4 Major Benefits Policy Developments In The First Half Of 2023

By Kellie Mejdrich

Law360 (June 16, 2023, 2:52 PM EDT) —

Congress and the Biden Administration took several key actions that made an impact on employee benefits policy in the first six months of 2023, including advancing federal legislation cracking down on pharmacy benefit managers, ending emergency designations tied to the coronavirus pandemic, and proposing rules for group health plans on contraceptive coverage.

Here, Law360 speaks with benefits attorneys about four major policy developments from the first half of the year.

Biden Vetoes ESG Rule Rollback

President Joe Biden exercised his first veto as president to strike down legislation that would nix a U.S. Department of Labor rule aimed at helping retirement plan managers factor things like climate change and social justice into investment decisions, with the effort bringing out unusual alliances in Congress.

Biden’s March 20 veto came after the Congressional Review Act resolution, H.J.R. 30, cleared the Senate by a 50-46 vote, with two moderate Democratic senators — Joe Manchin of West Virginia and Jon Tester of Montana — providing Republicans a majority necessary for passage.

The legislation aimed to invalidate a DOL rule the Employee Benefits Security Administration finalized in November explaining how retirement plan managers overseeing plans governed by the Employee Retirement Income Security Act can consider environmental, social and governance, or ESG, factors when selecting investments.

Senate consideration on March 1 came after the U.S. House of Representatives on Feb. 28 passed the measure by a 216-204 vote with the support of just one Democrat, Rep. Jared Golden of Maine, and the entire House Republican majority.

Benefits attorneys say the debate highlights the legal risks for plans that offer funds devoted to socially conscious investing. The resolution joins a recent wave of backlash that includes separate legal challenges from GOP attorneys general in Texas federal court and two individual employee retirement plan participants in Wisconsin.

Many attorneys point out how the ESG rule under Biden was broadly considered a less complicated regulation than what the Trump administration contemplated. For example, Biden’s rule removed a categorical prohibition on managers establishing an ESG-related fund as a default investment option, removing a restriction on fund selection for a decision that has always been subject to ERISA’s strict fiduciary standards.

John Schuch, a partner in Dechert LLP’s employee benefits and executive compensation group, said Biden’s veto of the ESG rule rollback demonstrated how it has become “very politicized,” even though “the ESG issue under ERISA has been going on for ages.”

“I think, generally, the market had viewed the latest iteration to be the most in line with the statute — that you can take into account ESG when it’s relevant to making an investment decision as a plan fiduciary. I don’t think that’s controversial,” he said.

Schuch added “just purely as an ERISA lawyer, I think we generally tended to agree that policy reflected in the latest regulation was the most straightforward application of what we all understood the statute to be.”

Coronavirus Pandemic Emergency Designations End

Biden’s decision to end the federal public health and national emergency designations tied to the coronavirus pandemic on May 11 prompted a slew of different benefit plan changes and coverage decisions for administrators, including whether they wanted to continue providing free COVID tests.

The Biden administration announced in January that the designations would conclude May 11, describing the end date in a veto threat sent to the Republican-led U.S. House of Representatives in advance of lawmakers passing two pieces of legislation that would immediately end the emergency designations. A primary complaint from the GOP majority was the increased rate of federal spending under the designations despite the fact the pandemic had eased. Biden later signed a bill ending the national emergency designation slightly earlier than planned in April.

Agencies overseeing the wind-down put out guidance to help with the transition, including the federal government’s recommendation that plans keep covering telehealth. Some major impacts from the designation’s conclusion included the end of coverage requirements on things like out-of-network COVID tests or vaccines and changes to regulatory compliance obligations including a gradual tightening of deadline suspensions for benefit plan actions.

Ballard Spahr LLP partner Finn Pressly said the end of the emergency designations “definitely created a lot of mid-year changes and administrative work to unwind all of that relief.”

“It’s much easier to roll out plan changes when the plan year starts. Changing your plan design and communicating those changes to participants mid-year is just an awkward and time-consuming task.”

Pressly said while third-party administrators handled a lot of the coverage changes prompted by the end of the emergency, employers were more on the front lines of eligibility and enrollment questions.

Contraceptive Coverage Rules Proposed

The Biden administration on Jan. 30 proposed long-awaited rules tightening the Affordable Care Act’s contraception mandate to eliminate a moral exemption that the Trump administration crafted and the U.S. Supreme Court upheld in 2020.

The joint proposal from the U.S. Department of Health and Human Services, the Treasury Department and the DOL’s EBSA that would rescind the so-called moral exemption rule finalized in 2018 that allowed employers without church affiliation to avoid the requirement.

Still, the proposal maintains a religious exemption for church-affiliated employers from 2018 which was also upheld in the Supreme Court’s 7-2 decision holding that employers can exclude birth control from their health care plans if they oppose contraception on moral or religious grounds.

As expected, and in a sign of possible legal challenges to come, conservative interest groups and politicians have torched the proposal for removing the moral exemption. Democratic attorneys general quickly wrote in support of the rule, highlighting an individual contraceptive coverage arrangement in the proposal that sets up a way for individuals to obtain no-cost contraceptive services when their employer objects to the mandate, using providers that can seek reimbursement directly from an insurance issuer through federal or state insurance exchanges.

Pressly, of Ballard Spahr, said the rules were “really interesting because of this independent pathway that they’ve set up for individuals to obtain contraceptive coverage from the providers, separate and apart from their plan.”

“If it’s successful, and providers are satisfied with the payment mechanisms and it increases access to care, this is a new tool in the government’s arsenal to sidestep employers completely,” Pressly said. “It’s almost like a tiptoe into a single-payer type model.”

Congress Moves To Crack Down On PBMs

Congressional committees in the House and Senate moved ahead on legislation in May that would crack down on pharmacy benefit managers — companies that operate in between insurers, pharmacists and drugmakers — with Republicans and Democrats agreeing to limit what PBMs can charge for drugs and impose greater transparency requirements.

Advancement of bipartisan legislation in the Senate Health, Education, Labor and Pensions Committee on May 11 came after the panel agreed to delay an earlier scheduled markup to first hear from major drug company and PBM CEOs. Later that month, the House Energy and Commerce Committee also moved PBM legislation with bipartisan support.

Federal PBM legislation comes as state laws enacted in the past year have also proliferated, adding new state licensure requirements and reporting on business practices that have increased compliance headaches for employers and health plan administrators.

Ryan Temme, principal at Groom Law Group, said the PBM bills moving through House and Senate committees of Congress was “certainly one of the more meaningful policy developments in the first half of the year” for commercial health coverage.

“The impetus at the federal level is an acknowledgment that the states are taking increasingly more robust action on regulating PBMs, and I think that is coupled with a sense that there may be cost savings to consumers available,” Temme said.

“Whether or not those cost savings materialize, I think, is an open question. But I think there’s a desire to take action to reduce drug costs across the board,” Temme said.

Anne Tyler Hall, managing partner at Hall Benefits Law, said the increased state and federal pressure on PBMs has provided “tailwinds” for ERISA plan sponsors to try to negotiate clearer agreements with the businesses and “hold the PBM’s feet to the fire.”

“I think it’s a pivotal time for plan sponsors, to make sure that they’re carefully reviewing and negotiating these agreements. A good negotiation can bear six, seven figures of money back to the plan,” Hall said. “It’s also a fiduciary requirement to get the best agreement that you can as a plan sponsor.”

–Editing by Amy Rowe.

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Hall Benefits Law, LLC

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