Author: Site Staff

Following final congressional approval, President Bush on Friday, October 3, signed mental health care benefits parity legislation into law.

The parity provisions, included in a broader financial services bailout bill, passed the House earlier Friday on a 263-171 vote. The legislation, which the Senate approved earlier in the week, will require health care plans to provide the same coverage for mental disorders as they do for other medical illnesses—a requirement that most group health plans now do not meet.

For example, plans no longer will be allowed to limit the number of annual outpatient visits for treatment of mental disorders while not imposing a comparable limit on the number of outpatient visits for other medical problems.

While the plan changes would be extensive, the cost impact is expected to be modest. The Congressional Budget Office last year estimated that enactment of a similar bill would boost health insurance premiums by an average of about 0.2 percent a year.

The measure will take effect January 1, 2010, for most calendar-year plans.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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It’s hard to determine how much light a congressional hearing on Monday, October 6, shed on the causes of huge losses in the U.S. financial markets, but a lot of heat was generated about the amount of money that Richard Fuld Jr. earned even though the investment firm he heads, Lehman Brothers, filed for bankruptcy on September 15.

Lehman lost $3.9 billion in its fiscal third quarter as the value of mortgage-related assets fell sharply. The investment bank’s collapse precipitated Wall Street tremors that resulted in Congress approving and President Bush signing a $700 billion bailout bill on Friday, October 3.

Fuld, sitting alone at the witness table during a hearing of the House Oversight and Government Reform Committee, endured two hours of withering criticism from the panel during a hearing that lasted nearly five hours.

Panel Republicans criticized Democrats for focusing only on a Wall Street firm and accused them of refusing to examine missteps by Fannie Mae and Freddie Mac. The two government-sponsored mortgage enterprises, which recently had to be rescued, are often seen as politically favored by Democrats.

Committee Chairman Henry Waxman, D-California, produced a chart that showed that Fuld took home $484.8 million in salary, cash bonuses and stock options from 2000 to 2007.

“That’s difficult to comprehend for a lot of people,” Waxman said. “Is this fair?”

Fuld, who expressed remorse about Lehman’s demise, didn’t respond directly, but he disputed the income calculation later in the hearing, indicating that $350 million was a more accurate number.

He defended himself by saying that he did not receive a severance or a golden parachute and never worked on a contract.

Fuld also said he took the biggest loss of any Lehman stockholder when the company went bankrupt.

“I never sold my shares because I believe in this company,” he said.

Citing documents obtained by the committee staff, a couple members said that Fuld drew down Lehman’s reserves by more than $10 billion this year in part to pay year-end bonuses despite warnings about the company’s liquidity.

Fuld defended the move. He said that most of the $10 billion was allocated to employee compensation. Lehman professionals owned about 30 percent of the firm, which motivated them to “think, act and behave like shareholders,” Fuld said.

“From where you sit, it looks like we spent an extra $10 billion,” he said to Rep. Elijah Cummings, D-Maryland. “That is not, sir, what we did.”

Waxman and his Democratic colleagues repeatedly expressed their ire over Wall Street CEOs receiving huge paydays while taxpayers are now on the hook for hundreds of billions to save financial institutions.

“We can’t have a system where Wall Street executives privatize all the gains and socialize all the losses,” Waxman said.

CEO pay incentives have led to Wall Street’s near collapse, according to Nell Minow, editor of the Corporate Library, a governance think tank.

Wall Street leaders have been compensated based on the volume rather than the quality of the business they generate, she said. That has led to the creation of opaque, highly leveraged securities tied to home mortgages that are sliced and resold many times.

“CEO compensation is not just a symptom [of the problem]. It is a cause,” Minow said. “It throws fuel on the fire.”

She was especially critical of the Lehman board, which the Corporate Library graded as a “D” in June 2004 for poor oversight. It is not an isolated case, Minow noted.

“It’s replicated over and over and over again,” she said.

The House committee will delve further into Wall Street travails this fall over the course of five hearings.

—Mark Schoeff Jr.

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Financial services companies have now slashed almost 200,000 jobs since the credit crunch began last year, and the pace of cutbacks is expected to accelerate considerably over the next several months.

Since August 2007, financial institutions have acknowledged eliminating at least 197,300 jobs, according to Chicago outplacement firm Challenger, Gray & Christmas. That’s roughly the same number of cuts announced in the prior three years combined.

Oddly, despite the meltdown on Wall Street in September, there were only 8,200 jobs lost in the financial services sector last month. That’s likely to pick up substantially, however, noted John Challenger, the firm’s CEO. He said workers employed at companies such as Lehman Brothers and Merrill Lynch were expected to be let go over the remainder of 2008.

“It will get a lot worse before it gets any better,” Challenger said. “Much of the turmoil that swept the investment banking and brokerage industry last month has not translated directly into job cuts yet.”

Indeed, UBS officials said Friday, October 3, that they would eliminate 2,000 jobs in the company’s investment banking division. With Lehman filing for bankruptcy, Merrill being acquired by Bank of America, Washington Mutual being taken over by JPMorgan Chase, and AIG getting an $85 billion lifeline from the federal government, there will be at least 50,000 more jobs lost in the financial services industry before the end of the year, Challenger speculated.

He added that the job losses are hardly limited to the financial services sector anymore and pointed to the employment figures the Labor Department released Friday: Employers cut their headcounts by 159,000 workers in September, the largest single one-month decline in more than five years. That’s a much more significant reduction than the decline of 100,000 jobs many had forecast for the month, and brings the total job losses for the year to 760,000.

Manufacturers cut roughly 51,000 jobs last month, while retailers eliminated 40,000 positions.

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Employers are reckoning with the implications of a recent U.S. Supreme Court decision that could affect their ability to provide health care benefits.

The high court’s June decision in MetLife v. Glenn made it clear that employers and insurers face conflicts of interest in administering health benefit plans because they stand to gain financially by denying a claim.

The decision means employers and health insurance companies would be more vulnerable to lawsuits if they did not adequately address these conflicts.

Attorneys said the court’s ruling could open the door to expensive lawsuits from employees whose claims have been denied. Tim Jost, a professor of law at Washington and Lee University, said it could also lead employers to avoid the issue altogether by simply approving more health claims, thereby increasing health care costs.

“Employers and insurers better make sure they have their house in order,” Jost said. Insurers and employers must prove they have a conflict-free system in place—creating a “firewall,” for example, between those who adjudicate claims and employees who make financial decisions. If so, the court is likely to support a company’s choice to deny a claim, Jost said.

In cases with the appearance of a conflict of interest, however, employers and insurers could find themselves facing protracted litigation. Before the decision, federal courts widely accepted that conflicts of interest existed.

In affirming their existence, the Supreme Court made it clear that it would permit plaintiffs’ requests to pretrial discovery, a development considered significant, said attorneys specializing in the administration of the Employee Retirement Income Security Act.

“More discovery means more cost and expense for employers,” said H. Douglas Hinson, a partner in the ERISA litigation group of Alston & Bird in Atlanta. “The time that it takes to discover the facts and circumstances around the conflict could be more expensive than paying the benefit in the first place.”

Hinson says the problem with the ruling is that it does not say exactly how a conflict of interest would weaken a defendant’s case. Instead the court said a conflict of interest would be one factor for courts to consider.

To avoid litigation, employers should ensure that those denying claims operate independently, hiring outside doctors to review cases. Employers who hire outside administrators to adjudicate claims should state in their contract that the employer doesn’t become liable for poor claims administration, said Paul M. Yenerall, a partner with Eckert Seamans Cherin & Mellott in Pittsburgh.

The case, which has great implications for health plans, involved Sears, Roebuck and Co. employee Wanda Glenn, who with a heart condition had her disability benefits denied by Metropolitan Life Insurance Co.

Conflicts of interest among insurance companies became a national scandal in 2002 when it became known that Unum-Provident, the largest U.S. disability insurer, had offered medical advisors bonuses based in part on company earnings.

The court’s ruling portends increased scrutiny of health plans’ decisions. Their best course, Jost said, would be to develop a transparent and independent review system.

Otherwise, Jost wrote in a September online article in the journal Health Affairs, lawsuits “may raise the cost of some ERISA plans, which may mean that additional employers will drop health coverage or increase employee cost sharing or premiums, causing additional employees to forgo coverage.”

—Jeremy Smerd

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Internal Revenue Service guidance released Tuesday, September 30, answers several questions about a new law that allows reservist employees called up for military service to take health care flexible spending account balances as cash distributions.

That law, the Heroes Earnings Assistance and Relief Tax Act, which President Bush signed this year, allows employers to amend their FSA programs to let reservists called up for at least six months of active duty take FSA funds as taxable distributions instead of forfeiting balances.

FSA balance forfeitures are not uncommon, as activated employees and their families are entitled to enroll in TriCare, a Department of Defense health care program that provides generous benefits with no premium contributions. As a result, employees have a vastly reduced need for FSAs, which pay for uncovered health care expenses. Additionally, employees called up for active duty may be deployed in parts of the world, such as Iraq, where they would have limited opportunities to use health care services eligible for FSA reimbursement.

Employers, though, have raised many questions about the new law, which the IRS guidance—Notice 2008-82—has answered.

For example, the guidance makes clear that while the distribution feature is voluntary, employers that add such a feature will have to formally amend their FSA program to incorporate it.

In addition, while the distribution feature is available only to employees called up for at least six months, workers called up for fewer than 180 days can qualify for the distribution if subsequent calls increase the total period of active duty to at least six months. For example, if an employee is called to 120 days of active duty and the order is extended for an additional 60 days, the individual would be eligible to take a cash distribution from his or her FSA.

The IRS notice also makes clear that after an employee requests the distribution, the employer must receive a copy of the order or call to active duty before it can provide the distribution.

Employees have to request a distribution on or after the date of the call to active duty and no later than the last day of the FSA plan year—or grace period, if the employer has added such a feature to its FSA—during which the call to duty occurred.

Employers generally have to provide the distribution within 60 days after the request for a distribution has been made. 

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Massachusetts health care regulators agreed Tuesday, September 30, to ease and delay proposed regulations that would have subjected more employers to large financial assessments to help fund coverage for uninsured state residents.

Under a 2007 rule, employers with at least 11 employees are exempt from a $295 annual per-employee assessment if at least 25 percent of full-time employees are enrolled in their group health plans or if they pay at least 33 percent of the premium for individual coverage for employees within 90 days of their start date.

In July, the Massachusetts Division of Health Care Finance and Policy proposed tightening that rule so employers would have had to pass both tests to avoid the assessment.

That change in the Fair Share Contribution rule would have had its greatest impact on employers that have long waiting periods before new employees are eligible for coverage.

But the final rule assures that many employers, generally smaller firms, will continue to be exempt from the $295 assessment.

Under one change, employers with 11 to 50 employees still will only have to pass the enrollment test or the premium test to be exempt from the assessment. The earlier proposed requirement that both the enrollment and premium tests be passed would have applied to employers with at least 11 employees.

Employers with more than 50 employees, though, will still have to pass both tests. But under a new safe harbor provision, an employer that does not pay at least 33 percent of the premium for individual coverage can still pass if at least 75 percent of full-time employees are enrolled in the employer’s health insurance plans.

Additionally, the new rules won’t go into effect until January 1, 2009; regulators earlier proposed an October 1, 2008, effective date.

Business groups, especially those representing smaller employers, welcome the rule changes.

“Small employers are breathing a sigh of relief as the latest proposal to take more money out of their pockets has been put on ice,” Bill Vernon, state director of the National Federation of Independent Business/Massachusetts in Boston, said in a statement. 

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Four proposed constitutional amendments that organizations representing Colorado employers said would have had a devastating impact on businesses in the state have been withdrawn from November’s ballot, after a deal worked out with labor supporters that had proposed them.

A spokeswoman for the Denver Metro Chamber of Commerce said the amendments were withdrawn in exchange for $3 million in funding from businesses to support union opposition to proposed anti-union laws. The spokeswoman said the chamber was not contributing to the fund.

The amendments would have eliminated “at will” employment in the state and require private employers to have a “just cause” before terminating employees; mandate that all companies with at least 20 employees provide health insurance for workers and their dependents; remove the workers compensation “exclusive remedy” provision; and hold corporate officials criminally liable for illegal company activities.

Opponents of the amendments called them a poison pill by labor supporters as part of a strategy to have the anti-union measures withdrawn. The measures included a right-to-work provision banning compulsory union membership.

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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Four days after narrowly defeating a $700 billion bill to rescue financial markets, the House approved a largely similar measure 263-171 on Friday, October 3—sending it to President Bush for his signature.

The bill authorizes the federal purchase of troubled assets from banks and other financial institutions to avert a systemic Wall Street failure. Firms participating in the program would have to agree to curbs on executive pay.

The pay provisions have remained intact since a bipartisan agreement was announced on September 28 after more than a week of sometimes tense congressional negotiations.

The final bill was amended by the Senate to include a raft of tax breaks, higher limits on deposit insurance and legislation that would require cost and coverage parity between mental health and medical benefits in insurance plans that offer both.

Following the 228-205 House defeat of the bill on September 29, the stock market plummeted 777 points. Seeking to give the measure new momentum, the Senate added sweeteners and passed it 74-25 on Wednesday night, October 1.

Ever since the initial House failure, fostered by caustic constituent reaction to the bailout proposal, business groups and other proponents have fiercely lobbied wavering lawmakers.

They warned that the bill’s demise could grind the Main Street economy to a halt, pointing out that a credit freeze already was severely limiting loans for consumers, students and businesses.

The gravity of the moment was apparent during the House debate on Friday. Minority Leader John Boehner, R-Ohio, described the decision as “probably one of the most serious votes we’ll ever cast.”

The Bush administration and the business community initially were cool to including executive pay restrictions in the package. But the provisions were part of the oversight added to the bill to secure bipartisan support. The original three-page administration proposal grew into the 110-page final measure bailout portion of the final measure.

“Our message to Wall Street is, the party is over,” House Speaker Nancy Pelosi, D-California, said in a floor speech just before Friday’s vote.

Under the bill, a company that sells assets directly to the government would be barred from giving golden parachute severance packages to departing executives and would be compelled to “exclude incentives for executive officers … to take unnecessary and excessive risks.” The company also would have to recover bonus or incentive compensation paid to a senior executive based on performance measures that later proved inaccurate.

If a firm sells more than $300 million in assets to the government at an auction, it would be prohibited from offering golden parachutes to newly hired senior executives. The company would be subject to a 20 percent excise tax on golden parachute payments to fired executives. Compensation above $500,000 would not be tax-deductible.

“It’s not unreasonable for the government to have control and oversight on compensation for companies that sell assets to the government,” said Tom Lehner, policy director at the Business Roundtable, a Washington group representing CEOs of large companies.

It won’t be clear how restrictions on executive compensation will work until the Treasury Department writes corresponding regulations.

Charles Tharp, executive vice president for policy at the Center on Executive Compensation in Washington, is concerned that amorphous definitions could hamper corporations.

“I don’t know how you comply with vague statements like ‘inappropriate’ or ‘excessive’ risk,” Tharp said. “I don’t know what excessive risk is. It really ties the hands of the board.”

He also warned that the golden parachute limits could prevent weak firms from finding new leaders. “Severance gives someone an incentive to join a troubled company and turn it around,” Tharp said.

The bill also changes rules governing health insurance plans that cover 113 million people. The mental health parity measure does not mandate that insurers offer mental health coverage. But if they do, it cannot be more restrictive than coverage for medical and surgical benefits.

Under current law, lifetime annual benefits for each category must be on par. The parity measure requires equality for deductibles, co-payments, out-of-pocket expenses, coinsurance, covered hospital days and covered outpatient visits.

The legislative journey for the mental health bill included a unique collaboration among business groups, insurance companies and mental health advocates who forged a compromise over three years of negotiations.

The bill would “end the discrimination against those who seek treatment for mental illness,” Pelosi said.

—Mark Schoeff Jr.

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Employees know it: Tobacco use is injurious to the health of smokers and to those around them. And employers also know that such use has an effect on health care costs. The U.S. Office of Personnel Management offers a plethora of resources that employers can use in guiding them on how to establish smoking-cessation programs in the workplace. Click here to read about “Relationship to Health Insurance Reimbursements,” “A Checklist for Assessing a Group Cessation Program,” lists of federal and other organizations that offer information, and more.

Like other large employers, the University of California, Berkeley—which has some 7,700 personnel serving a student body of 35,000—knows some of its success rests on having engaged employees. One strategy is career development; the university encourages managers to, in turn, encourage their employees. “Your support of training and development creates a ‘win’ for the employee and for your workplace,” the university advises supervisors. Other employers may find guidance in UC Berkeley’s plans in their attempt to establish or retool their training and development programs.Click here to review what the university has to offer managers.