By Jack Mcstravock and Chris Rylands
A recent complaint filed against Macy’s by the U.S. Department of Labor (DOL) makes two allegations that the retailer fell afoul of employee benefits rules on two fronts: First, changes in its plan’s out-of-network reimbursement formula were not reflected in the plan documents or participant communications and second, the company did not follow the HIPAA rules that apply to smoking cessation surcharges.
If the allegations are true, the DOL wants Macy’s (not the plan) to:
- Reimburse participants for any extra money that they paid for out-of-network services; and
- Refund all of its tobacco surcharges, even to individuals who didn’t try to go through the cessation program.
If the DOL can prove its case in court, Macy’s may face significant financial penalties. (Note that this is just a complaint, so Macy’s has not yet had a chance to defend itself in court.) When terms of a health plan or rules governing wellness programs are not followed, liabilities and fines can be triggered. Here’s what allegations against Macy’s teach us about health plan details and benefits compliance:
Lesson 1: Plan Documents and Plan Operations Must Match
People who work with health plans know a plan will pay less for an out-of-network provider than an in-network one and the participant will be on the hook for the balance. Different plans, of course, have different reimbursement formulas.
The DOL claims that Macy’s told its health plan administrators to change their out-of-network reimbursement formulas. They went from reimbursing based on a “reasonable and customary” amount (determined using a database of claims) to reimbursing based on a multiple of Medicare reimbursement rates. This change, by itself, isn’t a problem, although it probably resulted in lower reimbursements in at least some cases.
However, the DOL alleged in this case that neither the plan documents nor summary plan descriptions (SPDs) reflected the new reimbursement formula. This is a problem because plan administrators have an ERISA fiduciary duty to administer plans in accordance with their terms.
Additionally, ERISA requires that when a plan’s terms materially change, the changes must be communicated to participants and beneficiaries through an updated SPD or a summary of material modifications (SMM). Such changes include enhancements or reductions of benefits, narrowing or expanding the circumstances under which benefits are paid, and terminating the plan entirely.
If plan documents are not amended to reflect a change, the plan administrator is no longer following the plan’s terms. That’s a clear breach of fiduciary duty.
Lesson 2: Not-so-Wellness
The DOL also argues that Macy’s tobacco cessation wellness program did not meet the HIPAA requirements. While the program underwent subtle changes each year, the allegations contained two common threads: (1) Macy’s did not waive its tobacco surcharge unless people actually quit, and (2) even if a participant went through a cessation program and was tobacco free, the surcharge was only waived going forward. Participants did not get a refund of the surcharges they paid for that plan year. If true, these are obvious violations of HIPAA rules.
Since 2006 these rules have stated that if participants are not tobacco-free, then they must be offered a “reasonable alternative standard” to earn the incentive. The rules have also generally required that participants who complete that alternative still get the full incentive.
The rules allow the wellness program to make the participants go through a tobacco cessation program as the reasonable alternative standard. However, they can’t be required to quit. In other words, those who complete the program get the full incentive, even if they still smoke like a chimney. If the program has a surcharge, then the surcharge paid prior to the participant’s completion of the program has to be refunded. Anything else is not reasonable, according to the DOL.
Take Benefits Compliance Seriously
The takeaways here are easy. First, make sure your plan documents and SPDs always reflect your current plan operation. Second, the rules around wellness programs are subtle and complex, so tread carefully and make sure you follow them. To learn more about benefits compliance, programs and resources, contact your HUB benefits consultant.