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Illinois Consumer Coverage Disclosure Act: Comply or Not with Likely State Overreach?
By Jeffrey Herman on March 4, 2022 at 10:30 AM

Illinois passed the Consumer Coverage Disclosure Act (CCDA) in 2021. In a nutshell, the CCDA requires all employers to send employees a notice comparing their health benefits to a list of the state of Illinois’ Essential Health Benefits (EHBs). Depending on the size of the employer and how the law is interpreted, the civil penalties for non-compliance could run anywhere from a nuisance fee to astronomically high.

Even more problematic, the CCDA may not be enforceable at all against most private employers, as the law may be preempted by the Employee Retirement Income Security Act of 1974 (ERISA). But no court has ruled on this issue … at least not yet.

This blog answers basic questions about what the CCDA does and the options employers have, considering the law’s unsettled status.

Q: What does the CCDA require?

A: The CCDA requires employers (any person or entity that “gainfully” employs someone in Illinois) with “group health insurance” to provide a disclosure to all its eligible employees showing which of the state’s EHBs are covered benefits in the employer’s health plan.

To create a compliant employee disclosure, employers will have to look up the scope of each EHB, compare it to the coverage provided in the employer’s plan, and indicate either “No” (meaning the EHB is not a covered benefit), “Yes” (it is), or “Yes, partially” (explaining how the benefit is partly covered). Creating a compliant form will require some expertise in reading and interpreting health benefits and health plans, and it may be somewhat time-consuming.

Q: What are the EHBs?

A: The Illinois Department of Labor (IDOL) recently released a sample compliance form identifying all the EHBs that must be compared. There are 42 separate benefits in 10 different categories. The EHBs are not necessarily required to be covered by a health plan. Whether they are depends on a plan’s insured status (fully insured v. self-funded) and the size of the employer. IDOL simply tells employers to consult an attorney if they want to know what EHBs are actually required.

The disclosure may lead to considerable confusion when received by employees. For each “No” or “Yes, partially” response, employees may believe their employers are breaking the law or providing substandard coverage. But there may be absolutely nothing requiring the employer to provide the benefit in the first place, and the employer’s plan may provide superior benefits in other categories not included in the state’s EHBs.  

Q: When and how does the disclosure have to be provided?

A: The disclosure must be made to an employee when hired, annually, and upon request. The law does not specify a timeframe following each event in which the disclosure must be made (e.g., 30 days following date of hire). This makes it unclear at what point the failure to disclose actually becomes a violation of the CCDA. Fortunately, in addition to in person or via email, the disclosure may be provided to employees by simply posting it on a website they can access. That will easily take care of most disclosures.

Q: If an employer has more than one coverage option, how many forms have to be completed?

A: It is not clear. Employers often have multiple coverage options available to employees. Each option may cover different benefits or at different levels. If the different options can be adequately represented on a single form—e.g., the options provide almost the same coverage, with minor differences that can be adequately explained—then a single form is likely sufficient. But the differences among the options may become so significant that, at some point, it would be impracticable to try to represent that information in a single form, and separate forms will need to be created.

Q: Will health insurance companies complete the form for employers?

A: The CCDA is directed at employers. It does not apply to health insurers, and insurers are not required to help in any way. While insurance companies, brokers, third-party administrators, or other service providers may help an employer comply with the law (particularly a larger employer with leverage), many employers (especially smaller employers) may find that their insurers and service providers are not willing to help them, making compliance even more challenging. The employer will have to create it in-house or hire a third party (such as an attorney) to draft the disclosure, which could be expensive.

Q: What are the penalties for non-compliance?

A: IDOL may assess civil penalties against an employer as follows:

  • Employers with three or fewer employees: up to $500 for a first “offense,” $1,000 for a second, and $3,000 for a third.
  • Employers with four or more employees: up to $1,000 for a first offense, $3,000 for a second, and $5,000 for a third.

The CCDA states that the civil penalty shall take into account “the size of the employer, the good faith efforts made by the employer to comply, and the gravity of the violation.”

Q: That doesn’t sound too bad … right?

A: Well, it could be bad. The law is vague enough that IDOL could assert that a separate penalty may be assessed for each employee who fails to receive a notice when required, as well as for each separate coverage option the employee is eligible for, which could lead to enormous potential penalties.

For example, suppose an employer with no prior “offenses” has 100 eligible employees with three coverage options, and the employer fails to provide any required disclosures. How many “offenses” is that? It could be treated as a single, combined offense leading to a small civil penalty of $1,000. Alternatively, it could be viewed as 100 or even 300 separate offenses, leading to a potential maximum penalty of $1,494,000 (i.e., $1,000 for a first offense + $3,000 for a second offense + $1,490,000 for 298 additional offenses at $5,000 each).

It appears IDOL has privately expressed its opinion that it would view all violations in a single year as one “offense,” but no official guidance or actions consistent with that position have been made. Hopefully, IDOL will soon publicly clarify how penalties will be calculated under the CCDA so employers can better understand the risks of non-compliance.

Q: How are violations and penalties determined?

A: IDOL has the right to conduct investigations of violations. IDOL will first notify an employer and ask it to demonstrate compliance with the CCDA. If the employer fails to do so, IDOL will issue a notice to show cause “giving the employer 30 days to comply.” In other words, an employer gets 30 days to fix the alleged violations. Which is good!

If the employer does not comply within 30 days, IDOL can impose a penalty after conducting a hearing on the matter. The employer has the option of appealing IDOL’s imposed penalty, while IDOL has the option of filing a lawsuit to collect the penalty. And, of course, given the likelihood of ERISA preemption, an employer could file a lawsuit in federal court seeking to enjoin the state from enforcing the law against sponsors of ERISA plans.

Q: What is ERISA preemption?

A: ERISA is a federal law that governs employee benefits, from retirement plans to health plans, and almost everything in between. Section 514 of ERISA (29 U.S.C. § 1144) contains a special “preemption” provision. It states that the provisions of ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” This means states cannot pass or enforce laws that “relate to” employee benefits governed by ERISA.

ERISA preemption typically plays out in federal court (including the U.S. Supreme Court on numerous occasions), where federal judges determine the boundaries of what states can and cannot do. There is a rich history of opinions delineating those boundaries.

Q: Are there limits to preemption?

A: For one, ERISA contains a “Savings Clause,” pursuant to which states can still regulate insurance. Many employers use insured plans for health, disability, and similar benefits, and those insurance policies may still be regulated by the states. However, ERISA also contains a “Deemer Clause,” pursuant to which uninsured plans (i.e., self-funded plans) cannot be regulated as insurance by states.

In addition, ERISA preemption does nothing to save plans that are not subject to ERISA. These plans include church plans and governmental plans, which are fully subject to state regulation.

Q: Is the CCDA preempted with respect to ERISA health plans?

A: IDOL has taken the position that the CCDA is not preempted, stating in its FAQs:

Because the Consumer Coverage Disclosure Act creates a benefits notification requirement for all Illinois employers, regardless of the type of insurance they provide, and does not mandate insurance provisions or otherwise have any direct impact on employer-provided group health insurance coverage, employers who provide self-insured plans and/or ERISA plans are subject to the provisions of the Act.

This is probably not a winning argument.

ERISA already extensively governs disclosures that are required to be given to participants in health plans. For example, certain documents must be furnished to participants that thoroughly explain their benefits and coverage, such as Summary Plan Descriptions and Summaries of Benefits & Coverage. Other types of formal plan documents must be furnished to participants upon request. ERISA governs what must be provided and when it must be provided.

The CCDA interferes in ERISA’s extensive regulation of plan disclosures. The Supreme Court’s words in a 2016 case—concerning a Vermont law that required plans to disclose certain data to state authorities—seem to apply equally well to the CCDA:

The State’s law and regulation govern plan reporting, disclosure, and—by necessary implication—recordkeeping. These matters are fundamental components of ERISA’s regulation of plan administration. Differing, or even parallel, regulations from multiple jurisdictions could create wasteful administrative costs and threaten to subject plans to wide-ranging liability. … Pre-emption is necessary to prevent the States from imposing novel, inconsistent, and burdensome reporting requirements on plans.

The Secretary of Labor, not the States, is authorized to administer the reporting requirements of plans governed by ERISA. He may exempt plans from ERISA reporting requirements altogether. … And, he may be authorized to require ERISA plans to report data similar to that which Vermont seeks, though that question is not presented here. Either way, the uniform rule design of ERISA makes it clear that these decisions are for federal authorities, not for the separate States.

Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 323–24 (2016).

Q: What about the Savings Clause?

A: The Savings Clause allows states to regulate the business of insurance. The CCDA does not look or act like an insurance law. It is not placed among insurance laws, it is not enforced by the Illinois Department of Insurance, and, most importantly, it is not directed at insurance companies or insurance policies. It is best described as a labor law directed at employers, not a bona fide insurance regulation. And, even if it were an insurance regulation, the CCDA would still not apply to self-funded health plans.

But again, no court has yet ruled on the preemption issue. It is possible that a federal court would uphold the law and find that it is not preempted.

Q: So, what should employers do?

A: There are two basic options: (1) comply now; or (2) wait and see.

Complying now is the least risky option, but it may be a little expensive and burdensome to create a compliant form, particularly for an employer that is not getting help from its insurer or other service provider.

The wait-and-see approach has some advantages. Even if IDOL notifies an employer of a violation, the employer would have 30 days to try to comply (in which case no penalty would be imposed), and/or decide to fight it. It is also possible that, in the meantime, a court may rule that the law is preempted (or that it is not). This option is not without risk, however, as it may be difficult complying with the law under a tight timeframe, and the potential penalties could be high, depending on IDOL’s interpretation.

But a wait-and-see approach is not unreasonable, given the likelihood that the law is preempted, the ability to comply within 30 days if notified of a violation, IDOL’s private statement that it will view all violations in a year as a single “offense,” and the time and expense of complying.

Of course, for an employer that sponsors a health plan that is not governed by ERISA, such as a church plan or governmental plan, the analysis is simpler, because there is no preemption argument. For these plans, it is advisable to comply with the CCDA now.

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