Can an employer "arbitrage the exchange" to dump less healthy workers? More precisely, can an employer eject plan participants who might be high-claim health coverage users from a benefit program?
On the heels of several recently published high-profile news articles, this question has been repeatedly posed as employers assess the legality of an organization negotiating away or otherwise limiting an individual's benefit rights based on his or her health status. The short answer: while an employer does not face a specific direct health care reform penalty for "dumping and running," there are critically important reasons why companies should think twice.
Leveraging an outcomes-based plan design
Although some corporations may be tempted to adopt a short-term view that jettisoning high-risk employees is a quick and easy way to cuts costs, there other variables that make that strategy a long-term loser. According to Joseph Torella, President, Employee Benefits Division at HUB International, "The best approach is to balance what you need to do to support the bottom line immediately with what can be done in the long run to leverage a market that is rapidly reshaping itself."
Torella explains that it becomes much more difficult to attract and retain the best employees when a draconian approach is taken to managing healthcare costs. The action can undermine any near-term savings. Instead, HUB advocates an outcomes-based model because, as Torella says, "At the end of the day you're still going to have a risk pool. And if the focus shifts to improving the health of the population, long-term financial benefits transcend the plan itself and begin to rope in savings from other financial buckets." A long-term view recognizes that healthier workers are more productive; and with the outcomes model stimulating productivity, many organizations report seeing impressive corresponding company cost decreases realized from workers' compensation and disability programs.
Health care reform implementation offers opportunities above and beyond the expansion of individual coverage. Perhaps less well publicized are the features of the Affordable Care Act that can be used to address costs, including several employee wellness provisions. As Torella explains, "When you've exhausted all the vehicles for managing clinically-based risks, you can apply bigger wellness pricing differentials as a means of improving the health of your population. This is good for all parties concerned because when specific incentives are attached to employees investing in personal health, costs tend to stabilize in the long-term as the larger incentives intensify a participant's drive to achieve the target outcomes."
Looking beyond healthcare reform compliance
Thus the "dump and run" approach is far from a recommended best practice. HUB International strongly cautions against any plan designs or benefit negotiations that could be perceived as participant dumping. And even without the impact of specific penalties, the employer could be confronted with a mountain of closely-related legal issues, including the following challenges/penalties/enforcement actions:
- Protective statutes - Even if there is a "negotiation" between parties to comprehensively waive participation and forgo rights to assert legal action, such an approach could violate a host of federal laws, including:
-ADA (Americans with Disabilities Act)
-HIPAA (Health Insurance Portability and Accountability Act)
-ERISA (Employee Retirement Income Security Act)
-GINA (Genetic Information Nondiscrimination Act)
-MSP (Medicare Secondary Payer)
- ERISA - Illegal discrimination on the basis of health (and in violation of ERISA) occurs when specific persons are singled out for different (and adverse) treatment, even if the employer believes the individual is consenting.
- Employment law - The individual likely will be able to assert some type of coercion in being forced between what common sense tells us is the choice before the individual. (For example, "Agree to what your employer is asking … or else.") The threat is likely always implied due to the inherent power imbalance deemed to exist between parties.
- Future enrollments - The individual can come back on the plan at the next annual enrollment, or for a qualifying event which is a HIPAA special enrollment right, even if he waives coverage in exchange for a lump sum or other consideration. If the plan permits an annual election, you cannot exclude that person. And the offer must be made each year if allowed for other similarly individual employees.
- Audit risks - These arrangements are likely to provoke employee complaints to regulatory agencies inviting an audit or investigation.
- Claim scrutiny - Insurance carriers and federal auditors may target high claim individuals and families when exchange or individual coverage is purchased rather than employer coverage. Even the best case scenarios will generate a suspicious situation that could draw unwanted scrutiny.
- Legislative reactions - Congress is likely to change the law in this area when it becomes aware of these "abuses" which it considers "dumping" of high risk individuals.
- Direct liability - If the employer violates the rules and is forced to remedy the situation, the employer will have to provide the coverage the person would have otherwise elected. Moreover, with no insurance carrier or stop-loss insurance protection or reimbursement (because the person was not covered by the plan), the employer could easily find itself having to pay to make the person "whole" using general assets.
- Plans not subject to ERISA also at risk - Non-ERISA plans also have concerns with this practice. Since there is no protection under ERISA, claims could be made in state courts with additional remedies such as punitive damages. The reality is that employers outside ERISA's purview might be exposed to even greater risks under the wild card of state law.
- Opt-out payments - Direct cash payments will raise a variety of discrimination concerns whenever they are targeted at individuals with particular health conditions (e.g., pregnancy, illness, etc.) or age (as with payments in violation of the MSP law). A compliant "opt-out" must be delivered in the context of a cafeteria/Section 125 plan. Specifically, if an employer wants to offer cash to an individual in exchange for a waiver, that option must be offered through the 125 plan and be available workforce-wide to avoid discrimination allegations. Keep in mind the actual impact: the level of cash in lieu of benefits an employer can offer on that broad basis likely will never be enough to encourage a waiver of health plan coverage by a person who is ill or has a sick family member.
Before you "dump and run," we urge you to discuss your specific concerns with your HUB advisor, as well as your company's legal counsel.