ON MARCH 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (“PPACA”) (H.R. 3590), as amended by the Health Care and Education Reconciliation Act (“HCERA”). In doing so, he instituted sweeping health care reform that affects all employers. Both acts reorganize, amend and add to the provisions of the Public Health Service Act (“PHS”) relating to group health plans and health insurance issuers in both the group and individual markets.
On June 22, 2010, the Departments of Health and Human Services (“HHS”), Labor and the Treasury issued interim final regulations providing guidance on certain provisions of PPACA with regard to insured and self-funded health plans, and additional guidance is expected over the coming weeks. Many of the new requirements will have an immediate impact upon group health plans, and plan sponsors should now take steps to coordinate with insurers and administrators regarding the implementation of the required changes and budget for the increased costs.
In this issue, we:
- Highlight the key changes brought about by health care reform;
- Provide an at-a-glance table of important action items and effective dates;
- Give an update on the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) subsidies; and
- Provide compliance reminders about HITCECH, Mental Health Parity and CHIPRA.
Effective Dates. Though some of PPACA’s provisions take effect as late as 2018, many key changes become effective as early as 2011, some of which require immediate action. Plan sponsors need to be aware that there is no delayed effective date for most collectively bargained plans in effect on the date PPACA was signed. Though the effective dates for each of the provisions are described below, please also see our table on page two entitled “Summary of Important Action Items and Effective Dates.”
Grandfathering Existing Plans. PPACA grandfathers existing individual and group health plans and some of the law’s provisions apply differently to grandfathered and non-grandfathered plans.
A “grandfathered health plan” is a group health plan (including plans that are collectively bargained) or individual coverage that was in effect on March 23, 2010. In order to keep its grandfathered status, the plan must have continually enrolled an individual from March 23, 2010, onward, and must state in its plan documents that it is retaining its grandfathered status.
The Department of labor issued the following model language which can be used to satisfy the disclosure requirement:
This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.
Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or http://www.dol.gov/ebsa/healthreform . This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at http://www.healthreform.gov.]
A grandfathered plan must also maintain records documenting its grandfathered status (i.e., documents showing that the plan existed as of March 23, 2010). A plan will not lose its grandfathered status simply because one or more individuals enrolled as of March 23, 2010, ceases to be covered, as long as the plan has had one person continually covered since March 23, 2010. Moreover, since the grandfathering rules apply separately for each benefit option maintained under a health plan, a plan as a whole will not lose its grandfathered status simply because one benefit option has lost such status.
Certain actions taken after March 23, 2010, will cause group health plans to lose their grandfathered status, and as a result they will have to comply with sections of PPACA at an earlier date than if they had retained their grandfathered status. These actions include:
- Eliminating or significantly reducing coverage for a certain condition, including eliminating an element necessary to diagnose or treat a condition;
- Increasing an individual’s deductible, out-ofpocket limit or coinsurance percentage by more than the rate of medical inflation plus 15 percentage points; and
- Entering into a new policy or contract with the plan’s existing insurance carrier, or changing insurance carriers altogether.
However, one exception for collectively bargained plans is that grandfathered collectively bargained plans can change their insurance carriers during the course of the agreement and not lose grandfathered status.
When budgeting for the increased costs that PPACA’s provisions will invite, plan sponsors should weigh the costs and benefits of losing or retaining grandfathered status.
Dependent Coverage up to Age 26. Effective January 1, 2011, all health plans that provide dependent coverage, grandfathered or not, must cover participants’ dependent children up to age 26, with no conditions on dependency. There is no delayed effective date for collectively-bargained plans. The regulations define “dependent” to include natural and adopted children, and preclude plans from conditioning coverage on student status, residency, tax-dependency, marital status or any other factor indicating dependent status. Thus, students, children who live with their parents, employed children and the like are considered “dependent” for purposes of PPACA’s extended coverage, and health plans must provide coverage for them.
Moreover, if an adult child is eligible for coverage under the health plans of both parents, neither plan can deny the child coverage based on this dual eligibility.
Children who become eligible to enroll because of this new requirement must be provided notice of their enrollment rights and 30 days to enroll.
The Department of Labor issued the following model language which can be used to satisfy the notice requirement:
Individuals whose coverage ended, or who were denied coverage (or were not eligible for coverage), because the availability of dependent coverage of children ended before attainment of age 26 are eligible to enroll in [Insert name of group health plan or health insurance coverage]. Individuals may request enrollment for such children for 30 days from the date of notice. Enrollment will be effective retroactively to [insert date that is the first day of the first plan year beginning on or after September 23, 2010.] For more information contact the [insert plan administrator or issuer] at [insert contact information].
Plan sponsors cannot charge older dependent children a cost that is greater than the amount charged for other children. The law gives plan sponsors the discretion to determine whether coverage will end upon the dependent’s birthday or at the end of the plan year.
Note also that cafeteria plans can immediately allow employees to change their election related to an adult child who becomes newly eligible to participate in their employer’s health plan. However, if a cafeteria plan decides to allow this change in election, it must adopt, no later than December 31, 2010, an amendment setting forth the new policy.
Grandfathered Plan Exception. For plan years beginning before January 1, 2014, grandfathered health plans must offer coverage to dependent children up to age 26 only if they are not eligible to enroll in another employer-sponsored health plan (other than a grandfathered health plan of a parent). This limitation expires in 2014, at which time all health plans must offer coverage to dependents up to age 26 regardless of whether the dependent can enroll in any other coverage.
Prohibition on Preexisting Condition Exclusions. Effective for plan years beginning on or after September 23, 2010, PPACA prohibits all group health plans (including self-funded, insured, grandfathered and non-grandfathered plans) from imposing a preexisting condition exclusion for individuals under the age of 19. Plans may continue to apply preexisting condition exclusions on individuals age 19 and older until plan years beginning on or after January 1, 2014, when all group health plans will be prohibited from applying preexisting condition exclusions to participants regardless of their age. Plan sponsors must amend their open enrollment materials to inform participants that they or their dependents, if under the age of 19, cannot be denied coverage because of a preexisting condition.
A preexisting condition is a health condition or illness present before an individual’s effective date of coverage, regardless of whether the individual sought out or received medical advice on account of the condition. A preexisting condition exclusion is a limitation or exclusion of benefits based on an individual’s health status before his or her effective date of coverage under the plan.
Annual and Lifetime Dollar Limits. Effective for the first plan year beginning on or after September 23, 2010 (i.e., January 1, 2011, for calendar year plans), PPACA generally prohibits group health plans and health insurance issuers that offer group or individual health insurance coverage (including selffunded, insured, grandfathered and nongrandfathered plans) from imposing annual and lifetime limits on the dollar value of health benefits. The prohibition does not apply to flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), medical savings accounts (“MSAs”) and grandfathered individual policies, all of which can still impose annual limits.
Except for the restricted annual benefits discussed below, a group health plan may not impose annual or lifetime dollar limits on “essential health benefits.” Essential health benefits include, but are not limited to, ambulatory patient services, emergency services, hospitalization, maternity and newborn care, prescription drugs, laboratory services, preventive and wellness services, and chronic disease management. As regulations have yet to be issued regarding the definition, all that is required of plan sponsors is a good faith effort to comply with a reasonable interpretation of an essential health benefit.
PPACA does permit restricted annual limits for essential health benefits for plan or policy years beginning before January 1, 2014. The interim regulations adopt a three-year phase-in approach for restricted annual limits on essential health benefits. Per the phase-in, annual dollar limits may not be less than:
- $750,000 per individual for plan years beginning after September 23, 2010;
- $1,250,000 per individual for plan years beginning after September 23, 2011;
- $2,00,000 per individual for plan years beginning after September 23, 2012; and
- Beginning in 2014, restricted annual dollar limits will not be permitted.
For individuals who reached a lifetime limit under a plan or health insurance coverage prior to the applicability date of the regulations, and are otherwise still eligible for coverage, PPACA also clarifies that employers must provide notice stating that the lifetime limit no longer applies. Employers must, therefore, identify all participants who have lost coverage due to a lifetime limit and notify them that they are now eligible to re-enroll. Such notices must be provided no later than the first day of the first plan or policy year on or after September 23, 2010 (for calendar year plans, no later than January 1, 2011).
The Department of Labor issued the following model language, which can be used to satisfy this notification requirement:
The lifetime limit on the dollar value of benefits under [Insert name of group health plan or health insurance issuer] no longer applies. Individuals whose coverage ended by reason of reaching a lifetime limit under the plan are eligible to enroll in the plan. Individuals have 30 days from the date of this notice to request enrollment. For more information contact the [insert plan administrator or issuer] at [insert contact information].
The notices may be provided to an employee on behalf of the employee’s dependent and may be included with other enrollment materials that a plan distributes to employees, provided the statement is prominent. If a notice satisfying the above requirements is provided to an individual, the obligation to provide the notice with respect to that individual is satisfied as to both the plan and the issuer.
An open enrollment period of at least 30 days must also be provided for individuals allowing them to reenroll in coverage. PPACA clarifies that, despite the prohibition of lifetime limits, group health plans can exclude all benefits for a particular condition (though other relevant state or federal laws might apply); however, if any benefits are provided for a condition, PPACA’s rules on lifetime limits apply.
As a result of the elimination of dollar limits, selfinsured plans should revisit stop loss insurance coverage to make sure there is adequate coverage.
Waiver Of Restriction On Annual Limits. Certain “limited benefit” or “mini-med” plans that offer lower-cost coverage to part-time, seasonal and volunteer workers who would not otherwise be able to afford coverage, and that have annual limits significantly below the phased-in restricted annual limits set forth in the interim final regulations, can now apply to HHS for a waiver from PPACA’s restricted annual limits provision. Limited benefit and mini-med plans can apply for the waiver if they offered coverage before September 23, 2010 for the plan or policy year beginning between September 23, 2010 and September 23, 2011 by submitting an application at least 30 days before the beginning of that plan or policy year. If the plan or policy year begins before November 2, 2010, the application must be submitted at least 10 days before the beginning of that plan or policy year. The waiver application must include the following information:
- The terms of the plan or policy for which a waiver is sought;
- The number of people covered by the plan or policy;
- The annual limit and rates applicable to the plan or policy;
- A brief description of why compliance with PPACA’s restricted annual limits provision would result in a significant decrease in access to benefits for those currently covered by the plan or policy, or why such compliance would result in a significant increase in premiums paid by the covered individuals, along with any supporting documentation; and
- An attestation, signed by the plan administrator or CEO of the coverage issuer, certifying that:
- The plan existed before September 23, 2010; and
- The application of PPACA’s restricted annual limits provision to the plan or policy at issue would result in a significant decrease in access to benefits for currently covered individuals or a significant increase in premiums paid by covered individuals.
HHS will process completed waiver applications within 30 days of receipt, unless the application is submitted for a plan or policy year beginning before November 2, 2010, in which case the application will be processed no later than five days in advance of that plan or policy year. Plan administrators should retain documentation supporting their applications in case the Secretary of HHS seeks to examine such documents in the future.
Waivers granted under the guidance already issued apply only for the plan or policy year beginning between September 23, 2010 and September 23, 2011. Should a group health plan or health insurance issuer want a waiver for future plan or policy years prior to January 1, 2014, they will have to reapply pursuant to future guidance issued by HHS. HHS has also retained the right to modify both the current waiver process, and any future waiver process.
Plans wishing to obtain a waiver from PPACA’s restricted annual limit provisions should submit the required information, as detailed above, to HHS, Office of Consumer Information and Insurance Oversight, Office of Oversight, attention James Mayhew, Room 737-F-04, 200 Independence Ave., SW, Washington, D.C., 20201. Alternatively, plans can email the required information to email@example.com, with “waiver” as the subject of the email.
Anti-Rescission Rules. Effective for plan years beginning on or after September 23, 2010, group health plans (including self-funded, insured, grandfathered and non-grandfathered plans) may not rescind a participant’s health coverage unless the participant in question has committed fraud or has made an intentional misrepresentation of material fact. A rescission is a cancellation or discontinuance of coverage that applies retroactively. A cancellation due to failure to timely pay premiums is not considered a rescission.
Should a group health plan rescind coverage under the allowed circumstances, it must provide written notice to all affected participants at least 30 days in advance of the rescission. The applicable regulations also clarify that other federal or state laws may apply regarding a rescission of coverage if such laws are more protective of individuals. For example, if a state law applicable to health insurance issuers provides that rescissions of coverage are permitted only if a participant committed fraud, such law would control.
Patient Protections. Effective for plan years beginning on or after September 23, 2010, certain patient protections must be implemented. Note, however, that these protection requirements do not apply to grandfathered plans.
- Participant Choice of Health Care Provider. If a group health plan requires a participant to designate a primary care provider, or provides such a designation, the participant must be allowed to designate any participating primary care provider accepting new patients. For a child, any participating physician specializing in pediatrics can be designated as the child’s primary care provider. A group health plan also cannot require referrals for obstetric or gynecological care provided by an OB/GYN specialist.
- Notice of Right to Choose Provider. If a group health plan requires a participant to designate a primary care provider, or provides such a designation, the group health plan must notify participants of their right to designate any primary care provider every time the plan provides a summary plan description or other such description of benefits payable under the plan. In the case of a child, such notice must state that any participating physician specializing in pediatrics can be designated as the child’s primary care physician. The notice must also state that the plan cannot require referrals for obstetric or gynecological care provided by a participating OB/GYN specialist. The applicable regulations contain the following model language for plans drafting notices to comply with these requirements:
For plans and issuers that require or allow for the designation of primary care providers by participants or beneficiaries, insert:
[Name of group health plan or health insurance issuer] generally [requires/allows] the designation of a primary care provider. You have the right to designate any primary care provider who participates in our network and who is available to accept you or your family members. [If the plan or health insurance coverage designates a primary care provider automatically, insert: Until you make this designation, [name of group health plan or health insurance issuer] designates one for you.] For information on how to select a primary care provider, and for a list of the participating primary care providers, contact the [plan administrator or issuer] at [insert contact information].
For plans and issuers that require or allow for the designation of a primary care provider for a child, add:
For children, you may designate a pediatrician as the primary care provider.
For plans and issuers that provide coverage for obstetric or gynecological care and require the designation by a participant or beneficiary of a primary care provider, add:
You do not need prior authorization from [name of group health plan or issuer] or from any other person (including a primary care provider) in order to obtain access to obstetrical or gynecological care from a health care professional in our network who specializes in obstetrics or gynecology. The health care professional, however, may be required to comply with certain procedures, including obtaining prior authorization for certain services, following a pre-approved treatment plan, or procedures for making referrals. For a list of participating health care professionals who specialize in obstetrics or gynecology, contact the [plan administrator or issuer] at [insert contact information].
Note that the preceding requirements regarding choice of health care professional apply only to plans or health insurance coverage with a network of providers; if a plan or issuer does not provide a network, but instead reimburses covered individuals, such plan or issuer is not subject to such requirements.
- Emergency Services. If a group health plan provides benefits regarding emergency hospital treatment, it must do so without requiring prior authorization or higher cost-sharing, even if such treatment is provided out-of-network. Plans or issuers not providing a network for their participants are subject to the requirements relating to benefits for emergency services.
Required Coverage of Preventive Care. Effective for the first plan year beginning on or after September 23, 2010, a non-grandfathered group health plan must provide preventive health care and screenings without cost-sharing (i.e., employers cannot require co-payments, deductibles or co-insurance for such care), although plan sponsors may impose cost sharing for out-of-network services. Plan sponsors must amend their open enrollment materials to inform participants that they have access to these resources at no extra cost to them.
Preventive health care includes, for example, annual or biennial mammograms for all women age 40 and above, cervical cancer screenings at least every three years, and genetic counseling for women with an increased risk of breast cancer. A complete list is available at http://www.healthcare.gov/center/regulations/prevention/recommendations.html.
Appeals Processes. Effective for the first plan year on or before September 23, 2010, a nongrandfathered health plan must have an internal claims and appeals process that:
- Allows participants to appeal (i) a denied claim for a covered service; and (ii) a rescission of the participant’s coverage;
- Provides participants detailed information regarding the grounds for the denial of their claim or the rescission of the coverage;
- Requires the plan to notify participants of their right to appeal, and to provide participants with instructions on how to appeal;
- Requires the plan to notify a claimant of a benefit determination regarding a “claim involving urgent care” as soon as possible, and no later than 24 hours (reduced from the current rule of 72 hours) after the plan receives the claim unless the claimant provides insufficient information to make a determination. A “claim involving urgent care” is defined in the DOL claims procedure regulation as “a claim for medical care or treatment with respect to which the application of the time periods for making non-urgent care determinations could seriously jeopardize the life or health of the claimant or the ability of the claimant to regain maximum function; or, in the opinion of a physician with knowledge of the claimant’s medical condition, would subject the claimant to severe pain that cannot be adequately managed without the care or treatment that is the subject of the claim”;
- Ensures a full and fair review of a denial of a participant’s claim by, for example, providing the claimant, free of charge, with any new or additional evidence considered or relied upon by the plan in connection with the claim, and ensuring that all claims and appeals are decided by independent and impartial individuals; and
- Provides participants with an expedited appeals process in emergency circumstances.
If a claim by a participant in a new plan is denied, such participant will have the right to appeal the denial to an independent reviewer not retained by the plan.
These new regulations also require nongrandfathered plans to comply with a higher standard of care regarding notices sent to participants. For example, all notices provided to participants must be written in a “culturally and linguistically appropriate manner” and in such a way as to be understood by the participant. Any notice of adverse benefit determination must include enough information to sufficiently identify the claim involved, such as the date of service, health care provider and claim amount. HHS issued model notices are available at http://www.dol.gov/ebsa/ and http://www.hhs.gov/ociio/.
Should a plan fail to adhere to every requirement set forth in the regulations, a claimant will be deemed to have exhausted the internal appeals process and may commence an external review.
This means that the participant can pursue any available remedies (state or federal, as the regulations dictate), including judicial review.
It is important to note that, even if a participant institutes a claim, the plan must continue to cover the participant until the outcome of the internal appeal is decided.
Plan sponsors should consult with their third-party administrators if the claims process is outsourced to make sure that the new procedures will be implemented timely.
Further guidance on the new federal external review process for self-funded group health plans is expected to be issued shortly.
New W-2 Reporting of Medical Benefits. Effective for tax years beginning after December 31, 2010, PPACA will require employers to report on Form W-2 the aggregate cost of health coverage that an employee receives under the employer’s health care plan. It is important that employers begin to determine the value of the health coverage and modify payroll systems as necessary to satisfy this new reporting obligation, as this information may need to be reported before 2012 if an employee is terminated and requests an accelerated copy of his or her W-2.
Nondiscrimination. Under PPACA, all employees must have access to the same benefits and plan options under a group health plan; employers cannot discriminate in favor of highly compensated employees, or offer different benefits based on seniority, salary and the like. This prohibition does not apply to insured grandfathered plans, which means that such plans can offer “good, better, best” coverage to different classes of employees. Such coverage can be a useful incentive for highly compensated employees.
However, it is important to note that, if a plan is found to discriminate, only the plan administrator will be subject to the appropriate excise tax penalty of $100 per day per affected participant; highly compensated employees will not suffer any adverse tax consequences. Plan sponsors should take careful note of these rules, as they may require amending various coverage provisions in health plans.
Over-the-Counter Medications. FSA and similar programs may not reimburse over-the-counter drugs and medicines purchased on or after January 1, 2011, unless they are obtained by a prescription. Employers’ open enrollment materials must include notification of this change so that participants can budget appropriately. Plan sponsors should adopt an amendment to conform to the new over-thecounter drug requirements before December 31, 2010, but may not adopt such an amendment later than June 30, 2011 (with retroactive effect for expenses incurred after December 31, 2010).
Early Retiree Reinsurance Program. Plans that provide benefits to “early retirees” are eligible for reimbursements of certain claims under a temporary program sponsored by HHS dubbed the Early Retiree Reinsurance Program. HHS has defined “early retirees” as individuals age 55 or older, not eligible for Medicare, and not active employees of an employer that has made, or is making, substantial contributions to fund a plan.
Applications for the program, as well as fact sheets and application assistance, can be found at http://www.hhs.gov/ociio/. Because funds under the ERRP are capped at $5 billion, it is important for employers to get their applications in as early as possible, as reimbursements will be given to approved employers on a first-come, first-served basis and HHS has already begun accepting applications.
Effective Date TBD
Automatic Enrollment. Employers who employ more than 200 employees will be required to automatically enroll new full-time employees (defined as employees working 30 hours or more per week) into their employer-sponsored health plans. Such employers must provide adequate notice to these employees regarding their automatic enrollment rights, as well as their right to opt out of coverage. PPACA specifies no effective date for this provision. Though this provision of PPACA became effective on March 23, 2010, the employer requirement will not become effective until the date further regulations are issued.
Flexible Spending Accounts Limited to $2,500. For tax years beginning on or after January 1, 2011, PPACA limits annual contributions to employee FSAs to no more than $2,500, indexed for the Consumer Price Index after 2013. Employers will need to amend plan documents and modify the open enrollment materials for the FSA to reflect the reduced cap.
Though plan sponsors can expect multiple new rules to become effective in 2014 that go beyond the scope of this newsletter, a few such requirements are highlighted below:
Employer Mandate. Effective January 1, 2014, PPACA will require employers to offer a minimum level of health coverage or pay penalties. By 2014, each state must create a “health insurance exchange” through which an individual or small business can compare the costs of various health plans and different kinds of health benefits. A large employer (defined as an employer with more than 50 full-time equivalent employees during the preceding calendar year) who does not offer coverage will be subject to a penalty if any of its full-time employees receives a premium credit toward their exchange plan. In 2014, large employers who do not offer coverage will be assessed a monthly penalty equal to the number of full-time employees for the applicable month, minus 30, multiplied by one-twelfth of $2,000. After 2014, the penalty payment amount would be indexed by the premium adjustment percentage for the calendar year.
A large employer who does offer health coverage will not be treated as meeting the employer requirements if at least one full-time employee obtains a premium credit in an exchange plan because the employee’s required contribution exceeds 9.5% of the employee’s household income or if the plan offered by the employer pays for less than 60% of covered expenses.
In 2014, the monthly penalty assessed to the employer for each full-time employee who receives a premium credit will be one-twelfth of $3,000 for any applicable month. However, the total penalty for an employer would be limited to the total number of the firm’s full-time employees minus 30, multiplied by one-twelfth of $2,000 for any applicable month. After 2014, the penalty amounts would be indexed by the premium adjustment percentage for the calendar year.
Individual Penalty. Effective January 1, 2014, individuals who do not have health insurance will be assessed an individual federal penalty, owing the greater of 1% of their adjusted gross income (“AGI”) or $95. The penalty will increase each year; in 2015, individuals without health insurance will be assessed a penalty of the greater of 2% of AGI or $325. Beginning in 2016, the amount of the penalty will be indexed for inflation. However, for families, the penalty will be capped at 300% of the amount of the individual penalty.
Excise Tax. Effective January 1, 2018, a 40% excise tax will be assessed on high-cost (“Cadillac”) plans offering health coverage valued at more than $10,200 for an individual and $27,500 for a family, indexed to inflation. If the plan is insured, the insurer is responsible for payment of the tax.