As Arizona’s federally run health insurance marketplace gets up and running this month, many Tucson employers will receive reports and inquiries from the marketplace that, if not handled properly, could inadvertently lay the foundation for significant liability later on.
Fortunately, there are steps employers can take now to mitigate those risks.
Imagine that Employee A applies for coverage through the marketplace during the initial open enrollment period, now through March 31. Employee A receives a federal subsidy for his marketplace coverage, based purely on his statements to the marketplace about his income and the availability of other coverage, such as through your employer health plan.
After the open enrollment period ends, and every month thereafter, the marketplace sends your human resources department a notice listing all of your employees who are receiving subsidized coverage through the marketplace, including Employee A. The purpose of this notice is to give your company the opportunity to inform the marketplace if you are offering the employee coverage that should disqualify him from receiving a subsidy.
In June, your company determines it needs to conduct a reduction in force due to a business slowdown. Your HR manager works with senior management to carefully select RIF participants based on their skills, length of service with your company and the expected needs of your business.
The HR manager makes sure the RIF does not disproportionately impact people based on all of the protected classifications (race, nationality, sex, age, disability, etc.). And, the HR manager does not consider whether any of the RIF participants is on that list she received from the marketplace each month. Employee A is laid off in the RIF in July 2014.
In August, Employee A files a claim against your company with the Occupational Safety and Health Administration, alleging that your company chose Employee A for the RIF because he received subsidized coverage through the marketplace.
Employee A can establish a case of retaliation under the Affordable Care Act merely by providing evidence that his receipt of a subsidy was a “contributing factor” in the RIF decision. And under the OSHA rules that have been proposed to enforce the retaliation prohibition, Employee A will be able to meet his burden merely by showing that the HR manager knew he was receiving a subsidy at or near the time he was laid off.
The burden then shifts to your company to establish by clear and convincing evidence (which is a high bar to clear) that it would have laid Employee A off even if he had not received the subsidy. This will be difficult to do where you cannot dispute that your HR manager had actual knowledge from the marketplace that Employee A was receiving a subsidy.
In our example, OSHA completes its investigation in November and requires your company to reinstate Employee A, with back pay to his layoff date in July. You comply after concluding that the costs of trying to reverse OSHA’s decision in court are too high.
There are several steps you can take now to reduce the risk of this happening to you.
First, ensure that all communication with the marketplace is conducted by someone in your benefits department who has no role in evaluating, disciplining, promoting, terminating or determining the compensation of your employees. Do not route these notices and communications to anyone with human resources responsibilities. Instead, treat it much like employers treat HIPAA-protected health information that they receive from their health plans – segregate it from HR personnel and from your employees’ general personnel files.
Second, when the designated benefits people receive an inquiry or a notice from the marketplace indicating that an employee is receiving subsidized coverage through the marketplace, they should review the notice carefully.
If your benefits people know that the employee should not be eligible for the subsidy (because of the coverage your company is offering), they should dispute the marketplace information. Failure to dispute incorrect information right away could make it much more difficult to correct the error in the future (for example, in 2015, when employees receiving a subsidy for marketplace coverage could trigger employer mandate penalties for your company).
Third, if your company is planning a RIF (or any other adverse employment action) in the future, consider whether anyone making the decisions for the company knows that any of the affected employees is or has received subsidized coverage through the marketplace.
If any of the decision makers have such knowledge, address it like you would for other protected classifications like age, race, sex, national origin and disability status (by documenting your reasons for the decision before you take the action). If you do not have such knowledge, include that fact in the documentation you create before taking the adverse employment action.
Erwin Kratz is an attorney with Fennemore Craig. He practices in the areas of ERISA and employee benefits law, focusing on tax and regulatory matters relating to qualified and nonqualified deferred compensation and welfare benefits. Reach him at email@example.com.