With the Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act, as amended ("PPACA") behind us, employers must continue to implement the changes mandated by PPACA. Significant guidance was issued this year to assist employers in implementing the many changes required for group health plans. Below is a checklist of upcoming PPACA mandates that employers must implement in 2013 (or the remainder of 2012) as well as a list of existing enrollment and annual notice requirements that group health plan sponsors should consider during open enrollment.
- Requirements That Apply to All Group Health Plans
Beginning with the dates specified below, a group health plan subject to PPACA must comply with the following requirements, regardless of its status as a "grandfathered health plan":
- Summary of Benefits and Coverage
PPACA expanded ERISA's disclosure requirements to require that a summary of benefits and coverage ("SBC") be provided to participants and beneficiaries prior to enrollment and re-enrollment. At open enrollment, an SBC must be provided for each benefit package offered for which the participant or beneficiary is eligible. Upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished no later than 30 days prior to the first day of the new plan year, unless the participant or beneficiary requests a summary for another benefit package. The summary must also be furnished to special enrollees within 90 days after enrollment pursuant to a special enrollment right.
The final regulations and FAQs provide that the SBC requirement applies with respect to participants and beneficiaries who enroll or re-enroll through open enrollment beginning with the first open enrollment period that begins on or after September 23, 2012. With respect to participants and beneficiaries who enroll in coverage other than through open enrollment (such as newly eligible individuals and special enrollees), the SBC requirement applies on the first day of the first plan year beginning on or after September 23, 2012.
For many calendar year plans, the first SBCs have already been distributed or are already in the process of being produced and distributed. Before checking this mandate off your list, however, an employer should consider whether it has fully recognized and satisfied all of its obligations.
First, the SBC requirement applies to group health plans (both insured and self-insured) and to insurers but not to certain excepted benefits. The SBC requirements do not apply to health savings accounts but they do apply to the underlying high-deductible health plan. In addition, stand-alone health reimbursement arrangements and health flexible spending accounts that do not qualify as excepted benefits must satisfy the SBC requirements independently. In addition, wellness programs and EAPs may be considered group health plans requiring an SBC depending on the types of benefits provided. If an employer has not already done so, it is necessary to consider whether the SBC requirement is being fulfilled with respect to all applicable plans.
In addition, if an employer is taking the position that another party is providing the SBC, it is important to understand what obligations still rest with the employer in that situation. The SBC obligation lies with the plan administrator for self-insured health plans. If the plan is fully insured, the obligation lies both with the plan administrator and the insurer. If the insurer provides a timely and compliant SBC, the plan administrator’s obligation is satisfied. Until further guidance, a plan will not be subject to enforcement action if it enters into a binding contractual arrangement with an insurer or other service provider to assume the responsibility to complete the SBC, to provide required information to complete a portion of the SBC or to deliver the SBC. For the enforcement safe harbor to apply, however, the following obligations must be satisfied:
- The plan must monitor performance under the contract;
- If a plan has knowledge of a violation of the SBC rules and has the information to correct it, the plan must correct it as soon as practicable; and
- If a plan has knowledge of a violation of the SBC rules and does not have the information to correct it, the plan must communicate with participants and beneficiaries regarding the lapse and begin taking significant steps as soon as practicable to avoid future violations.
Finally, employers must keep in mind that 60 days advance notice is required prior to the effective date of any material modifications to any of the terms of the plan that would affect the content required in the SBC. The employer may provide a separate notice, in paper or electronic form, describing the changes or it may provide an updated SBC reflecting the modifications.
More information regarding the SBC requirement, including very detailed information regarding the required content and format, can be found on the Department of Labor (“DOL”) website at http://www.dol.gov/ebsa/healthreform/#summaryofbenefits. Resources available on the site include the proposed and final regulations, templates, the uniform glossary, FAQs and other applicable guidance.
- W-2 Reporting Obligation
Employers must report the aggregate cost of applicable employer-sponsored coverage on an employee's Form W-2. The reporting requirement is informational only and will not affect the amount includible in income. The W-2 reporting requirement is first applicable for the 2012 tax year. Accordingly, plan sponsors should have already verified that they have the appropriate systems in place as of January 1, 2012 to collect and determine the value that must be reported on the Form W-2 for the 2012 tax year which must be issued by January 31, 2013. IRS Notice 2012-9 provides guidance on the reporting requirements, including information on how and what to report. That notice also provides transition relief for certain small employers. Under this relief, until the issuance of further guidance, an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. As a result, if an employer was required to file fewer than 250 Forms W-2 in 2011, the employer would not be subject to the reporting requirement for 2012 Forms W-2.
Helpful FAQs with respect to the W-2 reporting requirements can be found on the IRS web site at http://www.irs.gov/uac/Employer-Provided-Health-Coverage-Informational-Reporting-Requirements:-Questions-and-Answers. See also our blog post regarding whether the costs of EAPs and wellness programs should be included in the Form W-2 reporting.
- Medical Loss Ratio Rebates
The PPACA insurance mandates include a requirement that, beginning on January 1, 2011, health insurers offering coverage in the group or individual markets must comply with medical loss ratio standards. If the medical loss ratios calculated by an insurer are less than certain specified percentages, the statute requires the insurer to provide an annual rebate to each enrollee on a pro rata basis. The first rebates were required to be made no later than August 1, 2012.
Group health plans receiving rebates from insurers must allocate the rebates consistent with Technical Release 2011-04 issued by the DOL. Under this guidance, existing fiduciary duty rules apply to sponsors of group health plans in handling the rebates to the extent that the rebates are considered plan assets under ERISA. These fiduciary duties include the duty to act prudently, impartially, for the exclusive benefit of plan participants and beneficiaries and in accordance with the terms of the plan (to the extent that those terms comply with ERISA). If an ERISA plan receives a rebate, it must evaluate permitted uses and the extent to which the plan asset rules apply. It must also consider whether the assets must be held in trust or whether the plan can qualify for the trust exception under DOL Technical Release 92-01. In addition, it must be careful to avoid prohibited transactions. Finally, it must review the plan document and insurance policy for provisions governing rebates and it must consider whether any plan amendments should be made.
Technical Release No. 2011-04 and other applicable guidance can be found on the DOL website at http://www.dol.gov/ebsa/healthreform/#medicallossratio.
- Annual Dollar Limit on Essential Health Benefits
PPACA includes provisions relating to lifetime and annual dollar limits for "essential health benefits" under group health plans. For plan years beginning on or after September 23, 2012 but before January 1, 2014, any annual limit on essential health benefits cannot be less than $2,000,000. Annual dollar limits for essential health benefits will not be permitted beginning on or after January 1, 2014. If necessary, employers should amend plan documents and update SPDs to reflect these changes. In addition, they should consider whether to obtain or increase stop-loss coverage.
Regulations have not yet been issued defining "essential health benefits" but we know that they include items and services in the following general categories: (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services, including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care. Until guidance is issued, the DOL, the Department of Health and Human Services ("HHS") and the IRS have indicated that they will take into account good faith efforts to comply with a reasonable interpretation of "essential health benefits" if the definition is consistently applied. A jointly issued FAQ provides an example regarding how good faith efforts will be taken into account. See FAQs About the Affordable Care Act Implementation Part IV, Q/A-3, on the DOL website at http://www.dol.gov/ebsa/faqs/faq-aca4.html#.UHeEZcXA-yU.
- Fees to Fund Research on Patient-Centered Outcomes
PPACA created the Patient-Centered Outcomes Research Institute to support clinical effectiveness research which will be funded, in part, by "PCOR fees" paid by certain health insurers and sponsors of applicable self-insured health plans. The PCOR fees must be paid annually for plan years ending on or after October 1, 2012, and before October 1, 2019. The fee is $2.00 ($1.00 for plan years ending before October 1, 2013) times the average number of covered lives under the plan. Insurers and plan sponsors of self-insured plans may choose among alternative methods to determine the number of covered lives. A plan sponsor must choose a single method to be used in determining the average number of lives covered under the plan for the entire plan year. A plan sponsor is not required to use the same method from one plan year to the next. Employers should consider the available methods and choose one to be used in calculating the fee for the plan year ending on or after October 1, 2012. Payment of the first annual PCOR fee is due on July 31, 2013. The fee should be reported using IRS Form 720, Quarterly Federal Excise Tax Return.
Applicable guidance is contained in Prop. Treas. Reg. § 4376-1 which can be found at http://www.gpo.gov/fdsys/pkg/FR-2012-04-17/pdf/2012-9173.pdf.
- Limitation on Health FSA Salary Reductions
PPACA imposes a $2,500 limit on annual salary reduction contributions to health flexible spending accounts ("FSAs"). IRS Notice 2012-40 provides that the limit applies for cafeteria plan years beginning after December 31, 2012. Cafeteria plan sponsors have until December 31, 2014 to amend their plans to reflect the $2,500 limit, but the limit must be effective retroactively and the plan must be operated in compliance with the limit for plan years beginning after December 31, 2012. Employers should be taking steps now towards implementation for 2013 and should begin reviewing the plan documents to make the required amendments prior to the 2014 amendment deadline.
Further information regarding this requirement can be found in IRS Notice 2012-40 which may be obtained on the IRS website at http://www.irs.gov/pub/irs-drop/n-12-40.pdf.
- Notice Regarding Health Exchange
Under PPACA, each state must establish an exchange by January 1, 2014. If a state declines to establish an exchange, the federal government will establish a federally facilitated exchange. The initial enrollment period for individuals will be October 1, 2013 through March 31, 2014.
Prior to March 1, 2013, employers must provide current employees with written notice about the health exchange. The notice must also be provided to new employees hired on or after that date. The notice must inform employees of the existence of the exchange, describe the services provided by the exchange, and describe how the employee may contact the exchange. It must also inform employees that they may be eligible for a premium tax credit or a cost-sharing reduction if they purchase a qualified health plan through the exchange. Finally, the notice must inform employees that if they purchase a qualified health plan through the exchange, they may lose the employer contribution (if any) to any health plan offered by the employer and that all, or a portion, of any such contribution may be excludable from income for federal income tax purposes.
This requirement is codified at 29 USC § 218b and it can be obtained at http://www.gpo.gov/fdsys/granule/USCODE-2011-title29/USCODE-2011-title29-chap8-sec218b/content-detail.html.
- Additional Requirement That Applies to All Non-Grandfathered Plans
Group health plans that are not grandfathered for PPACA purposes must comply with the following additional requirement:
- Preventive Services
PPACA requires plans to cover certain preventive services without any cost-sharing when delivered by in-network providers. Many of these requirements have already become effective, however, coverage for the following types of preventive care for women must be provided without cost-sharing beginning in the first plan year that begins on or after August 1, 2012 (January 1, 2013 for calendar year plans):
- contraceptive methods and counseling;
- well-women visits;
- screening for gestational diabetes;
- human papillomavirus (HPV) testing;
- counseling for sexually transmitted infections;
- counseling and screening for human immune-deficiency virus (HIV);
- breastfeeding support, supplies and counseling; and
- screening and counseling for interpersonal and domestic violence.
For more information about the preventive items and services for women that must be covered, visit the HHS website at http://www.hrsa.gov/womensguidelines/.
- Existing Notice Requirements
Below is a list of enrollment and annual notices that group health plan sponsors should consider during open enrollment.
- Enrollment Notices
- COBRA Notice. Plan administrators must provide an initial written notice of rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) to each employee and his or her spouse when group health plan coverage first commences. Additionally, plan administrators must provide a COBRA election notice to each qualified beneficiary of his or her right to elect continuing coverage under the plan upon the occurrence of a qualifying event. Each of these notices must contain specific information, and the DOL has issued model notices.
- HIPAA Privacy Notice. If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan. Notice of availability to receive another copy must be given every three years. Plan sponsors should confirm that the notices of privacy practices for their group health plans have been revised to reflect the requirements under Subtitle D of the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”). Following a material modification, which includes any change required pursuant to HITECH, the revised notice of privacy practices must be distributed to plan participants within 60 days after the change to the notice.
- Special Enrollment Rights. A group health plan must provide each employee who is eligible to enroll with a notice of his or her HIPAA special enrollment rights at or prior to the time of enrollment. Among other rights, this notice must describe the rights afforded under the Children’s Health Insurance Program Reauthorization Act.
- Pre-existing Condition Exclusion Notice. If the plan contains pre-existing condition exclusions, subject to the PPACA limitations, a notice describing the exclusions and how prior creditable coverage can reduce the exclusion period must be provided to participants as part of any written enrollment materials. If there are no written enrollment materials, the notice must be provided as soon as possible after a participant’s request for enrollment.
- Annual Notice Requirements
The following notices must be provided to participants and beneficiaries each year. An employer may choose to include these notices in the plan’s annual open enrollment materials.
- Women’s Health and Cancer Rights Act Notice. The Women’s Health and Cancer Rights Act requires that a notice be sent to all participants describing required benefits for mastectomy-related reconstructive surgery, prostheses, and treatment of physical complications of mastectomy. This notice must be given to plan participants upon enrollment and then annually thereafter. The DOL has developed model language to fulfill this requirement.
- Medicare Part D Notice. Group health plans providing prescription drug coverage must provide a notice to any individual covered by or eligible for the group health plan who is eligible for Medicare (an “eligible individual”). The notice must explain whether the plan’s prescription drug coverage is creditable. Coverage is creditable if it is actuarially equivalent to coverage available under the standard Medicare Part D program. To satisfy the distribution timing requirements, the notice is generally distributed upon an individual’s enrollment in the plan, each year during open enrollment (before the new Medicare Part D enrollment commencement date of October 15) and during the plan year if the status of the coverage changes (either for the plan as a whole or for the individual). Model notices are available from the Centers for Medicare and Medicaid Services at
- CHIP Premium Assistance Notice. Employers must also provide notices annually to employees regarding available state premium assistance programs that can help pay for coverage under the plan and how to apply for it. A model notice from the DOL is available at http://www.dol.gov/ebsa/chipmodelnotice.doc.
- Other Notice Requirements Applicable to ERISA Plans
- General Notice Requirement. It is important to keep current with ERISA’s general notice requirements, as to both timing and content. For example, changes in plan design must be reflected in a Summary of Material Modifications ("SMM") or updated SPD timely distributed to eligible employees. If a plan change involves a material reduction in covered services or benefits, an SMM or an updated SPD must be furnished within 60 days after adoption of the change. Note that this obligation is independent of the PPACA requirement to issue an SMM at least 60 days before a modification to a summary of benefits becomes effective (see Section I); however, satisfaction of the PPACA requirement will satisfy this requirement with respect to the such changes. Restated SPDs must be furnished every five years if the plan has been amended within five years of publication of the most recent SPD, and every ten years if the information has not been changed. Open enrollment may present the best time to distribute these materials.
- Summary Annual Reports. Funded welfare plans (e.g., those whose assets are held in trust) and fully-insured welfare plans with 100 or more participants at the beginning of the year must distribute Summary Annual Reports (SARs) to participants. Plan administrators generally must furnish SARs within nine months of the end of the plan year or, if applicable, the fiscal year of the trust or other entity that files the Form 5500. If the plan administrator obtains an extension of time to file the Form 5500, the plan administrator must furnish the SAR within two months after the end of the extension period.