Good News for Employers in the New FLSA Final Rule

On May 18, the Department of Labor (DOL) released the new Fair Labor Standards Act (FLSA) final rule on employee classification and overtime pay.

Employers had braced for the final rule ever since the proposed rule was published on July 6, 2015. Many employers were jolted by the date of the final rule’s release, because the DOL had hinted that the rule wouldn’t be released until July. However, while its early release may have been an unpleasant surprise, the final rule does contain some good news for employers.

First, the final rule includes a more generous deadline for compliance than anticipated. While the DOL had signaled that employers might be given only 60 days to comply with the rule after its release, the actual final rule allows for 120 days. Employers will have until December 1, 2016 to achieve compliance.

Additionally, while the proposed rule floated a new exemption threshold of $970 per week (or $50,440 annually) the final rule slightly reduced the threshold to $921 per week (or $47,892 annually). The reduction is due to a change in the DOL’s calculation methodology in response to public comment. Instead of basing the threshold on the fortieth percentile of earnings of full-time exempt workers across the United States, the DOL pegged the threshold to the fortieth percentile of earnings of full-time exempt workers in the lowest-wage Census Region—currently the South. The final rule explains: “salaries do not change at the same rate nationwide, and this modification will ensure that any future increase in earnings will only impact the standard salary level to the extent that those gains are also realized by employees in the lowest-wage Census Region.”

Also, the salary level will be updated every three years, with the first update taking place on January 1, 2020. Prior to the final rule, the salary level had not been updated since 2004. The proposed rule recommended annual updates to the salary level, but spacing out updates to once every three years will ease the administrative burden on employers of re-evaluating each employee’s salary, while ensuring that employers won’t be blindsided by sudden drastic jumps in the salary level that might occur over a longer period of time. The final rule predicts, based on historical wage growth in the South Census Region, that the salary level will increase to about $984 per week (or $51,168 annually) in 2020.

More good news for employers: for the first time, there is a small amount of wiggle room in the salary level test. Nondiscretionary bonuses, incentive payments and commissions, paid on at least a quarterly basis, can now comprise up to 10 percent of the required salary threshold. However, discretionary bonuses and the value of other benefits (like room and board, health insurance premium payments or retirement plan contributions) cannot be used to make up the threshold.

Read more about the final rule on the DOL website.

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HHS Publishes Final Rule on ACA Nondiscrimination Provisions

On May 13, the U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) published the final rule implementing Section 1557 of the Affordable Care Act (ACA). Section 1557 contains the nondiscrimination provisions of the ACA, which prohibits discrimination based on race, color, national origin, sex, age and disability. The final rule applies to any health program or activity that receives federal funding or that is administered by any government agency governed by the ACA.

The rule finalizes many of the provisions contained in the proposed rule that HHS published on September 8, 2015 following a 2013 Request for Information (RFI) regarding nondiscrimination issues. The proposed rule received 24,875 comments from activist groups, health care providers, consumer groups, insurers and individuals. While commenters asked for various changes, the final rule is essentially unchanged from the proposed rule.

The final rule includes broad prohibitions against discrimination, but HHS declined to include specific details and scenarios that might label specific actions as discriminatory or not discriminatory. Commenters requested clarification on a variety of specific situations, including whether limiting gender transition services to only individuals over the age of 18 is discriminatory, whether requiring individuals with psychiatric disabilities to receive ongoing mental health treatment in order to receive treatment for unrelated conditions is discriminatory and clarification regarding in what ways research trials can avoid being discriminatory. In response, OCR stated: “The determination of whether a certain practice is discriminatory typically requires a nuanced analysis that is fact-dependent.” While some examples are included in the final rule, not every scenario brought up in the public comments is addressed.

One notable aspect of the final rule is the requirement that translation services be provided to individuals who do not speak English, including individuals who speak only American Sign Language. The provision of professional translators can sometimes be a life-and-death matter, as relying on bystanders, friends or family members to translate can result in fatal medical mistakes.

Another noteworthy aspect is the final rule’s declaration that blanket exclusions of gender transition care are a form of sex discrimination. However, the final rule does not specify which gender transition services must be covered; it simply states that excluding all gender transition services is noncompliant with the ACA. Additionally, the final rule reinforces a stance taken on previous FAQs issued by the DOL Employee Benefits Security Administration (EBSA), stating that insurers cannot deny coverage of sex-specific preventive care services based on transgender status (for example, denying coverage of a Pap smear for a transgender man or a prostate exam for a transgender woman). The final rule also specifies that providers cannot discriminate against patients based on transgender status. However, few providers are equipped to provide competent care to lesbian, gay, bisexual or transgender (LGBT) patients, though more hospitals are investing in training and infrastructure changes to help provide effective and respectful care to the LGBT community.

The final rule does not include a religious exemption to the nondiscrimination provisions. The nondiscrimination provisions do not contradict any provider conscience laws, the Religious Freedom Restoration Act (RFRA) or any religious exemptions provided elsewhere in the Affordable Care Act.

The effective date of the rule is July 18, 2016. Any changes that must be made to health insurance plans—including changes in cost-sharing, covered services and coverage exclusions—must be made by the first day of the plan year beginning on or after January 1, 2017. The plan applies to excepted benefits in addition to plans that offer minimum essential coverage or minimum value under the Affordable Care Act.

Read the final rule at the Federal Register here. HHS also released a detailed FAQ and several fact sheets regarding the final rule.

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Americans Aren’t Prepared to Retire—But Retirement Plan Sponsors Can Nudge Participants in the Right Direction

More Americans in today’s workplace are planning to defer retirement until later in life or to forego retiring at all. In fact, one in five Americans aged 65 and over are currently working due to financial need, the need for health insurance benefits, or a desire to stay mentally, physically or socially active.

What factors are contributing to this trend? One consideration: health insurance. Retiree health benefits can affect the timing of employees’ retirement decisions; employers that offer retiree health benefits may see employees retiring earlier in life and even saving for retirement less rigorously. However, a Kaiser Family Foundation study found that fewer than 25 percent of plan sponsors offered retiree health benefits last year—a rapid and steady decline from 66 percent in 1988. Most employees approaching retirement express urgent concern about whether they will be financially able to pay for health care in retirement; therefore, employees may defer retirement to avoid ending up dependent on Medicare or Medigap and Medicare Advantage plans.

Lack of financial preparation for retirement is another factor. While over half of employees aged 51 to 64 are worried about covering out-of-pocket medical costs in retirement, the same number are worried about potentially outliving retirement savings. While most full-time employees have access to employer-sponsored retirement plans, and voluntary defined contribution plans (like 401(k)s) are the most popular retirement savings option, employees simply aren’t saving enough. While plan participants are worried about retirement readiness, employees who lack financial literacy end up saving at rates that won’t be sufficient to support them in retirement. Generally, Americans don’t realize that saving for retirement as early as possible and as consistently as possible is key to a stable future; studies show that individuals underestimate the importance of compound interest, too.

How can retirement plan sponsors encourage plan participants to save robustly?
Participant education is key, especially on often-misunderstood subjects like compound interest, matching contributions and taxation. Some retirement plan sponsors are taking an even broader view of overall participant financial fitness, with a focus on helping employees reduce financial stress and increase financial literacy. Plan sponsors can also ensure that the plan is being run responsibly and offering maximum value to participants—for example, by examining plan fees. The TIAA Institute (the research arm of the organization formerly known as TIAA-CREF) has noted that many retirement plan sponsors use multiple service providers and third-party administrators instead of one single service provider, which can sometimes lead to unreasonable or unfair fee structures for plan sponsors and participants.

Plan sponsors aiming to nudge plan participants towards a comfortable retirement should keep changing regulatory requirements in mind, too. In April, the U.S. Department of Labor published a final rule laying out new regulations regarding fiduciary responsibility and retirement plan investment advice. The purpose of the rule is to define the difference between specific investment advice and general investment education and to require that retirement professionals give advice that is in the best interest of the plan and plan participants.

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DOL Publishes New FMLA Guide for Employers

The Department of Labor (DOL) has published a new guide to help employers understand their obligations under the Family and Medical Leave Act (FMLA). The Employer’s Guide to the Family and Medical Leave Act was announced by DOL FMLA Branch Chief Helen Applewhaite at the 2016 FMLA/ADA Employer Compliance Conference on April 25.

According to the DOL, the Guide’s purpose is “to provide essential information about the FMLA, including information about employers’ obligations under the law and the options available to employers in administering leave under the FMLA.” The Guide is organized along a loosely chronological timeline of a typical FMLA leave request; the Guide begins at the employee’s request for FMLA leave, continues through the duration of the leave, and concludes with the employee’s successful return to work.

The Guide is designed to complement the corresponding employee guide to FMLA that was released last June. The Employer’s Guide answers basic FMLA questions and illustrates common FMLA-related scenarios. The text is illustrated with explanatory graphics, including cartoons showing model employer-employee interactions and flow charts like “The Employer’s Road Map to the FMLA.”

However, employers should note that the FMLA guide doesn’t address the sometimes messy questions that can arise from FMLA-related court opinions. For example, in Bonkowski v. Oberg Industries, Inc., the Third U.S. Circuit Court of Appeals ruled that an employee who was admitted to a hospital just after midnight and discharged less than 24 hours later did not qualify for FMLA leave because his “overnight stay” did not consist of an inpatient stay that spanned from one calendar day into another calendar day. On the other hand, in Caggiano v. Illinois Department of Corrections, the U.S. District Court of the Northern District of Illinois ruled that an employee who appeared to have worked fewer than 1,250 hours in 12 months did qualify for FMLA leave—because the employer failed to include the employee’s thirty-minute paid lunch breaks in its calculation of hours. For questions that are murkier than the clear-cut questions presented in the Guide, employers should consider consulting counsel.

Still have general questions? The DOL Wage and Hour Division (WHD) has promised to hold free, public webinars on the Guide in the near future. Additional answers to frequently asked questions can be found on the DOL WHD website.

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Business Associate Agreements Are Essential to HIPAA Compliance

If you’re familiar with the Health Insurance Portability and Accountability Act (HIPAA), you may know that covered entities cannot disclose protected health information (PHI) to unauthorized persons. However, covered entities often work with third parties and need to disclose PHI to these non-covered entities for business reasons. HIPAA allows for covered entities to make these business-related disclosures—but the covered entity and the business associate need to formalize a relationship via a written business associate agreement first.

A business associate agreement is a contract that codifies the relationship of the covered entity to the business associate. A business associate is a person or entity that provides services to, performs work on behalf of, or otherwise touches PHI when working with a HIPAA covered entity. The written agreement specifies permissible uses and disclosures of PHI by the business associate, states that the business associate will comply with HIPAA requirements, includes information about procedures that will be followed in case of a HIPAA breach, and specifies how PHI will be handled upon termination of the covered entity’s relationship with the business associate. The Department of Health and Human Services (HHS) provides sample provisions for a business associate agreement, though many covered entities use individually tailored agreements.

Handing over PHI to an unauthorized person or entity is a violation of HIPAA. Last week, HHS fined a North Carolina provider, Raleigh Orthopaedic Clinic, $750,000 for violating this rule. The clinic released X-ray films and related PHI for 17,300 patients to a third-party company in order for the third-party company to digitize those records. This transaction was arranged via an oral agreement. However, because the clinic and the third-party company didn’t have a written business associate agreement in place, the clinic caused a HIPAA breach by releasing PHI to an unauthorized entity.

In addition to the $750,000 fine, Raleigh Orthopaedic must undergo a two-year corrective action plan and take actions including revising HIPAA policies and procedures, reviewing current business associate agreements and retraining employees.

To add insult to injury, the clinic never received the digitized PHI from the vendor. Instead of digitizing the PHI, the third-party company simply sold the X-ray films to a recycling company, which extracted and sold the silver from the X-ray films before apparently destroying the PHI.

Last month, HHS fined a Minnesota healthcare system $1,550,000 for failing to conduct a risk assessment and failing to execute a written associate agreement with a third-party billing company. The third-party billing company was not authorized to receive PHI but was given access to PHI of almost 300,000 patients for over six months before a business associate agreement was finally signed.

Jocelyn Samuels, Director of HHS Office for Civil Rights, stated: “HIPAA’s obligation on covered entities to obtain business associate agreements is more than a mere check-the-box paperwork exercise. It is critical for entities to know to whom they are handing PHI and to obtain assurances that the information will be protected.” As these two recent actions show, failing to execute a business associate agreement can be an expensive mistake.

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Discussion About Prescription Drug Coverage Grows With Awareness of Opioids, Contraceptives, Spiking Prices

In the past year, legislators, employers, the media and healthcare consumers have focused on a variety of topics related to prescription drug coverage and use. The opioid epidemic sweeping the country, changes in access to contraceptives and the rising prices of prescription drugs have all contributed to a renewed interest in how insurance plans cover prescription drugs and how health care consumers use them.

The opioid epidemic has devastated communities across the United States, particularly poverty-stricken and rural areas. Strikingly, many people who become addicted to opioids first have contact with these drugs through legal prescriptions prescribed for legitimate reasons, such as automobile accidents or workplace injuries. In 2014, doctors wrote over 245 million prescriptions for opioids in the United States, and the trend of overprescription fueled an epidemic of abuse and a rising number of overdose-related deaths.

Widespread alarm about opioid abuse and addiction pushed the White House Office of National Drug Control Policy to propose a plan to prevent and treat opioid addiction on a national scale. The plan includes the establishment of a Mental Health and Substance Use Disorder Parity Task Force to examine whether insurance plans are conforming to the Mental Health Parity and Addiction Equity Act (MHPAEA) of 2008, which requires that mental health and substance abuse benefits be covered at the same level as other medical benefits. In light of the focus on addiction treatment, plan sponsors should take the opportunity to evaluate whether MHPAEA applies to current plans and, if so, whether those plans are MHPAEA-compliant.

Meanwhile, contraceptive coverage has been the focus of both new state laws and Supreme Court Cases. On March 23, 2016, the Supreme Court heard oral arguments for Zubik v. Burwell, a challenge to the Affordable Care Act contraceptive coverage mandate. A week later, the Court issued an unusual response: an order instructing all parties involved in the case to re-evaluate whether an exemption process could be developed that is acceptable to both the U.S. Department of Health and Human Services (HHS) and to religious nonprofits and closely held companies. Plan sponsors that currently have a contraceptive coverage exemption should follow this case closely; its outcome may change the exemption process significantly.

Meanwhile, some state legislatures are making contraceptives more widely accessible. This spring, California joined Oregon and Washington in allowing women to obtain hormonal contraceptives directly from a pharmacist without an office visit to a family doctor or OB/GYN. Some experts speculate that law might lead to lower expenses for insurance plans, as only the prescription itself must be covered, not the cost of an office visit. The law may also lead to lower expenses for patients, as many forms of birth control are covered without cost-sharing, and patients would save on the cost of an office visit copay.

Only a few drugs must be covered without cost-sharing, however, and in general, prescription drug prices are trending upward. New drugs with exorbitant price tags, and sharp price hikes for existing drugs, have come under intense scrutiny in the wake of a pharmaceutical company’s controversial acquisition and re-introduction of Daraprim, a 60-year-old drug, at a 5,500 percent increase in price, from $13.50 to $750 per pill. Price increases are driving up health care spending overall. In 2015, U.S. spending on prescription drugs exceeded $425 billion, a 12 percent increase from 2014. More than half of that increase is attributable to name brand and specialty drugs approved by the Food and Drug Administration (FDA) within the past two years, rather than older, cheaper generic drugs.

Healthcare payers are exploring strategies to keep prescription drug costs from spiraling out of control while improving patient health. In March, Centers for Medicare & Medicaid Services (CMS) proposed that Medicare pay providers to prescribe the most effective drug—not the most costly drug—and reward providers with bonuses for good patient outcomes. As more private insurance plans base payment models on Medicare pricing, Medicare’s payment innovations could spread throughout the health insurance industry. However, in the United States, prescription drug pricing is usually opaque and difficult for both patients and providers to understand.

As the insurance landscape evolves in response to health care trends, plan sponsors should keep in mind that national trends touch individual employees in ways that affect the plan. Do plan participants live in an area with high rates of opioid overprescribing? Is the plan subject to MHPAEA, and if so, how does the plan cover mental health and substance abuse services? Does the plan comply with Affordable Care Act contraceptive coverage requirements? How are pricey prescription drugs driving plan spending, and how can plan participants be empowered to choose drugs that offer the best value and most efficacy? Engaged plan sponsors and educated plan participants are key to a healthy plan. If you have questions about prescription drug coverage and spending, contact The Boon Group today.

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How Might Merrick Garland Tip Cases at the Supreme Court?

The death of Justice Antonin Scalia on February 13 left a vacancy on the Supreme Court that has yet to be filled. Without a ninth justice, the Supreme Court has turned out two 4-4 split decisions so far, and is accepting fewer new cases than usual in an apparent bid to avoid deadlocking the court before Justice Scalia’s former seat is filled.

On March 16, President Obama nominated the Chief Judge of the U.S. Court of Appeals for the D.C. Circuit, Merrick Garland, to fill the vacant Supreme Court seat.

While the Senate was on a two-week recess, campaigning for and against Judge Garland’s confirmation ramped up, with advertisements and editorials appearing in radio, television and print, particularly in states facing contested Senate races. While two Republican Senators have met with Judge Garland so far, the majority of the Senate has extended a chilly reception. Senator Mitch McConnell, the majority leader, has reaffirmed that he will not support any nomination put forward by President Obama, stating: “The American people may well elect a president who decides to nominate Judge Garland for Senate consideration. The next president may also nominate someone very different. Either way, our view is this: Give the people a voice in the filling of this vacancy.” However, a handful of Republican senators have expressed some openness toward holding confirmation hearings during the “lame duck” period of President Obama’s final year in office, when the presidential election is over but the new president has not yet been sworn in.

If Judge Garland were to be confirmed by the Senate, it is difficult to forecast how his presence might affect the Supreme Court’s future decisions. Judge Garland’s time on the D.C. Circuit Court has produced many technically proficient and even-toned opinions about the issues that are most often presented to that court: government, campaign finance, military proceedings and other cases related to the nation’s capital. However, the D.C. Circuit rarely hears cases about issues that fire voters and employers up, like the Affordable Care Act, health care, insurance, unionization and affirmative action. His record on the D.C. Circuit offers a few clues. In past decisions, Judge Garland has shown deference to executive agencies, and that deference might extend to the Department of Health and Human Services when it comes to cases involving the Affordable Care Act. He has also tended to side with labor unions, upholding findings by the National Labor Relations Board in 18 out of 22 majority opinions. If Judge Garland is eventually confirmed to the Supreme Court—in 2016 or next year—his comments and questions during oral arguments may reveal more about his stances and offer a preview of how his vote may affect employers for years to come.

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