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Higher deductibles for those who refuse to answer questionnaire?


Guest jhurt
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Would anything prohibit an employer with a self-insured health plan from having its employees answer a health questionnaire and charging a higher deductible to those who refuse?

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First, the employer is not the health plan, whether self funded or not. So it is important who asks and who receives the health questionnaire. It should not be the employer except for the distribution and collection of the forms.

Second, there are both state and federal laws that protect personal health information (PHI) from those have no need to know it. Employers as general rule have no need to know it and are not covered entities under HIPAA. Covered entities are those that are recognized by law as having a need to know PHI such as a health plan and a service provider.

Third, the potential for misuse, abuse and unlawful dissemination is so great, most would not do what you are thinking of doing.

Fourth, even if the information was made available to you, making health care decisions and employee benefits decisions based on this (or lack of this) information would most likely be discriminatory. Charging different rates for similarly situated employees is not allowed.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Thanks for the response. What would be the statutory/regulatory basis for not being able to charge similarly situated employees different rates, if you know?

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Check out the interim final and proposed HIPAA nondiscrimination regulations. Not sure if they address this specific issue, but they should be helpful.

The regs. were issued by the IRS, PWBA and HCFA in 2001. The IRS portions are at 26 CFR Part 54; PWBA at 29 CFR Part 2590 and HCFA at 45 CFR Part 146.

Happy hunting.

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Similarly situated employees cannot be charged different rates under one group plan. But, they could be charged different rates, if another policy was primary.

For example, if an employee had a policy with a $25,000 benefit per year, his deductible under his group plan could be raised to $25,000.

Don Levit

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While I admit that a higher deductible is not the same as a higher "premium" I think that it would still fail for the same reasons since it is all part of the cost.

Since the employees will no doubt be paying their share of the costs through a section 125 Cafeteria Plan, the Proposed Regs also come into play in addition to IRC 125 in particular 125(g)(2) which refers to there being a uniform relationship to compensation. See Proposed Treas Regs 1.125-2 Q&A 7 and 1.125-1 Q&A 17 among others.

Section 125 plans have to meet certain discrimination tests, including benefits and eligibility. It should be very hard to pass these tests if you have a disparity in premium, cost or deductible charged to a bunch of employees who cannot be classified into any reasonable job related category.

You would also have a problem with COBRA and IRC 4980B(f)(4) etc. If the law requires that COBRA premiums be the same for similarly situated employees, How would you rationalize charging some employees less of an increase for COBRA than when the same employees were not on COBRA which is what could very well happen under your scheme.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Wait...If you are only applying a premium rebate for COMPLETEING the questionairre, and not for any of the content therein, then there should be no HIPAA nondiscrimination issues. The questionairre would be part of a wellness program contained within the plan. However, if you are using the questionairre as underwriting, then the discrimination issue would be present.

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I was not thinking of having a 125 plan. What about an employee-pay-all VEBA, in which premiums are paid after tax for group plan 1, which is primary?

Group plan number 2 is your "traditional" group plan, which would be secondary. Plan 2's benefits would start where plan 1's benefits expire, for the year.

For example, one family may have $10,000 of benefits undrer plan 1; its deductible is $10,000 for plan 2.

A second family may have $25,000 of benefits under plan 1; the deductible for plan 2 is $25,000.

Employers can have more than one group plan, each with separate COBRA regulations.

Part of being "similarly situated" is having similar plans, which includes deductibles. If the deductibles vary, the premiums can vary as well.

Don Levit

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"If you are only applying a premium rebate for COMPLETEING the questionairre" Then wouldn't this be taxable income to the employee? It would not be excludable as a benefit from an accident and health plan or anything else.

Don Levit

What creates the eligible classification between those getting Plan 1 versus those getting Plan 2?

"similarly situated" is not related to the benefits but to the eligibility and availability of whatever the benefits might be. For example all Janitors in the same geographical area on the same shift etc get the same benefits absent a CBA. You cannot give some Janitors greater benefits than other Janitors if they all do the same thing in the same manner in the same place etc. That is what "similarly situated" relates to.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns - Couldn't you give different benefits to different groups of janitors as long as it was not based on a health condition? For example, janitors in school buildings get Benefit Package A and janitors in commercial buildings get Benefit Package B?

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GBurns:

With an employee pay all VEBA, benefits can vary in proportion to contributions paid. You are correct about the availability and eligibility of benefits - they must be equal (assuming all employees madethe same contributions).

All employees are eligible for group plans 1 and 2. However, only group plan 1 is funded through the VEBA. And, recall, that the "V" in VEBA stands for voluntary.

While all are eligible, only those who volunteer would qualify for group plan 1.

Don Levit

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J2D2

Since teachers in Home Ec Dept cannot be treated differently to teachers in the Chemistry Dept since they are all teachers with the same employer etc, Janitors would be no different.

The difference to your scenario is the working for the same employer. In your scenario there would be 2 different employers.

Don Levit,

Just like the "Association" in VEBA does not have the same meaning as the "Association" in AARP, that is not what the "Voluntary" in VEBA means.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I see your point, GBurns. My post was inartfully phrased. What I was trying to get to was the concept that the nondiscrimination rules prohibit distinctions between similarly situated employees based on health factors, but distinctions based on factors other than health should be OK.

New (hopefully better) example, Acme Janitorial Services cleans both commercial buildings and schools. Acme provides Benefit Package A to its employees who clean commercial buildings and Benefit Package B to employees who clean schools. In that situation, similarly situated employees receive different benefits based on an employment factor, not a health factor.

Wouldn't this pass muster under the HIPAA nondiscrimination rules?

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GBurns:

Why would it be taxable income? The plan is drafted to permit a lower premium for employees who complete the questionairre. This is not an unusual plan design. There is no income, only a lower fee for the participant.

J2D2:

Yes, that would clearly pass the HIPAA nondiscrimination tests, as it is not based on health factors. I think what GBurns is referring to is the Section 125 nondiscrimination tests. However, the 125 nondiscrimination tests prevent discrimination in favor of highly compensated participants....not based on health status. Presuming that the questionaire is completed by equivalent numbers of highly comped individuals and non highly comped individuals, this design should not cause the plan to run afoul of the 125 rules.

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I bet that there is no one else who has ever seen such a plan design.

It is taxable income because there is a choice between cash (or cash equivalent) and a taxable benefit (a cash equivalent). The reduced premium is imputed income with a known economic benefit. It would only be non-taxable if it was a health plan benefit or excludible under some specific section of the IRC, which it is not. If it was a 1 time initial irrevocable benefit, it might fly but it is not and will not fly.

Read the IRC and Treas Regs again, the rules do not apply to only highly compensated participants.

J2D2

Now it should be acceptable.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Well, I would disagree as to whether this plan design has been seen elsewhere.

I'm reading the IRC right now. I fail to see how this would be problematic...again, assuming that both highly comped (and key employees) and non-highly comped (and non-key employees) are given, and complete the survey on an equivalent basis.

The employee has made a choice between benefits in cash in determining whether to contribute to the plan. The amount of the contribution is not a separate election, IMO. It is a bona-fide wellness program that enables employees to reduce their premium.

Assuming there were no HIPAA nondiscrimination issues, would you argue that giving a discount to non-smoking employees would violate 125 because the employee could choose each year to whether or not to smoke?

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No-smoking is clearly a health risk and underwriting standard. Filling out a form is not health related nor useable for underwriting.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I do not understand why that should make a difference in the 125 area. Certainly, that's why the questionaire passes the HIPAA discrimination test, and smoking is more problematic, but why does that get around the issue you've raised with regard to the 125 test (which I feel is a non-issue)?

It's entirely possible I'm missing something fundamental here, but I just do not see the distinction in the issue you've raised.

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In a group health plan whether fully insured or self insured, section 125 is not the only issue involved.

Aside from:

1. 125(g) in particular 125(g)(2)(A)(ii) and 125(g)(2)(B).

2. Proposed Treas Regs 1.125-1 Q&A 17 (last sentence).

3. The questionable ability of such a plan design to pass the discrimination test for Eligibility, Benefits and Concentration.

There is still ERISA and other sections of the IRC, for example:

http://assembler.law.cornell.edu/uscode/ht...02----000-.html

Note the reference to "similary situated" etc at (b)(1).

Also 105(h)(3)(ii). This would not be an acceptable classification on which to base the premiums.

I also do not see why this would not violate HIPAA look at the emaples given:

http://www.dol.gov/dol/allcfr/Title_29/Par...CFR2590.702.htm

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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HIPAA:

There is no discrimination because filling out a survey is not a health status factor. This is only the case if the discount is given upon completion of the survey REGARDLESS of the content of the survey. If, for example, the employer gave a discount to employees who answered the survey in a particular way (e.g., no family history of heart disease), then there is a clear violation. However, as structured here, completion of the survey itself is not one of the listed factors.

From your link:

(ii) Cost-sharing mechanisms and wellness programs. A group health

plan or group health insurance coverage with a cost-sharing mechanism

(such as a deductible, copayment, or coinsurance) that requires a

higher payment from an individual, based on a health factor of that

individual or a dependent of that individual, than for a similarly

situated individual under the plan (and thus does not apply uniformly

to all similarly situated individuals) does not violate the

requirements of this paragraph (b)(2) if the payment differential is

based on whether an individual has complied with the requirements of a

bona fide wellness program.

From the DOL's Q&A, available at the link below (emphasis added):

http://www.dol.gov/ebsa/FAQs/faq_hipaa_ND.html

My group health plan requires me to complete a detailed health history questionnaire and subtracts Health Points for prior or current health conditions. In order to enroll in the plan, an individual must score 70 out of 100 total points. I scored only 50 points and was denied eligibility in the plan. Is this permissible?

No. The HIPAA nondiscrimination provisions do not automatically prohibit health care questionnaires. It depends on how the information that is obtained is used. In this case, the plan requires individuals to score a certain number of Health Points that are related to prior or current medical conditions in order to enroll in the plan, which is impermissible discrimination in rules for eligibility based on a health factor.

125(g)(2)(A) and (B)

Note the phrasing of the statute. A plan "shall not" be considered discriminatory if... These are safe harbors for passing the discrimination test, not the test itself. The discrimination test itself is found in 125(b). It deals with discrimination in favor of highly comped or key employees. That is not the case here.

1.125-1 Q&A 17

I assume the sentence you are talking about is "In addition, the accident or health plan must provide for the nondiscriminatory reimbursement of expenses on a per capita basis, rather than as a proportion of compensation". This is, again, discrimination based on compensation. Look at the beginning of that paragraph.

Eligibility, Benefits and Concentration

Again, this is dealing with discrimination in favor of highly comped or key employees. See 125©.

ERISA

The cite you provided points back to (a)(1), which are the health status factors. As discussed above, whether or not an individual completes a survey is not a health status factor.

105(h)(3)(ii)

Under the proposed design, all participants are eligible to participate. The question is the amount of premium. Therefore, 105(h)(3) is not implicated at all.

105(h)(4) is what governs this area. Again, this deals with discrimination in favor of highly compensated individuals. This is not a concern here.

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As per the original post, the questionaire will be used as the basis for charging a higher deductible (premium/ contribution). The questionnaire is not for wellness or anything else, its sole purpose is as a basis for cost shifting.

Those filling out the form get a "discount" not based on any health factor or underwriting criteria. Those not filling out the form get a "surcharge" or increase in cost not based on any underwriting criteria.

The result will be employees "similarly situated" (same job, same Dept, same health, same age same everything) having different costs.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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The result will be employees "similarly situated" (same job, same Dept, same health, same age same everything) having different costs.

Even assuming that this is true, the differing costs will not be based on a health status related factor. In order for a program to violate HIPAA nondiscrimination, the discrimination must be based on one of the itemized factors.

I also don't know what you mean by "...its sole purpose is as a basis for cost shifting." Certainly, that is the end result from the employee's perspective, but (as discussed above) the cost shifting is not based on a health status related factor.

When I have seen this type of program used, the questionaire has been used to make the employees more aware of their own health, and to encourage wellness and preventative care issues (thereby reducing the eventual benefit costs to the employer).

I would be very surprised if this were not the goal...I can't see any other goal that would be served. As a result, even if the program would initially violate HIPAA (I believe it does not), it would meet the requirements of the proposed regulations on bona fide wellness programs.

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