BAN Blog

On September 11, 2020, the U.S. Department of Labor (“DOL”) released a temporary rule updating certain FFCRA regulations.  The temporary rule is scheduled to be published on September 16, 2020, and will be effective immediately through the expiration of the FFCRA’s paid leave provisions on December 31, 2020. 

The temporary rule updates FFCRA regulations issued in April 2020 in response to a recent federal District Court decision which found four portions of the initial regulations invalid:  provisions related to whether the FFCRA applies if employers do not have work available for employees; the timing for which employees must request the need for leave; the definition of health care provider; and the availability of intermittent leave. 

While many anticipated that the DOL would appeal the decision, the DOL elected to reaffirm and clarify its position on some of these issues, while choosing to revise or update others. Thus, while the court’s order was limited to companies operating in New York (or potentially only those in the Southern District of New York), the DOL’s revisions to the regulations apply to all employers subject to the FFCRA (inside and outside New York). 

The District Court’s order and the updated regulations are discussed in more detail below.

New York Federal District Court Decision

Soon after the FFCRA regulations were implemented, the State of New York sued the DOL in the United States District Court for the Southern District of New York claiming the DOL exceeded its authority when it implemented several provisions of the FFCRA regulations. The District Court agreed in part and, in August, the court issued an order invalidating several portions of the FFCRA regulations.

• Work Availability Requirement – The original regulations limited the availability of emergency paid sick leave and expanded FMLA leave to certain situations where the employer’s business is open or the employer has worked for the employee, but the employee is unable to work due to a COVID-19 qualifying reason.  The court vacated this requirement, making the FFCRA available even if the employer does not have work for the employee, such as situations where the employee is furloughed, or the business is closed.
• Documentation – The FFCRA statute requires employees to notify an employer of the need for leave “after the first workday” during which an employee requires paid sick time; however, the initial FFCRA regulations required documentation to be provided to the employer before any sick time is taken. The court determined this was beyond the scope of the statute and vacated this requirement. The content of the documentation and the need for documentation were not eliminated, just the timing of when it must be provided.
• Definition of Health Care Provider – The initial FFCRA regulations used an expansive definition of health care provider, which included individuals who work in support of health care operations, such as cleaning staff, food service professionals and cooks, maintenance workers, IT staff, or other administrative support staff who support health care operations.   The district court vacated the definition of health care provider, finding it overbroad.
• Intermittent Leave – The initial regulations allowed employees to take intermittent leave in certain situations with employer approval/agreement.  The court found this inconsistent with the statute and rejected this aspect of the regulation as an impermissible limitation on the availability of intermittent leave. 

Updated Regulations

In the updated regulations, DOL reaffirms its regulations related to the work availability and intermittent leave requirements but provided further clarification or explanation of its regulations.  The DOL revised regulations related to the definition of “health care provider” and notice requirements.  The rationale and changes are discussed more fully below:

Work Availability

Specifically, for purposes of the work availability requirement, the DOL affirms that neither emergency paid sick leave nor expanded FMLA under the FFCRA may be taken unless the employer has work available for the employee (the “work availability” requirement).  The FFCRA statute provides that leave under the FFCRA is available if an employee is unable to work (or telework) “because of” or “due to” a qualifying reason under the FFCRA.  The DOL cites to U.S. Supreme Court authority that interprets “because of” or “due to” language to create a “but for” test or analysis. Thus, FFCRA leave must be the “but for” cause of the employee’s inability to work.  Furthermore, the DOL reasons that the plain meaning of the word “leave” in this context, and based on longstanding DOL interpretation, means that someone has to be absent from work at a time the employee would otherwise be working. Thus, the DOL stands by its original regulation and provides that an employee cannot take FFCRA leave if there was no work available from the employer for the employee to perform. 

Finally, the DOL explains that this requirement was intended to apply for all qualifying reasons under the FFCRA, not just those that were initially listed in the original regulations.

Intermittent Leave

The FFCRA is silent about the availability of intermittent leave, but as the DOL notes in the preamble to the updated regulations, the DOL was given broad authority to develop rules under the law. Thus, consistent with FMLA regulations, the DOL interpreted the availability of intermittent expanded FMLA leave for employees working onsite similar to how it applies for purposes of FMLA, which may also require employer approval.  For emergency paid sick leave, however, there is opportunity for spreading COVID-19 in the workplace.  Thus, it would be contrary to the purpose of the FFCRA to allow someone to take emergency paid sick leave intermittently (unless caring for a child whose regular daycare provider is unavailable due to COVID-19). Therefore, for employees working on-site, the DOL reaffirms its decision to only allow intermittent leave for expanded FMLA leave purposes.  The DOL confirmed, however, as originally provided, that intermittent leave may be available for any FFCRA qualified reason if an employee is teleworking, as there is no risk the employee would spread COVID-19 at a worksite.  In any intermittent leave context, however, permission from the employer is still required.

Health Care Provider Definition

In an effort to ensure the public health system could maintain its necessary function during the COVID-19 pandemic, the FFCRA allowed employers to exclude employees who are “health care providers” or “emergency responders” from eligibility for expanded FMLA leave and emergency paid sick leave.

The DOL took an expansive approach in defining “health care provider” in its initial FFCRA regulations to ensure health care operations would not be hampered, such as ensuring maintenance to health care facilities, trash collection, food services for hospital workers, and other similar services.  The District Court found this approach to be overly broad and, therefore, per the District Court’s order, the DOL opted to revise its definition of health care provider.  In the updated regulations, health care providers include employees who are health care providers under existing FMLA regulations and “any other employee who is capable of providing health care services such as diagnostic services, preventive services, treatment services, and other services that are integrated with and necessary to the provision of patient care and, if not provided would adversely impact patient care.”

This could include a variety of health care practitioners other than doctors, including nurses, nurse assistants, medical technicians, and laboratory technicians.  The preamble and rule provide numerous examples of what would constitute diagnostic, preventive, or treatment services, and services integrated with these that are necessary for patient care, such as bathing, dressing, or feeding patients, among several others.  Foodservice professionals, IT professionals, building maintenance workers, HR professionals, or other individuals who do not provide health care services even though their work impacts health care services are no longer included in the definition of health care providers.

Employees falling within the new definition of health care provider can work in a variety of settings including, but not limited to, hospitals, clinics, doctor’s offices, medical schools, local health departments, nursing or retirement facilities, nursing homes, home health providers, laboratories, or pharmacies.

Notice of the Need for Leave

In the updated regulations, the DOL clarifies that notice of the need for emergency paid sick leave must be provided as soon as practicable (instead of before emergency sick leave is taken), which is consistent with the position the plaintiffs took when they challenged the original regulations.

Additionally, the DOL revised the regulations regarding notice of expanded FMLA leave.  For a foreseeable need to expand FMLA leave, the employee must provide notice as soon as is practicable, which may mean the employee may have to provide advance notice of the need for leave if the facts and circumstances support prior notice.  Prior notice is not required for an unforeseeable need for expanded FMLA leave. Finally, the employer may require an employee to substantiate the need for leave as soon as practicable, which may be at the same time notice is provided.

The DOL also updated its FFCRA FAQ’s consistent with the updated regulations.

Conclusion

As mentioned previously, the DOL’s updated regulations impact all employers subject to the FFCRA, not just those with employees in New York. Thus, all impacted employers should familiarize themselves with the updated regulations and administer them accordingly moving forward. 

To the extent an employer has employees impacted by the revised regulations, such as individuals previously included in the DOL’s broad definition of health care provider or employees who were denied emergency paid sick leave for failing to provide advance notice, they should consult directly with counsel to discuss how to address those specific situations.

On July 24, 2020, President Trump issued several Executive Orders intending to lower prescription drug costs by (1) modifying anti-kickback laws to lower drug prices, (2) reducing trade barriers to increase importation of drugs and lower prices, and (3) improving access to insulin and epinephrine for individuals with diabetes or severe allergies.  Each of the executive orders is explained in more detail below.

Modifying Anti-Kickback Laws to Improve Drug Prices

The President’s “Executive Order on Lowering Prices for Patients by Eliminating Kickbacks to Middlemen” recognizes that insurance companies, health plan sponsors, and pharmacy benefits managers (PBMs) are able to negotiate significant discounts on drug prices and potentially collect large rebates, while Medicare patients’ cost-sharing for prescription drugs is often based on the list price for these drugs. This can result in out-of-pocket costs for Medicare patients above those typically experienced by participants in employer-sponsored group health plans. 

Therefore, the Executive Order requires the U.S. Department of Health and Human Services (HHS) to develop rules to (1) subject certain rebates provided to health plan sponsors, pharmacies, and PBMs operating in the Medicare Part D program to federal anti-kickback rules (from which they currently enjoy a regulatory exemption); and (2) establish new safe harbors so health plan sponsors, pharmacies, and PBMs can lower patients’ out of pocket costs by allowing for discounts at the point of sale and permitting the use of certain bona fide PBM service fees.  The Executive Order requires HHS to confirm publicly that any actions taken are not projected to increase federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.  This caveat may make it difficult to implement this Executive Order, as government actuaries estimated significant premium increases if rebates were no longer paid directly to Medicare Part D plans, which in turn increases federal spending because the government subsidizes Part D premiums.

Creating a Pathway to Safely Import Prescription Drugs from Other Countries

Citing the disparities in the cost of drugs in other countries and the United States, the President issued the “Executive Order on Increasing Drug Importation to Lower Prices for American Patients,” which permits HHS to use authority under existing laws to (1) grant individual waivers (for states, wholesalers, and pharmacies) to existing laws that prohibit importing prescription drugs from other countries, but only if there would be no increased risk to public safety and lower prices would result; (2) permit insulin products to be re-imported for emergency medical care; and (3) complete the rulemaking process to allow certain prescription drugs to be imported from Canada.

Improve Access to Insulin and Epinephrine

The “Executive Order on Access to Affordable Life-Saving Medications” states that prices for life-saving epinephrine and insulin have dramatically increased over time, even for individuals who access prescription drugs through private insurance or federal programs, such as Medicare or Medicaid. The Executive Order further provides that Federally Qualified Health Centers (FQHCs) receive significantly discounted prices for such life-saving medications through the federal 340B prescription drug program.  Therefore, the Executive Order authorizes HHS, to the extent permitted under the Public Health Service Act (PHSA), to ensure future grants awarded by the agency to 340B hospitals are conditioned upon 340B hospitals having established practices to make insulin and injectable epinephrine available at the 340B discounted price to individuals with low incomes who: (1) have high cost-sharing for insulin or injectable epinephrine; (2) have a high unmet deductible; or (3) have no health insurance.

Medicare Drug Pricing

President Trump also stated that he is considering a fourth Executive Order that would require Medicare to price-match drugs by purchasing drugs at the same price the drugs cost in other countries.  The President is meeting with the heads of drug manufacturing companies to discuss this particular proposal but will release the Executive Order on August 24^th if they cannot come up with a solution to lower drug prices by that deadline.

Conclusion

While many of these proposals may impact group health plans, because they are primarily executive actions operating within the confines of existing laws, they would not be permanent requirements.  Moreover, due to the cost controls (i.e., no increase to federal spending) and/or because the proposals would take time to implement, depending on the results of the upcoming election, we may never see them come to fruition.

The Internal Revenue Service (IRS) has released Rev. Proc. 2020-36, which contains the inflation-adjusted amounts for 2021 used to determine whether employer-sponsored coverage is “affordable” for purposes of the Affordable Care Act’s (ACA) employer shared responsibility provisions and premium tax credit program. As shown in the table below, for plan years beginning in 2021, the affordability percentage for employer mandate purposes is indexed to 9.83%.  The employer shared responsibility payments are also indexed.

Under the ACA, applicable large employers (ALEs) must offer affordable health insurance coverage to full-time employees. If the ALE does not offer affordable coverage, it may be subject to an employer shared responsibility payment. An ALE is an employer that employed 50 or more full-time equivalent employees on average in the prior calendar year. Coverage is considered affordable if the employee’s required contribution for self-only coverage on the employer’s lowest-cost, minimum value plan does not exceed 9.83% of the employee’s household income in 2021 (prior years shown above). An ALE may rely on one or more safe harbors in determining if coverage is affordable: W-2, Rate of Pay, and Federal Poverty Level. 

If the employer’s coverage is not affordable under one of the safe harbors and a full-time employee is approved for a premium tax credit for Marketplace coverage, the employer may be subject to an employer shared responsibility payment.

Note that as of January 1, 2019, the individual mandate penalty imposed on individual taxpayers for failure to have qualifying health coverage was reduced to $0 under the Tax Cuts and Jobs Act, effectively repealing the individual mandate. Although there is currently a lawsuit challenging the constitutionality of the ACA due to this change to the individual mandate penalty, which is scheduled for oral argument before the United States Supreme Court this fall, the employer mandate has not been repealed and the IRS continues to enforce it through Letter 226J. The IRS appears to still be enforcing reporting for 2017 and has not sent letters regarding the calendar year 2018 reporting at this time.

Next Steps for Employers

Applicable large employers should be aware of the updated affordability percentage for plan years beginning in 2021. Although the affordability percentage has not increased significantly from 9.78% to 9.83%, employers should consider it along with all other relevant factors when setting contributions.