- Update Summary Plan Description if Needed: Summary Plan Descriptions (SPDs) must be updated once every five years if the plan has been amended during the five-year period and once every 10 years for other plans. Consider whether your SPD needs to be updated.
- Continue to Track and Comply with Health Care Reform Changes: As reported in our August 16, 2012 Health Care Reform Legal Alert, “Health Care Reform Compliance Checklist for Plan Sponsors,” now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Act”), employers should move forward with implementation. Below, we have focused on the health care reform changes that most immediately affect employer group health plans. See the attached checklist that provides a summary of the principal requirements under the Act, beginning with those that first became effective in 2010 and continuing through those that will become effective in 2018. The purpose of this checklist is to provide a summary of the principal requirements under the Act that apply to employer-sponsored group health plans. The Act and its related guidance go into much more detail and should always be consulted when considering its application to any particular plan.
- If a Group Health Plan is a Grandfathered Plan, Review Grandfathered Status: Group health plans that were in existence on or before March 23, 2010 and that have not undergone significant changes since then (“grandfathered plans”) have to comply with some, but not all, of the requirements under the Act. Employers that have made any changes to their health plans or added a wellness component in 2012, or in connection with open enrollment for an upcoming plan year, should consider whether those changes cause the plan to lose grandfathered status. If grandfathered plan status is lost, the plan must comply with additional requirements that apply to non-grandfathered plans as of the date grandfathered status is lost.
- Comply With Increased Restricted Annual Limit: As reported in our November 2011 End of Year Plan Sponsor “To Do” Lists, employer-sponsored group health plans may continue to impose annual (as opposed to lifetime) limits on reimbursements for essential health benefits between now and January 1, 2014, but those limits must comply with regulations jointly issued by the Departments of Health and Human Services, Treasury and Labor (collectively “the Departments”). The restricted annual limit for plan years beginning on or after September 23, 2011, but before September 23, 2012, was $1,250,000. For plan years beginning on or after September 23, 2012, but before January 1, 2014, the restricted annual limit has increased to $2,000,000. Annual limits are prohibited for plan years beginning on or after January 1, 2014. See “Agencies Publish Guidance on Pre-Existing Condition Exclusions, Lifetime and Annual Limits, Rescissions and Other Patient Protections” in our July 13, 2010 Health Care Alert for more information.
- Provide Four-Page Summary of Benefits and Coverage: As reported in our July 19, 2012 Health Care Reform Legal Alert, “Summary of Benefits and Coverage for Group Health Plans,” the Act expands ERISA’s disclosure requirements by requiring group health plans to provide a summary of benefits and coverage (“SBC”) to applicants and enrollees at various times, including initial enrollment, open enrollment, special enrollment and upon request. The SBC cannot exceed four, double-sided pages, resulting in eight pages and cannot include print smaller than 12-point font. It must be in the same form as the template issued by the Departments. The SBC is intended to provide participants with an “apples-to-apples” comparison of their own employer’s health plan options, as well as their significant other’s health plan options. The SBC requirement applies beginning with the first open enrollment period beginning on or after September 23, 2012. Most group health plans will have to distribute SBCs with the open enrollment materials going out in the fall of 2012.
- Provide 60-Day Advance Notice of Changes Impacting Four-Page Summary: As reported in our July 19, 2012 Health Care Reform Legal Alert, “Summary of Benefits and Coverage for Group Health Plans,” the Act requires group health plans to give participants 60-days advance notice before making any material modification in plan benefits or coverage that is not reflected in the most recently provided SBC. This applies to both benefit enhancements and reductions. Group health plans become subject to this new advance notice requirement once they issue SBCs.
- Implement W-2 Reporting of the Cost of Employer-Sponsored Group Health Plan Coverage: As reported in our July 26, 2012 Health Care Reform Legal Alert, “W-2 Reporting of Employer-Sponsored Group Health Coverage,” beginning with the Form W-2 issued in January 2013 (i.e., the Form W-2 issued for the 2012 calendar year), employers must report to employees the cost of their employer-sponsored group health plan coverage. This reporting is for informational purposes only and is intended to communicate the cost of health care coverage to employees. It does not change how such benefits are taxed. As a general rule, all employers who provide applicable employer-sponsored coverage (primarily medical coverage, but other group health benefits may be subject to the reporting requirement as well) during the calendar year must comply. Until further guidance is issued, an employer is not subject to the new reporting requirements for any calendar year if the employer filed fewer than 250 Forms W-2 for the preceding calendar year. To comply with this new requirement, employers will need to: (1) assess the applicable employer-sponsored coverage that is provided to each employee; (2) calculate the aggregate cost of such coverage for each employee; and (3) report that cost on each employee’s Form W-2, in box 12, using code DD. Employers should make sure systems are in place to track employee coverage and coordinate with their finance, payroll and human resources staff and vendors to ensure accurate reporting.
- Cover Additional Preventive Services for Women in Non-Grandfathered Health Plans: On August 3, 2011, the Departments issued an amendment to the Act’s preventive care requirement. The new rules require non-grandfathered group health plans to additionally cover women’s preventive services without charging a co-payment, co-insurance or a deductible. This rule is intended to make sure women have access to a full range of recommended preventive services without cost sharing, including: well-woman visits; screening for gestational diabetes; human papillomavirus (HPV) DNA testing for women 30 years and older; sexually-transmitted infection counseling; human immunodeficiency virus (HIV) screening and counseling; FDA-approved contraception methods and contraceptive counseling; breastfeeding support, supplies and counseling; and domestic violence screening and counseling. Non-grandfathered health plans will need to cover these services without cost sharing for plan years beginning on or after August 1, 2012 (i.e., January 1, 2013 for calendar year plans). On January 20, 2012, the Departments announced that nonprofit employers who, based on religious beliefs, do not currently provide contraceptive coverage, will be provided an additional year, until August 1, 2013, to comply.
- Consider Impact of Medical Loss Ratio Rebates: As reported in our July 12, 2012 Health Care Reform Legal Alert, “Health Care Reform’s Medical Loss Ratio Rebates and Their Impact on Employer Group Health Plans,” insurance companies in the individual and small group health insurance markets must spend at least 80% of the premium dollars they collect on medical care and quality improvement activities, whereas insurance companies in the large group market must spend at least 85% of the premium dollars they collect on medical care and quality improvement activities. This is known generally as the MLR standard. Insurance companies that fail to satisfy the MLR standard must provide a rebate to their subscribers by August 1st of the following calendar year. Insurance carriers were required to make the first round of MLR rebates by August 1, 2012. Group policyholders must ensure that the rebate is used for the benefit of plan participants. ERISA fiduciary principles apply to the portion of any MLR rebate that is considered a plan asset, as does the requirement that any refunds or premium holidays that are provided to plan participants be completed within three months of receipt of the rebate. Plan sponsors should consider how they will handle any MLR rebates they receive and also be prepared for potential questions from plan participants, who will also receive notice regarding any MLR rebate provided to the plan sponsor.
- Comply with Independent Review Organization Requirements for Non-Grandfathered Health Plans: The Act requires non-grandfathered health plans to incorporate enhanced internal claims and appeals requirements and external review procedures. The Department of Labor provided a safe harbor for self-funded ERISA plans subject to the new external review procedures, which required that such plans contract with at least three independent review organizations (“IROs”) and rotate claims assignments among the IROs. However, the deadline for contracting with the IROs was extended, and plans relying on the safe harbor were required to contract with at least two IROs by January 1, 2012 and with at least three IROs by July 1, 2012. Since the July 1, 2012 deadline has passed, plan sponsors of self-funded non-grandfathered ERISA plans who are relying on the safe harbor should make sure that their external review procedures comply with this requirement.
- Amend Health Flexible Spending Accounts to Reflect the $2,500 Cap on Salary Reduction Contributions: As reported in our August 1, 2012 Health Care Reform Legal Alert, “$2,500 Cap on Salary Reduction Contributions to Health Flexible Spending Accounts,” prior to health care reform, the Code did not limit the amount that could be contributed to a health flexible spending account (a “health FSA”). The $2,500 cap applies to plan years beginning on or after January 1, 2013. Plans that currently have a health FSA limit in excess of $2,500 will have to be amended to reflect the $2,500 limit. Cafeteria plans must normally be amended in advance of the effective date of a change. However, IRS Notice 2012-40 provides that plans may adopt retroactive amendments to reflect the $2,500 cap at any time before December 31, 2014, provided that the plan operates in accordance with the $2,500 limit in the meantime.
- Large Employers Should Start to Consider How They Will Comply with the “Pay or Play” Mandate: In 2014, large employers will be subject to a penalty if either: (1) the employer fails to offer to its full-time employees the opportunity to enroll in minimum essential coverage and any full-time employee is certified to receive a premium tax credit or cost-sharing reduction; or (2) the employer offers its full-time employees the opportunity to enroll in minimum essential coverage and one or more full-time employees are certified to receive a premium tax credit or cost-sharing reduction because the employer’s coverage either is not affordable or does not provide minimum value. A full-time employee is an employee who, with respect to any month, is employed on average at least 30 hours per week. The IRS has issued guidance that describes safe harbor methods that employers may use to determine which employees are considered full-time employees. These methods involve different look back measurement periods of between three and 12 months (within the employer’s discretion) and may be helpful for employers whose employees work variable or seasonal hours. Even though the employer mandate does not go into effect until 2014, because full-time employees may be defined based on 2013 service, if a large employer chooses to rely on the IRS safe harbors, employers should take steps now to determine how it will identify full-time employees and what strategies it wants to implement to comply with the mandate.
- Provide Health Benefit Exchange Notice: By January 1, 2014, each state must establish a Health Benefit Exchange. The Act will require most employers to provide all new hires and current employees with a written notice about the Health Benefit Exchange and the consequences of purchasing coverage through an Exchange rather than employer-sponsored coverage. The notice must include certain specified information, including the following: (1) the existence of the Exchange; (2) a description of the services provided by the Exchange and how to contact the Exchange to request assistance; (3) eligibility for premium tax credits or cost-sharing reductions through the Exchange if the employer plan’s share of the total cost of benefits under the plan is less than 60%; and (4) an explanation that: (i) if the employee purchases a qualified health plan through the Exchange, then the employee may lose any employer contribution toward the cost of employer-provided coverage; and (ii) all or a portion of employer contributions to employer-provided coverage may be excludable for federal income tax purposes. HHS plans to issue model notices. The notice requirement is generally effective for employers beginning on March 1, 2013. Employees hired on or after the effective date must be provided notice at the time of hiring. Employees employed on the effective date must be provided notice no later than March 1, 2013.
- Gear Up to Report and Pay PCORI Fees: As reported in our August 9, 2012 Health Care Reform Legal Alert, 'Health Care Reform’s New Research Fees: What Employers Need to Know,” the Act imposes new fees on health insurance issuers and sponsors of self-funded health plans to fund research conducted by the Patient-Centered Outcomes Research Institute (“PCORI Fees”). The fees must be reported on the Form 720, Quarterly Federal Excise Tax Return and paid for plan or policy years ending on or after October 1, 2012 and before October 1, 2019. For health insurance issuers and plan sponsors of self-funded plans with calendar-year policy or plan years, the first Form 720 and payment is due July 31, 2013. The PCORI Fees apply primarily to medical plans, retiree-only plans and health reimbursement arrangements; however, other group health benefits may be subject to the fees as well. For insured policies, health insurance issuers are responsible for reporting and paying the PCORI Fees. For self-funded plans, plan sponsors are responsible for reporting and paying the PCORI Fees. The PCORI Fees for a plan or policy year is equal to the average number of lives covered under the plan or policy multiplied by an applicable dollar amount. For the first year, the applicable dollar amount is $1. This amount increases to $2 in the second year and future increases are based on increases in the projected per capita amount of National Health Expenditures released by the HHS. Plan sponsors and insurers have alternatives for calculating the average number of covered lives.
- Consider Impact on Employee Benefit Plans if Supreme Court Grants Certiorari in Defense of Marriage Act (“DOMA”) Cases: There is a strong possibility that the Supreme Court may grant certiorari this term in a series of cases challenging Section 3 of DOMA. Section 3 of DOMA currently provides that for purposes of federal law, “marriage” means only a legal union between one man and one woman as husband and wife. Under this same Section of DOMA, “spouse” refers only to a person of the opposite sex who is a husband or wife. DOMA does not invalidate same-sex marriages, but under DOMA certain federal benefits can only flow to opposite-sex spouses. DOMA affects employee benefit plans because, while DOMA is the law, employers are generally free to choose whether to offer benefits to same-sex spouses. If the Supreme Court grants certiorari and decides that Section 3 of DOMA is unconstitutional, it will have a significant impact on employee benefit plans and employer choices. For example, on the welfare plan side, same-sex spouses, for federal tax purposes, would be treated the same as opposite-sex spouses. If DOMA is overturned, it could even impact an employer’s decision to provide domestic partner benefits. Any Supreme Court decision would likely take effect immediately, leaving employers to scramble if they have not previously given thought to how a decision overturning DOMA might impact their employee benefit plans. If the Supreme Court grants certiorari in the DOMA cases, we intend to publish a newsletter explaining the impact such a decision could have on employee benefit plans and the issues employers should consider in advance.
- Distribute Summary Annual Report: Distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.
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