In a previous Taft alert, we discussed ways that the Patient Protection and Affordable Care Act of 2010 would immediately affect employers in 2010.
This bulletin will discuss the ways the Act will affect you on the first employee benefit plan year (“Plan Year”) beginning on or after September 23, 2010. For most employers who use the calendar year as their Plan Year, the changes listed below will become effective January 1, 2011, unless noted otherwise. However, for employers with a Plan Year that begins on October 1, November 1 or December 1, the changes below will occur earlier.
It is important to note that some of the changes below will affect all group health plans regardless of a plan’s grandfathered status and some changes will have no effect on grandfathered plans.
Group Health Plan Changes Affecting All Plans.
On the first Plan Year beginning on or after September 23, 2010, an employer’s group health plan, regardless of grandfathered status:
- may not impose any pre-existing condition limitations on individuals covered under the plan who are under 19 years of age.
- may not establish lifetime or annual limits on the dollar value of “essential health benefits.” While the Act does not define “essential health benefits,” the Secretary of Health and Human Services is directed to issue guidance on what benefits are “essential health benefits.” Some observers expect this definition will include most health benefits that have been covered under traditional health insurance policies.
- may not rescind a participant’s coverage, except in cases of fraud or an intentional misrepresentation. In fact, a group health plan is only allowed to cancel coverage in very limited situations, such as nonpayment of premiums, fraud and termination of the plan.
- must continue to provide dependent coverage to adult children until the age of 26. A grandfathered plan must only cover such adult children if the child is not eligible to enroll in another eligible employer-sponsored plan.
- must provide notice of any material modification to the terms of the plan or coverage to plan participants 60 days prior to the date the modification becomes effective. Prior law provided that such notice should be distributed to participants 60 days after the modification became effective.
Group Health Plan Changes Affecting Only Non-Grandfathered Plans.
On the first Plan Year beginning on or after September 23, 2010, an employer’s non-grandfathered group health plan:
- must provide coverage, with no cost sharing (i.e. co-payments and deductibles), for preventive care services and recommended immunizations.
- will be subject to discrimination rules under Internal Revenue Code Section 105(h) regardless of whether the plan is fully insured or self-insured.
- must implement an appeals process for appeals of coverage determinations or claims. A plan’s appeal process will satisfy this requirement if it complies with claims and appeal requirements contained in the Employee Retirement Income Security Act of 1974 (“ERISA”).
Other Changes Affecting Employers for Plan Year 2011.
In addition to group health care changes, the Act provides other significant changes for Plan Year 2011.
- Buying over-the counter medicine with Health FSAs, HSAs, Archer MSAs and HRAs dollars. Effective January 1, 2011, over-the-counter drugs and medicines (other than insulin) will not be eligible for reimbursement from health FSAs, HSAs, Archer MSAs or HRAs, unless prescribed by a doctor.
- Non-medical distributions from HSAs or Archer MSAs. Effective January 1, 2011, distributions from an HSA and an Archer Medical Savings Accounts that are not used for qualified medical expenses will be subject to an excise tax of 20%. Prior to the Act, the excise tax was 10% for HSAs and 15% for Archer Medical Savings Accounts.
- Small Employer wellness grants. Beginning in 2011, approximately $200 million in grants will be awarded to eligible employers to provide their employees with access to new workplace wellness initiatives. To be eligible, an employer must have fewer than 100 employees who work 25 hours or more per week and not have a workplace wellness program in place as of March 23, 2010.