Over the past several weeks, federal agencies in charge of implementing health care reform have issued guidance on several different aspects of the Patient Protection and Affordable Care Act (“PPACA”). Listed below is a brief summary of each piece of recently-released guidance relating to PPACA.
Transitional Reinsurance Program Fees
PPACA establishes a transitional “reinsurance program” to be established in each state by January 1, 2014, which will operate through 2016. According to proposed rules issued by the Department of Health and Human Services (“HHS”), the purpose of the program is to help stabilize premiums in the individual insurance market. In connection with the program, a fee will be imposed on fully-insured and self-insured group health plans providing major medical coverage. For 2014, the annual fee (referred to as the “contribution rate”) is $63 per plan participant (including spouses and dependents). For each year, a plan’s fee would be calculated by multiplying the average number of covered lives in the plan by the contribution rate for the applicable year. PPACA requires health insurance issuers to pay the reinsurance program fees from 2014 to 2016. Although self-insured group health plans are ultimately responsible for paying the reinsurance program fees, such plans may use a third-party administrator or administrative services only contractor for transfer of the fees to HHS.
Patient-Centered Outcome Research Fees
The Internal Revenue Service (“IRS”) issued final regulations implementing the fees applicable to health insurance issuers (for fully-insured group health plans) and plan sponsors of self-insured group health plans to fund the “Patient-Centered Outcomes Research Institute” (the “PCORI”). The PCORI was established under PPACA to research the clinical effectiveness of medical treatments, procedures and drugs. The fees will apply for each policy or plan year ending on or after October 1, 2012, and before October 1, 2019. The fee is two dollars (one dollar for policy or plan years ending before October 1, 2013) multiplied by the average number of lives (including spouses and dependents) covered under the policy or plan. The fee is required to be reported and paid on employers’ Form 720 no later than July 31 of the year following the last day of the applicable policy or plan year.
Essential Health Benefits
As a reminder, beginning in 2014, all non-grandfathered health insurance coverage in the individual and small group (less than 100 employees) markets will be required to cover “essential health benefits.” Under proposed regulations issued by HHS, each state is required to designate a benchmark plan from several options identified in the proposed regulations, and all plans that cover essential health benefits must offer benefits that are substantially equal to the benefits offered by the benchmark plan. (If a state does not select a benchmark plan, the benchmark plan will be designated by HHS.) The regulations also address the “metal levels” corresponding to the actuarial value of non-grandfathered health insurance coverage in the individual and small group markets - 60% for a bronze plan, 70% for a silver plan, 80% for a gold plan, and 90% for a platinum plan. Although large fully-insured and self-insured group health plans are not subject to the requirement to cover essential health benefits (as defined for the small and individual markets), to the extent that such benefits are provided under a large fully-insured or self-insured group health plan, such benefits may not be subject to lifetime or annual limits (which will be completely phased out in 2014). In addition, under the proposed regulations, HHS introduces a “minimum value” calculator that employers may use to determine whether their plans provide the minimum value of coverage (60%) in accordance with PPACA’s “pay or play” mandate (discussed in more detail below).
New Rules for Wellness Programs
HHS and the Departments of Labor and the Treasury jointly issued proposed rules on wellness programs pursuant to PPACA. The proposed rules generally maintain the existing requirements applicable to health-contingent wellness programs - wellness programs that require an individual to satisfy a standard related to a health factor to obtain a reward - with one significant modification relating to the size of the reward. Under the proposed rules, effective as of January 1, 2014, the maximum permissible reward under a health-contingent wellness program is increased from 20% to 30% of the total cost of employee-only coverage under the plan. The proposed regulations also permit an increase of an additional 20% (up to 50%) for health-contingent wellness programs designed to prevent or reduce tobacco use. The proposed rules also made several clarifications regarding the “reasonable alternative standard” requirement for health-contingent wellness programs.
Health Insurance Market Reforms
HHS issued proposed regulations regarding fair health insurance premiums, guaranteed availability, guaranteed renewability, risk pools and catastrophic plans. To prevent discrimination against individuals with pre-existing conditions, the proposed rules establish that insurers in the individual and small group markets are allowed to vary premiums based only on age (within a 3:1 ratio for adults), tobacco use (within a 1.5:1 ratio and subject to wellness program requirements in the small group market), family size and geography. As a reminder, effective January 1, 2014, group health plans and insurers are prohibited from imposing a pre-existing condition on any individual.
Medical Device Excise Tax
The IRS also issued final regulations implementing PPACA’s new 2.3% excise tax on the sale of medical devices beginning January 1, 2013. In addition, the IRS issued Notice 2012-77, which provides transitional relief for the first three calendar quarters of 2013 for determining price in accordance with the medical device excise tax rules. Although this guidance does not specifically impact employer-sponsored group health plans, the medical device excise tax will impact companies that manufacture or import medical devices and may impact the cost of coverage provided under group health plans.
Reminder Regarding PPACA’s “Pay or Play” Mandate
As a reminder, prior to January 1, 2014, group health plan sponsors must decide whether they will “pay or play” - that is, whether to pay an excise tax for not offering minimum essential coverage or offer minimum essential coverage to all of their “full-time” employees. This involves a detailed analysis of the benefits of providing group health coverage versus the potential penalties under PPACA. In early 2013, we will be offering more detailed information about this decision making process, as well as continued coverage of the now steady stream of guidance regarding PPACA.