DOL Sues Employer/Plan Sponsor for Approximately $500,000 and Removal of Health Plan Fiduciaries for Failure to Fund Health and COBRA Coverage and Pay Incurred Claims

December 26, 2013 at 11:51 am | Posted in COBRA, Compliance, Department of Labor, Employment Law, Flexible Spending Accounts, Health Care, Medical | Leave a comment
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On December 18th, in Perez v. Home Valu, et al., the DOL sued a self insured health benefit plan, self insured dental plan, flexible benefit plan, COBRA plan, and the individuals responsible for its administration seeking recoupment of approximately $500,000.

On December 24, 2009 the self insured plans stopped paying benefit claims. On January 10, 2010 Home Valu stopped doing business because of financial pressures. All Home Valu benefit plans were formally terminated on January 22, 2010 although they were practically terminated on December 24 when the self insured plans stopped paying claims. Nevertheless, HomeValu continued to deduct approximately $12,000 in insurance premiums from employee paychecks in January 2010 and failed to apply those premiums towards health insurance. The Home Valu benefit plans did not pay approximately $490,000 in claims incurred in November and December 2009 and January 2010.

A copy of the DOL complaint can be found here:
http://www.dol.gov/ebsa/pdf/0-13-cv-03572.pdf

Written Health Plan Document Trumps Corporate Practice: Self-insured employer denied stop loss coverage for health claim in excess of $250,000 because of ineligible employee

August 31, 2012 at 10:02 am | Posted in COBRA, FMLA | Leave a comment
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Clarcor, a manufacturing business in Tennessee, sponsored a self-insured health plan for its employees which it supplemented with stop-loss insurance coverage for participant health claims exceeding $250,000. Plan eligibility was conditioned on a Clarcor employee working 40 hours a week for three consecutive months. Employee Plan eligibility could be lost for a number of reasons, including termination of employment.

Irene was a Clarcor employee who, due to a medical condition, had to take FMLA leave during which time she maintained her coverage. Upon the exhaustion of FMLA leave on January 12, 2008, she decided not return to work.  Rather than terminating Irene at that time, Clarcor placed her on short-term disability and continued to have her premiums paid for health insurance and represented to the stop-loss insurer that Irene was still a covered Plan participant.  Approximately, half a year later, Clarcor terminated Irene and offered her COBRA coverage on June 23, 2008.

Irene incurred well over $250,000 in health care costs between January 12, 2008 (when she decided not to return to work) and June 23, 2008 (when she was finally terminated). The stop-loss insurer immediately questioned the claim and was told by Clarcor that they had a “corporate practice” of continuing  health coverage deductions for employees on short-term disability. There was no mention of the corporate practice in the Clarcor plan documents. The stop-loss insurer denied the claim because Irene was not an eligible employee as of January 12, 2008, the day her FMLA leave expired. Clarcor sued the stop-loss insurer alleging that (1.) Irene was an eligible employee because of the corporate practice and (2.) the stop-loss insurer was obligated to cover expenses incurred during Irene’s COBRA coverage period.

A federal district court, and later the Sixth Circuit Court of Appeals, concluded that the stop-loss insurer was correct in denying the claim. First, Clarcor’s Health Plan language was unambiguous that Plan eligibility ended upon her exhaustion of FMLA leave when she chose not to return to work. Clarcor’s corporate practice of extending health coverage during a period of short-term disability could not defeat the reality that there was no “short term disability exception” in the Health Plan document. The Court also rejected Clarcor’s argument that Irene and Clarcor’s continued payment of premium to the stop-loss insurer amounted to a waiver of the eligibility provision in the Plan document since the stop-loss insurer has no knowledge that Irene was ineligible at the time the premium was paid.

Finally, the court rejected the COBRA coverage argument advanced by Clarcor because Irene was not eligible for COBRA when it was offered on June 23, 2008 since  she was “not a covered person …on the day before the qualifying event.”  The court reasoned that Irene was not a covered person the day before June 23, 2008 since she had been on short-term disability since January 12, 2008. Clarcor should have offered COBRA to Irene on January 12, 2008 (the termination of her FMLA leave) and the subsequent offer of COBRA coverage six months later was  untimely. Consequently, the stop-loss insurer did not have to reimburse Clarcor for health provider payments made on behalf of an ineligible employee.

Imperfect COBRA Compliance Efforts Are Better Than No COBRA Compliance Efforts At All

August 30, 2011 at 3:31 pm | Posted in COBRA | Leave a comment
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A recent COBRA case from Indiana, Gomez v. St. Vincent Health Inc., demonstrates the value to plan administrators of aggressive efforts to correct COBRA administration deficiencies as opposed to doing nothing, as well as the value of “good faith” compliance efforts and a compliance program, as opposed to no compliance efforts or program at all.

St Vincent Health Inc. (SVH) employs thousands of employees across sixteen campuses in central Indiana. From 2004-2006, approximately 1,570 SVH employees experienced “qualifying events” that triggered COBRA election notices which were administered by a third party administrator (TPA). The TPA’s COBRA administration was overseen, in part, by an annual compliance audit program spearheaded by an accounting firm retained by SVH. The annual compliance audit consisted of the examination of a random sample of COBRA elections from qualified beneficiaries each year. At no time during 2004-2006 did the annual compliance audits, or any of the 50,000 plus phone calls to SVH’s human resources department during that period, alert SVH of any deficiency in its COBRA obligations.

In February 2006, SVH learned for the first time that there were major “holes” in its COBRA plan administration and compliance programs when it discovered that 266 employees who experienced qualifying events between 2004-2006 either never received COBRA election notices or received their notice too late. To its credit, SVH contacted the individuals, provided new notices, allowed retroactive elections, and offered to negotiate payment plans for those who could not afford to pay an accrued premium obligation.

Demonstrative of the adage “No good deed goes unpunished,” SVH soon found itself the subject of several class action litigation efforts. Fortunately for SVH, they defeated the class action efforts but were left with individual COBRA lawsuits regarding their COBRA administration miscues brought by two former SVH employees, Gomez and Barnett. A Federal District Court judge dismissed Gomez’ complaint since she testified that had she been provided with a timely COBRA election notice, she would have declined coverage because she could not afford it. In regards to Barnett, the judge granted an award of $396 for prescription costs incurred.

In addition to their reimbursement claims, Gomez and Barnett also argued that the Judge should also impose $55,220 in discretionary statutory COBRA penalties against SVH. COBRA allows for the imposition of a $110 daily penalty against plan administrators for noncompliance. Gomez and Barnett also believed, that in addition to their cases, the undisputed existence of two years and at least 266 COBRA errors should translate into a significant fine against SVH. The judge declined, however, to impose any statutory penalties on SVH because of the existence of the compliance program and the $396 in reimbursement damages was not significant. After years of Federal Court litigation, the attorneys for Gomez and Barnett had no class action, had recovered $396 in actual damages and had recovered “zippo” for SVH’s admitted COBRA miscues.

Gomez and Barnett appealed, believing that COBRA mandates an automatic $110 a day penalty for noncompliance and that they did not have to show that their actual harm was significant.  On appeal, the Seventh Circuit Court of Appeals upheld the District Court judge’s decision not to impose any COBRA statutory penalties although it recognized that SVH breached its COBRA administration obligations. The Seventh Circuit reasoned that (1) the imposition of the $110 a day penalty was discretionary and not automatic; (2) the presence of a compliance/oversight program and SVH’s actual auditing efforts demonstrated a “good faith” effort; (3) there was no evidence of misrepresentation, gross negligence or willful delay in response to beneficiaries request for information; and (4) the purpose of the statutory $110 a day penalty was to incentivize plan administrators to comply with its COBRA and ERISA obligations but actual, perfect compliance …and the resulting statutory penalty…could be excused by immediate corrective action and the lack of significant injury or prejudice to a beneficiary.

Moon Over Kansas: What Type of Employee Misconduct Disqualifies One From COBRA Coverage?

June 16, 2011 at 12:31 pm | Posted in COBRA | Leave a comment
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Peeved at a fellow nurse’s refusal to assist her in answering some patient’s calls, Jennifer Reavis exercised her right o free speech by bending over, partially pulling her scrub pants down, exposed her rear end and “mooned” her colleague. Unfortunately for Jennifer, her hospital employer found the propriety of her expression to be in outer space and summarily fired her for failing to meet the employer’s “values.”  The employer also concluded that the mooning was intentional and reckless, rising to the level of gross misconduct and justifying its decision to disqualify Jennifer from any continued health insurance coverage under COBRA. Not content with the sun setting prematurely on her health insurance coverage, Jennifer challenged the employer’s refusal to extend COBRA coverage to her. The employer-Jennifer dispute was then addressed with the speed of a comet by both the Department of Labor and the United States District Court for Kansas.

 Shining A Light On Gross Misconduct
There is no definitive federal statutory or regulatory guidance as to what the phrase “Gross Misconduct” means. Consequently Federal Courts (primarily) and the Department of Labor (“DOL”) have repeatedly been launched into a definitional black hole and have addressed the meaning of  gross misconduct on a case by case basis. For example, the Court’s have found that the following behavior was not gross misconduct: mere negligence or incompetence, forgetfulness of completing assigned tasks, gossiping, unprofessional behavior that is isolated or sporadic in its occurrence. In other words, a singular, distant shooting star of inappropriate behavior that does not equate with a big bang of bad deeds will not satisfy COBRA’s gross misconduct threshold.

Looking at the dark side of the moon, however, Court’s have found the following behavior was gross misconduct which supported an employer’s decision not to extend COBRA coverage to a terminated employee: a college professor who lied about not having an undergraduate degree and was convicted of student aid and social security fraud; a drunken employee crashing the employer’s car; a worker’s use of a racial slur while throwing an apple at the target of the slur; an employee stealing from the employer; an employee beating a fellow employee to the point of hospitalization; an employee’s repeated and intentional refusal to follow the instructions of his supervisor. In short, the galaxy of cases where gross misconduct was found have a common orbit of behavior that is unconscionable, outrageous and extreme or, alternatively, intentional, insubordinate misbehavior that is not isolated in its occurrence but is reflective of a pattern and practice of bad deeds.    

The Moon, the Sun and the Stars
In Jennifer’s case “timing was everything.” Contemporaneous with her 2010 Kansas moon, was the passage of the American Recovery and Reinvestment Act which allowed for an expedited review (15 days) of the denial of any employee’s COBRA coverage by the DOL. A benefit advisor from the DOL spoke to Jennifer about the incident and reviewed two statements from co-employees, submitted by the employer, who observed the mooning. The DOL advisor then issued a determination letter opining that there was no gross misconduct by Jennifer since gross misconduct “generally must be something that would rise to the level of a felony or something that might lead to criminal charges.” In short, in the opinion of the DOL benefit advisor, a single incidence of mooning was not enough. Gross misconduct required an alignment of the moon, the sun, and the stars.  

Eclipse 
When the employer learned of the DOL’s celestial conclusion, it launched a lawsuit in Federal Court seeking to “stay” the effect of the DOL determination letter. The Federal Court rejected the employer’s request and rationale because Jennifer had a real-time need for health coverage and the DOL did not abuse its discretion by finding that the mooning was not gross misconduct. Specifically, the Court wrote:

“The mooning incident was intentional, willful and reckless in the eyes of the court. But, it was also a single, isolated, impulsive incident which only harmed work place protocol.”

At the end of the day, the employer’s decision not to extend COBRA coverage to Jennifer was eclipsed.

Reading The Stars
Given the lack of a bright line test, human resource professionals may feel that trying to discern gross misconduct is not unlike trying to predict the future by reading the stars. The reported cases to date all suggest that deliberative, decision-making caution is in order. First, the cases underscore the need for good record keeping of employee discipline infractions, particularly if an ultimate termination reflects a pattern and practice of insubordination, willful and wrongful misconduct. Second, if the bad behavior is isolated, the general rule of thumb is that the to be gross misconduct, the complained of behavior must be unconscionable and outrageous and usually involve a victim albeit a fellow employee or the employer. Finally, in light of the endless universe of scenarios of possible gross misconduct, don’t be shy about managing your risk by consulting your resources.

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