Why employers should brace for Obamacare lawsuits

Legal challenges to the legitimacy of the Affordable Care Act are nothing new. But with the next wave of Obamacare litigation, it's not the government but large employers who could find themselves facing worker lawsuits for violating the health-reform law.

Honeywell CEO David Cote never expected that his company's wellness program would be subject to a federal suit brought by the Equal Employment Opportunity Commission last month.

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"I was more than a little surprised by this suit, as you would imagine," Cote said in an interview during a Business Roundtable meeting in Washington, D.C., on Wednesday. "In fact, infuriated is a good way to put it."

David Cote, Chairman & CEO of Honeywell International.
Martin Simon | CNBC
David Cote, Chairman & CEO of Honeywell International.

Under the ACA, companies can provide incentives to reward employees who take measures to improve their health. Honeywell's wellness program penalizes employees who don't take the health survey with higher premium costs, which the company argues is allowed under the health-reform law.

The EEOC has sued Honeywell on behalf of two employee complaints, on the grounds that it is coercive and its forced medical screening violates the Americans with Disabilities Act.

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"The EEOC, interestingly enough, really isn't one of the agencies that's enforcing the ACA, and so their policies ... may not necessarily be in line with what other agencies are saying in the guidance. That may be one of the issues that we start seeing," said James Anelli, an employment law lawyer who heads the ACA team at the law firm of LeClairRyan.

Anelli said another big risk for large employers under Obamacare is the potential for worker lawsuits stemming from the so-called employer mandate. Starting in January, companies with more than 50 workers are required to offer affordable health coverage to workers who put in more than 30 hours per week, or face a penalty.

The law gives workers the right to file a complaint if their hours are cut and as a result they lose access to health coverage.

"Anytime an employer ... decides to do that—reduce an employee's hours or terminate employees so they don't have to provide them with health-care coverage—that could give rise to a claim," said Christopher Williams, a fiduciary product manager at Travelers Insurance. His firm recently launched coverage for ACA-related risk.

Williams said Obamacare litigation risk is something most large firms haven't thought much about yet, but plenty of lawyers are focused on the issue.

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"There's thousands of pages of regulations, and they're going to look through those statutes ... to come up with novel causes of action. We've started to see that already," he said. "There are some plaintiff law firms that are looking for clients whose hours have been reduced below 30 hours a week."

The problem does not just impact private employers. Government employers are subject to the same regulations, and the same litigation risks.

"Every local and state agency has to abide by the Affordable Care Act. Many of those plans are already over, or very close to being over the Cadillac tax threshold," said LeClairRyan's Anelli. "Now, you're going to have to have a discussion about having to control costs in order to avoid taxation."

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The so-called Cadillac tax imposes a 40 percent excise fee on high-cost health benefit plans starting in 2016. For municipalities with large numbers of unionized workers, such as teachers, police and firefighters, renegotiating plans to avoid incurring a penalty under one part of the ACA could put them at risk to the another part of the law in terms of litigation.

"That's the other shoe that's going to drop," Anelli said.