective date of regulations that have been published in the Office of the Federal Register but have not taken effect.  The Fiduciary Rule fits squarely within this scenario as the enforcement aspect of the Rule, and exemptions, have not gone into effect yet.   


Additionally, Trump has nominated Andy Puzder (who is a proponent of less labor regulation) to serve as the director of the DOL.  As DOL director, Puzder may modify or draft guidance documents for the DOL’s Employee Benefits Security Administration (“EBSA”), slow or prevent EBSA’s enforcement of the Fiduciary Rule, direct EBSA’s priorities away from the Fiduciary Rule, and reduce EBSA’s budget.  Additionally, given the fierce opposition to the Rule, Trump may likely take specific executive action that delays the applicability date or restricts enforcement of the Rule. 


Under the leadership of a Trump-nominated director, the DOL may re-open the notice and comment period for the Fiduciary Rule to allow time for the new DOL director to review the Rule for questions of fact, law, or policy.  While guidance exists on the length of notice and comment periods, no specific rules as to the length exist, thus this period could last months.  The DOL may further propose a new rule to delay the applicability date of the Fiduciary Rule.  Under this agency rulemaking scheme, the Fiduciary Rule’s applicability date could be indefinitely delayed or simply never triggered.   


Legislators have already responded to the Fiduciary Rule.  In April of 2016, Republican Representatives introduced a Resolution in Congress to repeal the Fiduciary Rule that was subsequently vetoed by President Obama two (2) months later.  In January of 2017, Congressman Joe Wilson (R-S.C.) introduced the Protecting American Families’ Retirement Advice Act that proposes to delay the applicability date of the Fiduciary Rule for two (2) years.  This new bill has been picking up traction as it moves through the House.  Congress may also pass a defunding bill, reducing the budget for the DOL to enforce the Rule which would make it largely symbolic. 


With the various options available through White House, agency, and legislative action, several vehicles are available for a Fiduciary Rule overhaul.  These options can be used independent of one another or in conjunction with one another.  In anticipation of the Rule’s April 10, 2017 applicability date, financial and insurance industries have already begun implementing compliance changes.  Regardless of the uncertainty surrounding the Rule, one thing for certain is that the role of a fiduciary is under scrutiny.

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