Everyone who works on mergers and acquisitions has their standard due diligence forms and deal document language, but after health care reform, there are some new issues to consider:
- If there is a retiree-only health plan, is it documented, filed and funded separately from the active employee health plan? If so, then it may be exempt from health care reform.
If there is a grandfathered plan, the buyer should request:
- Each grandfathered notice;
- Plan information, including cost-sharing, from March 23, 2010 and each year since; and
- A description of any dropped plan option and the reason the plan option was dropped.
- If there is a grandfathered plan that does not comply with all of health care reform, consider whether the seller should indemnify the buyer from any claims, penalties, etc. that may result if the grandfathered status turns out to be inaccurate.
- When designing the transition of health care coverage, consider the effect on the buyer’s grandfathered status, especially if the buyer is considering converting an HRA to an HSA.
- If there is a mini-med plan, request a copy of the waiver the plan received from the HHS.
- If there is an ERRP filing, consider what notice may be needed. A plan sponsor who has received ERRP reimbursements must notify the government 60 days in advance of a change in ownership. Also, request a copy of the required notices to participants regarding the ERRP and review the plan sponsor’s documentation regarding use of ERRP reimbursements.
- If there are executive-only health arrangements, are they non-discriminatory? If not, are they grandfathered?
- Is the acquired entity considered a health insurance provider subject to the limited deduction for compensation under Code § 162(m)(6)?
- When considering whether to provide a single Form W-2 for acquired employees or separate Forms W-2 from each employer, remember that as of 2012, the value of employer-provided health care coverage must be included on the Forms W-2.
- Assess the likelihood that the seller’s current enrollment could increase in 2014 when the mandates are effective, thereby increasing the cost to the buyer?
- Assess the likelihood that the seller’s health coverage could be considered unaffordable and result in potential penalties beginning in 2014.
In addition to these specific issues, the buyer will likely want to ensure that the seller’s plan is compliant with the new insurance reforms, like adult child coverage and lifetime and annual limit restrictions. Failure to comply with these provisions can result in significant new penalties.