Employee Benefits Compliance

How CAN’T You Discriminate? Let me Count the Ways

There are so many different types of nondiscrimination rules, employers are often confused when various governmental agencies issue nondiscrimination rules. For example:

  • HHS recently issued nondiscrimination rules implementing ACA section 1557 and requiring health programs that receive financial assistance from HHS to cover transgender medical services.
  • Two days later the EEOC published nondiscrimination rules on Wellness plans, the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).
  • Employers have been waiting since 2011 for the IRS to issue nondiscrimination rules for insured group health plans. The ACA says these should be similar to existing IRC section 105(h) nondiscrimination rules that apply to self-insured group health plans.

Why are there so many different types of nondiscrimination rules? Because different laws prohibit discrimination based on various factors, and different regulatory agencies administer the various laws and issue regulations to limit or prohibit discrimination in that particular area.  For example, tax laws (administered by the Internal Revenue Service) prohibit benefits discrimination in favor of “highly-compensated” employees.  Employment laws (administered by the Dept. of Labor and the EEOC) prohibit discrimination based on race, religion, national origin, gender, pregnancy, gender identification, and disability.   HIPAA prohibits health plans from discriminating based on health status factors, and the Mental Health Parity and Addiction Equity Act (MHPAEA) prohibits discrimination (in terms of payment and coverage) against mental health and substance use disorder services.

In some cases several different nondiscrimination law apply (wellness programs, for example), and regulations issued by different agencies may be inconsistent. Thus, it is important to understand ALL the nondiscrimination rules that apply.

This article explains different types of nondiscrimination rules that apply for benefits, compensation and employment; what laws contain these rules; and which government agencies have jurisdiction over the various laws.

The following matrix summarizes the various types of benefits and prohibited discrimination, and the effects of discriminating. Additional information is provided following the matrix.

Law Prohibited Discrimination Types of Benefits Consequences of Discriminating
IRC

 

Internal Revenue Code

IRS

May not discriminate in favor of “highly-compensated” employees, individuals and participants; and against rank-and-file employees.

In some cases, in favor of “key” employees

– §79 Group Term Life

– §105(h) Self-insured health

– §125 Cafeteria plan

– §129 Dependent care

– §132 Fringe Benefits

– §223 H.S.A.s/HDHP

– Also  Retirement plans nondis-crimination:  §401(a),  §401(k),  §403(b), §457

Benefits that would otherwise be non-taxable will be included in taxable income for highly compensated   employees ( or for “key” employees in some cases).
ACA

 

Affordable

Care Act

IRS, DOL, HHS

May not discriminate 1- In favor of “highly compensated employees” (HCEs) PHSA 2716

2- Against patients in clinical trials.

3- Health plans & issuers cannot discriminate against health care providers (PHSA section 2706).

1- Insured group health plans

2-A plan or issuer may not deny (or limit or impose additional conditions on) the coverage of routine patient costs for any items or services furnished in connection with participation in an approved clinical trial.

1- Employer will be subject to excise tax (4980D) of $100 per day per affected EE, to a maximum of $500,000 per year; & may be subject to civil penalties and/or lawsuits under ERISA.

2 & 3- IRC  §4980D penalty of $100/day; or Public Health Service Act (PHSA) $100/day for insurers or non-federal gov’t employer that sponsors a group health plan

ERISA

 

Employee Retirement Income Security Act

DOL

ERISA incorporates various other laws that prohibit discrimination, so prohibits discrimination based on various factors in those laws. Incorporates nondiscrim-ination provisions under HIPAA (health status factors), the MHPAEA (mental health), ACA. Violations can result in a breach of fiduciary duty claim under ERISA, enforcement actions by DOL, lawsuits by plan participants; and ERISA 502(g)(1) permits courts to award “reasonable attorney’s fees and costs of action to either party.”
HIPAA

 

Health Insurance Portability

And Accountability Act

IRS, DOL, HHS

Cannot vary premiums, coverage or benefits based on “health status factors” such as pre-existing conditions, diseases, injury or illness. But can discriminate in favor of people with health status factors.  IRC 9802 (a)(1), ERISA 702(a)(1), PHSA 2705(a). Health plans/benefits; however, wellness programs are a limited exception and allow discrimination if certain criteria are met (e.g., can charge higher premium if employees do not participate in wellness programs or achieve specific results or a reasonable alternative). IRC: $100 per day per affected participant;

ERISA: breach of fiduciary duty claim;

HHS: $100 per day per affected participant?  HHS enforces against insurers and gov’t plans and plans not subject to ERISA.

MHPAEA

 

Mental Health Parity and Addiction Equity Act

IRS, DOL, HHS

May not discriminate by offering less favorable coverage for mental health and substance use disorders (MH/SUD) than for medical and surgical services. Health plans and policies that cover MH/SUD cannot impose more restrictive financial requirements and treatment limitations on MH/SUD benefits than medical/surgical benefits.

Applies to both quantitative and non-quantitative treatment limitations (QTLs and NQTLs).

Violations can result in a breach of fiduciary duty claim under ERISA and an IRS penalty of $100 per covered individual per day. IRC 4980D(b).
ADA

 

Americans with Disabilities Act

EEOC

May not discriminate based on disability or perceived disability; must reasonably accommodate employees with a disability or perceived disability Applies to all types of work situations, including hiring, firing, promotions, harassment, training, wages, and benefits. Health benefits include wellness benefits that require Health Risk Assessments or biometric screening. Injunctions; Actual and punitive damages: up to $75,000 for the first violation, and up to $150,000 for subsequent violations;  Attorney’s fees and costs.
GINA

 

Genetic Information Nondiscrimination Act

EEOC

May not discriminate in health coverage or costs based on genetic information Information about an individual’s or family members’ genetic tests, as well as information about any disease, disorder or condition of an individual’s family members (i.e. family medical history). The same as under Title VII of the Civil Rights Act of 1964. An aggrieved individual may seek reinstate-ment, hiring, promotion, back pay, injunctive relief, pecuniary and non-pecuniary damages (including compensatory and punitive damages), and attorneys’ fees and costs. Cap on damages is listed below under Title VII.
ADEA

 

Age Discrimination in Employment Act

EEOC

Employers cannot discriminate against employees ages 40 and older based on age Applies to any term, condition or privilege of employment, including hiring, firing, promotions, layoffs, job assignments, training, harassment, wages, and benefits.

ADEA applies to private employers with 20 or more employees.

Court can order back pay (wages, benefits and compensation); reinstatement or promotion, or front pay in lieu thereof;

court costs and attorney fees; “liquidated damages” if violation was knowing or with reckless disregard.

Title VII

 

Title VII of the Civil Rights Act of 1964

EEOC

May not discriminate on the basis of race, color, religion, national origin, or sex. Applies to all types of work situations.

Employers must reasonably accommodate applicants’ and employees’ sincerely held religious practices, unless doing so would impose an undue hardship on the operation of the employer’s business.

Remedies available are listed above under GINA. For both GINA and Title VII, the cap on combined compensatory and punitive damages (excluding past monetary losses) ranges from $50,000 for employers with 15-100 employees to $300,000 for employers with more than 500 employees.

 

Additional Details on the Various Types of Nondiscrimination Rules Listed Above 

The Internal Revenue Code (Code) includes numerous sections that prohibit employee benefit plans from discriminating in favor of higher-paid employees and against lower-paid employees or the “rank-and-file” employees.  Specifically, these Code sections prohibit discrimination in favor of highly compensated “employees,” “individuals” or “participants” (HCEs, HCIs or HCPs) or in favor of “key” employees (the most highly paid).  These terms are defined below. The reason the Code prohibits discrimination in favor of highly-paid individuals is because certain benefits receive favorable tax treatment (because Congress wants to encourage employers to provide these benefits to employees),  so from a public policy perspective these benefits should be available to most or all employees, not predominantly just to the highly-paid.

The Affordable Care Act (ACA) also includes various nondiscrimination provisions.

  • Insured plans cannot discriminate in favor of highly compensated employees and against non-highly compensated employees.  (PHSA 2716)
  • Nondiscrimination against patients in clinical trials: A plan or issuer may not deny a qualified individual the right to participate in a clinical trial and may not limit or impose additional conditions on the coverage of routine patient costs for any items or services furnished in connection with participation in an approved clinical trial.
  • Market Reforms – Health plans and insurers cannot discriminate against any health care provider acting within the scope of his/her license or certification under applicable state law.  (PHSA 2706)

The Employee Retirement Income Security Act (ERISA) did not initially include nondiscrimination provisions, but it has been amended to include nondiscrimination provisions under HIPAA, the MHPAEA, the ACA.   Thus, ERISA now prohibits discrimination based on health status factors, mental health, nondiscrimination provisions in the ACA (listed above).  ERISA is administered by the Employee Benefits Security Administration (EBSA) of the DOL.

The Health Insurance Portability and Accountability Act (HIPAA) prohibits discrimination based on “health status factors.”  Adverse “health status” factors or conditions could be pre-existing conditions, chronic diseases, genetic or hereditary health conditions, or any type of injury or illness, such as cancer or AIDS, prior claims, hospital or facility confinement, not actively-at-work, or disability.  HIPAA prohibits plans and insurers from charging higher prices to, or refusing to cover, or excluding certain benefits for people who have adverse health factors such as those listed above.  The “wellness program” rules provide a limited exception to the HIPAA health status factor nondiscrimination rules, so long as specific criteria are met.  That is, under a wellness program (a program of “health promotion and disease prevention”), an employer can charge higher premiums or cost-sharing (such as copayments, deductibles or coinsurance) to employees who do not participate or do not meet certain outcomes or “reasonable alternative standards.” The allowable discrimination is that the employer can charge such employees an additional 30% for their group health plan premiums (50% for tobacco cessation programs).  Wellness programs also must comply with other federal nondiscrimination rules listed below, such as the ADA and GINA.  Rewards/ penalties under tobacco cessation programs subject to the ADA are limited to 30% of the total self-only health plan premium (not 50% as HIPAA would allow).

The Mental Health Parity and Addiction Equity Act (MHPAEA) requires that a group health plan’s coverage of and payment for mental health and substance use disorder (MH/SUD) benefits must be in “parity” with the plan’s coverage of and payment for medical and surgical benefits. Specifically, the MHPAEA requires that:

  • the financial requirements and quantitative treatment limitations  (QTLs) that apply to MH/SUD benefits cannot be any more restrictive than the “predominant” financial requirements and QTLs that apply to “substantially all” medical/ surgical benefits under the plan; and
  • for non-quantitative treatment limitations (NQTLs), the processes, strategies, evidentiary standards, or other factors used in applying the NQTL to MH/SUD benefits cannot be more restrictive than those that apply to medical/surgical benefits.  For example, preauthorization requirements applied to MH/SUD services cannot be more restrictive than those applied to medical/surgical services.

The MHPAEA also requires parity in any aggregate lifetime or annual dollar limits on MH/SUD and medical/surgical benefits; however, these types of limits no longer apply to most types of benefits since the Affordable Care Act prohibits plans form imposing such limits on benefits that are “essential health benefits”(EHBs).

The MHPAEA is administered jointly by the Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL); Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS); and the Internal Revenue Service (IRS), Department of the Treasury.

 

The Equal Employment Opportunity Commission (EEOC) enforces federal laws that make it illegal to discriminate against a job applicant or an employee because of the person’s race, color, religion, sex (including pregnancy, gender identity, transgender status and sexual orientation), national origin, age (40 or older), disability or genetic information. These laws also prohibit retaliation against a person because the person complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.

The laws apply to all types of work situations, including hiring, firing, promotions, harassment, training, wages, and benefits. For additional information, see the EEOC website at https://www.eeoc.gov/laws/statutes/.

The laws enforced by the EEOC include:

  • Title I of the Americans with Disabilities Act of 1990 (ADA) This law makes it illegal to discriminate against a qualified person with a disability in regard to compensation or other terms and conditions of employment, including “fringe benefits available by virtue of employment, whether or not administered by the covered entity.”  The ADA generally prohibits employers from making disability-related inquiries or requiring medical examinations unless needed to determine ability to perform the essential functions of the job. It does include an exception for voluntary employee health programs, including many workplace wellness programs. The ADA also requires employers to “reasonably accommodate” the known physical or mental limitations of an “otherwise qualified individual with a disability” who is an applicant or employee, unless doing so would impose an “undue hardship” on the employer’s business. The ADA applies to employers in the private sector and in state and local governments.
  • The Genetic Information Nondiscrimination Act of 2008 (GINA) (Effective –  11-21-09).  This law makes it illegal to discriminate against employees or applicants because of genetic information. Genetic information includes information about an individual’s genetic tests and the genetic tests of an individual’s family members, as well as information about any disease, disorder or condition of an individual’s family members (i.e. an individual’s family medical history).
  • The Age Discrimination in Employment Act of 1967 (ADEA) This law protects people who are 40 or older from discrimination because of age.
  • Title VII of the Civil Rights Act of 1964 (Title VII) This law makes it illegal to discriminate against someone on the basis of race, color, religion, national origin, or sex. The law also requires that employers reasonably accommodate applicants’ and employees’ sincerely held religious practices, unless doing so would impose an undue hardship on the operation of the employer’s business.
  • The Pregnancy Discrimination Act This law amended Title VII to make it illegal to discriminate against a woman because of pregnancy, childbirth, or a medical condition related to pregnancy or childbirth.
  • The Equal Pay Act of 1963 (EPA) This law makes it illegal to pay different wages to men and women if they perform equal work in the same workplace.
  • Sections 501 and 505 of the Rehabilitation Act of 1973 This law makes it illegal to discriminate against a qualified person with a disability in the federal government. The law also requires that employers reasonably accommodate the known physical or mental limitations of an otherwise qualified individual with a disability who is an applicant or employee, unless doing so would impose an undue hardship on the operation of the employer’s business.
  • Sections 102 and 103 of the Civil Rights Act of 1991 Among other things, this law amends Title VII and the ADA to permit jury trials and compensatory and punitive damage awards in intentional discrimination cases.

Additionally, state employment laws also prohibit employers from discriminating in terms and conditions of employment (including leave and benefits terms) based on race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information. An example of a state law would be the California Fair Employment and Housing Act (FEHA).

So the next time someone says a certain action or benefit plan provision would be discriminatory, ask them just what nondiscrimination law they believe it would violate.

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