Health Care Reform
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Overview
How would one summarize the healthcare
reform law?
The $940 billion healthcare reform law is projected to extend
insurance coverage to roughly 32 million additional Americans.
Major coverage expansion begins in 2014. Most Americans will now be
required to have health insurance or pay a fine. Larger employers
will be required to provide coverage or risk financial penalties.
Certain small employers will be provided a credit to offset the
costs of providing coverage. Total individual out-of-pocket
expenses will be capped, and insurers will no longer have the
ability to deny coverage based on gender or pre-existing
conditions. Insurance subsidies for middle- and lower-income
families will be expanded. No government-run insurance plan was
included in the legislation.
Reform Changes
I know you'd mentioned earlier that
insurance reform, including grandfathering, does not apply to
limited dental and vision plans offered separately from a medical
plan. But are there any dental coverage provisions in the
legislation?
Actually there are. In the component that
covers preventive care with no cost sharing, there are a few items
regarding dental for children, including:
- Fluoride chemoprevention supplements for children without
fluoride in their water source
- Oral health risk assessments for young children
September 23, 2010 is fast approaching.
Could you give me a bulleted health care reform summary of the
provisions that go into effect at that point?
Here's a quick summary of some of the more
important provisions that go into effect September 23, 2010.
Remember, the provisions go into effect at the start of a new plan
year following the Sept. 23 date.
- Dependent coverage for eligible dependents extended up to age
26
- Restrictions of rescissions other than for fraud or intentional
misrepresentation of an important fact on applications
- No pre-existing condition exclusion for children under age
19
- No lifetime dollar limits on health benefits and restricted
annual dollar limits
- Ban on discrimination in favor of highly compensated workers
(not applicable to grandfathered plans)
- Preventive services with no cost-sharing (not applicable to
grandfathered plans)
- Right to designate a primary care provider and access to
emergency services, pediatricians and OB/GYNs (not applicable to
grandfathered plans)
Can you summarize the major reform
changes?
Under the law:
- Plans have to provide a comprehensive set of services, cover at
least 60% of the actuarial value of the covered benefits and limit
annual cost-sharing to the current health savings account (HSA)
limits ($5,950/individual and $11,900/family in 2010), effective
January 1, 2014.
- Dependent coverage will be available for children up to age 26
for all individual and group policies, effective six months
following enactment.
- Individual and group health plans are prohibited from placing
lifetime limits on the dollar value of coverage, effective six
months following enactment.
- Carriers are prohibited from rescinding coverage except in
cases of fraud, effective six months following enactment.
- Individual and group health plans cannot place annual limits on
the dollar value of coverage, as determined by HHS.
- Individual and group health plans cannot impose pre-existing
condition exclusions, effective January 1, 2014.
- Guarantee issue and renewability are required and premium
rating variation must only be based on age (limited to 3 to 1
ratio), premium rating area, family composition and tobacco use
(limited to 1.5. to 1 ratio), effective January 1, 2014.
- Deductibles for health plans in the small group market are
limited to $2,000 for individuals and $4,000 for families unless
contributions are offered that offset deductible amounts above
these limits, effective January 1, 2014.
- Employers cannot have a waiting period for coverage of more
than 90 days, effective January 1, 2014.
I know I've seen that dependent children
are eligible for coverage to (not through) age 26. Now I'm reading
an IRS headline: "Tax-Free Employer-Provided Health Coverage Now
Available for Children under Age 27." Which is correct? Or are
these two different matters?
The Patient Protection and Affordable Care Act, more commonly
known as healthcare reform, requires group health plans that
provide dependent coverage of children to continue to make such
coverage available for an adult child until age 26. The law also
amends the Internal Revenue Code to give certain favorable tax
treatment to coverage for adult children. The IRS recently
published guidance addressing questions about tax treatment of such
coverage.
In Notice 2010-38, the IRS stated that employers that offer
cafeteria plans can allow employees to begin making pre-tax
contributions immediately for health coverage for dependents who
are under 27, even if the changes to the plan have not yet been
made on paper.
The IRS said the new law allows employers with cafeteria plans to
permit employees to begin making pre-tax contributions to pay for
this expanded benefit. Cafeteria plans allow employees to choose
from a menu of tax-free benefit options and cash or taxable
benefits. Employees who have children who will not have reached age
27 by the end of the year are eligible for the new tax benefit from
March 30, 2010, forward, if the children are already covered under
the employer's plan or are added to the employer's plan at any
time.
The notice said that employers with cafeteria plans may permit
employees to immediately make pre-tax salary reduction
contributions to provide coverage for children under age 27, even
if the cafeteria plan has not yet been amended to cover these
individuals. Plan sponsors then have until the end of 2010 to amend
their cafeteria plan language to incorporate the change.
To clarify, the distinction in the provisions is that the "to age
26" is the requirement that dependent children up to age 26 have to
be eligible for coverage under a group health plan. The "under 27"
provision has to do with the definition of dependent for purposes
determining if the cost of coverage of the dependent is tax free.
It is not a coverage mandate. There is no requirement to cover
adult children over age 26, but if they are covered, the coverage
of those under age 27 is eligible for tax exemption.
The HCR 'Age 26 Requirement' seems pretty
straightforward, but could you lay out the specifics?
Under the healthcare reform package, certain
employer-sponsored group health plans must extend their dependent
coverage to employees' children up to age 26 (the "Age 26
Requirement"). Plan sponsors must implement this change effective
no later than the first day of the first plan year which begins on
or after September 23, 2010 (January 1, 2011 for calendar year
plans). On May 10, 2010, the U.S. Departments of Health & Human
Services (HHS), Labor (DOL) and Treasury issued the first interim
final regulations on the Age 26 Requirement. Those regulations
provide the following guidance:
- Only plans providing dependent coverage of children are
required to adopt the Age 26 Requirement. If a plan does not offer
dependent coverage the plan need not cover an employee's
children.
- Plans cannot impose requirements on the child for these
purposes, such as being a full-time student, being the employee's
tax-dependent or being single. However, until 2014, grandfathered
plans (i.e., plans already effective prior to March 23, 20101) that
are not materially changed, under standards not yet established,
may deny coverage to a child who is eligible for coverage under
another group health plan (other than a plan of the other parent).
Also, a child is not required to be covered unless the
employee-parent is covered.
- Plans are not required to cover a child's spouse or child.
- Plan premiums and coverage must be uniform, regardless of age,
for all children not yet 26. A child under age 26 must be given a
30-day opportunity to enroll in the parent's health plan effective
as of the effective date of the Age 26 Requirement. A special
advance notice of this opportunity must be given prior to the
effective date.
- All coverage options must be offered to a child entering the
plan. A covered parent must also be offered the opportunity to
elect the same coverage at the same time.
- A child will be eligible for COBRA (perhaps for a second time)
upon being dropped from the plan at age 26.
A number of the changes in healthcare
reform state that the changes are effective for plan years six
months after enactment. Does that mean the later of six months or
the new plan year?
Several of the reforms, such as the ban and limitations on
lifetime and annual limits, go into effect "for plan years
beginning on or after the date that is 6 months after the date of
enactment." The date that is six months after enactment is
September 23, 2010, so the answer depends on when the new plan year
starts. If a new plan year starts January 1, 2011, any changes that
are required under this effective date provision of the law must
made for the plan beginning on January 1, 2011. If, however, a new
plan year starts before September 23, 2010 - for example, on July
1, 2010 - such a plan must adopt the relevant changes starting July
1, 2011.
What if your plan expires mid-year in 2011
… will the over-the-counter drug reimbursement continue through
your plan end-date?
The plan year is irrelevant - the over-the-counter restriction
applies starting January 1, 2011 for money contributed to the
account after that date. Administrators may want to consider
informing participants of the change now to give them an
opportunity to use their funds to purchase non-prescribed
over-the-counter drugs before the new restriction goes into
effect.
Individual Mandates
Is there an individual mandate?
Yes. U.S. citizens and legal residents are required to have health
insurance or pay a fine. Some are exempted from the requirement due
to financial hardship or religious reasons. The penalty for not
having coverage is $95 in 2014 or 1% of an individual's income,
whichever is higher. The penalty rises in 2016 to $695, or 2.5% of
income.
Does an employee have to take an employer's
insurance if offered?
No. Employees can join their spouse's coverage or purchase coverage
through the exchange or the individual market. However, as of 2014
when individual responsibility requirements take effect, if an
employee refuses employer coverage and doesn't obtain coverage on
his or her own, the employee will be subject to penalty.
If an employee waives coverage for any reason other than that it
doesn't meet the affordability test, s/he can still purchase
coverage through the exchange but will not be eligible for the
refundable tax credit.
If an employee's share of the premium for employer-sponsored
coverage meets the law's definition of unaffordable (i.e., it
exceeds 9.5% of their adjusted gross income), s/he can purchase
coverage through the exchange. They can't receive a tax credit
unless the employer plan does not have an actuarial value of at
least 60 percent (as defined by DHHS's essential benefits package)
or is deemed unaffordable. The exchange will determine if the
coverage is unaffordable for the employee.
Say a group is offering coverage and an
employee declines the coverage and chooses to pay the penalty. If
this employee then suddenly gets sick, can he/she enroll at any
time with the group - or will there still be open enrollment
periods, renewals and qualifying-event rules?
At this point we see nothing in the law that changes a
qualifying event and can assume that a group could keep their open
enrollment period - and if someone waives coverage they would have
to wait until the next open enrollment period to get the employer
coverage (unless there's a qualifying event).
This question does bring up a good point, however. Since there
are no pre-exisitng conditions/medical underwriting, even on
individual plans, beginning in 2014 an emplyee could decide to
waive coverage, pay the penalty and the apply for an individual
policy down the road if he/she gets sick. This is an issue
insurance carriers are upset about. They believe the penalties
aren't severe enough, and this "adverse selection" issue will
become a problem and drive up costs. In other words, carriers fear
healthy folks may forgo coverage until they have a real medical
issue and then go to an exchange to buy individual coverage when
needed. The penalties do increase over time - but still not nearly
as high compared to the premium they'd pay to take coverage.
Employer Mandates
Under nondiscrimination, if a group has
employees in multiple states, they can't offer an HMO to CA
employees and a PPO to out-of-state employees, correct?
There is nothing per se wrong with the offer of an HMO to CA
employees and a PPO for out-of-state employees. Out-of-state
employees will most likely not want to elect the HMO because they
will not be able to access the providers. CA employees will prefer
the richer benefits of the HMO. If the two options are separate
plans, there will be no discrimination issue. Hopefully, IRS will
be providing guidance on when election options can be treated as
separate plans for nondiscrimination testing. In addition, even if
the two options are treated as a single plan, there would not be a
discrimination issue unless the highly compensated individuals were
primarily located in CA or out-of-state. Whether there is
discrimination in the operation of a plan will depend on all of the
facts and circumstances in each case. With many unanswered
questions about how the rules against discrimination in favor of
the highly compensated will apply to insured plans, IRS will be
issuing guidance and allowing time for employers to adapt before
initiating enforcement.
I've been asked about required notices that
employers need to provide their employees relative to health care
reform but haven't seen or heard any specifics. Can you help me
here?
Pursuant to the Patient Protection & Affordable Care Act,
Employers Are Required to Provide Employees With the Four Written
Notices Below. (The sample language has been issued and approved by
the Department of Labor and can be customized in the [Insert]
sections.) The Notices Must Be Provided No Later Than the First Day
of the First Plan Year Beginning On or After September 23, 2010.
Note: The Notices May Be Included With Other Enrollment Materials
That a Plan Distributes, Provided the Statements Are Prominent.
To: All Employees
From: [Insert company name]
Date: [Insert date]
Re: Employee Notice - Lifetime Limits
Employee Notice - To Age 26 Requirement
Employee Notice - Designation of a Primary Care Provider
Employee Notice - Grandfathered Plans
Employee Notice - Lifetime Limits
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 [insert plan administrator
or issuer] at [insert contact information].
Employee Notice - To Age 26 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].
Employee Notice - Designation of a Primary
Care Provider
[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 children, you may designate a pediatrician as the primary care
provider.
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].
Employee Notice - Grandfathered Plans
[Insert 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. As permitted by the
act, a grandfathered health plan can preserve certain basic health
coverage that was already in effect when the law was enacted. Being
a grandfathered plan means that your plan or policy may not include
certain consumer protections of the act that apply to other plans
(for example, the requirement for the provision of preventive
health services without any cost sharing). However, grandfathered
plans must comply with certain other consumer protections in the
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 status can be
directed to the plan administrator at [insert contact information].
For ERISA plans, you may also contact the Employee Benefits
Security Administration, U.S. Department of Labor at 1-866-444-3272 or
www.dol.gov/ebsa/healthreform . This website has a table
summarizing which protections do and do not apply to grandfathered
health plans. You may also contact the U.S. Department of Health
and Human Services at www.healthreform.gov.
Will employers have to buy insurance for
employees?
Effective January 1, 2014, employers with more than 50 employees
that do not offer coverage and have at least one full-time employee
who receives a premium tax credit are assessed a fee of $2,000 per
full-time employee, excluding the first 30 employees. Employers
with more than 50 employees that offer coverage but have at least
one full-time employee receiving a premium tax credit will pay the
lesser of $3,000 for each employee receiving a premium credit or
$2,000 for each full-time employee, excluding the first 30
full-time employees.
Employers with more than 200 employees must automatically enroll
employees into health insurance plans offered by the employer.
Employees may opt out of coverage.
Effective January 1, 2014, employers that offer coverage to
their employees must provide a free choice voucher to employees
with incomes less than 400% of the federal poverty level (FPL)
whose share of the premium exceeds 8% but is less than 9.8% of
their income and who choose to enroll in a plan in the insurance
'exchange.' The voucher amount is equal to what the employer would
have paid to provide coverage to the employee under the employer's
plan and will be used to offset the premium costs for the plan in
which the employee is enrolled. Employers providing free choice
vouchers will not be subject to penalties for employees that
receive premium credits in the exchange.
When is an employer required to provide the
time and a room for breastfeeding mothers who need to express
milk?
While some sections of the Patient Protection and Affordable
Care Act have prospective effective dates, the section amending the
FLSA did not have any stated specific effective date. Absent an
expressly stated effective date in federal legislation, a law or
amendment to the law takes effect immediately. Thus, the provision
regarding nursing took effect upon President Obama's signature on
March 23, 2010.
The Patient Protection and Affordable Care Act amends the Fair
Labor Standards Act (29 U.S.C. Sec. 207) by requiring that
employers provide a reasonable break time for an employee to
express breast milk for her nursing child for 1 year after the
child's birth each time the employee has a need to express milk.
Employers must now provide a place, other than a bathroom, that is
shielded from view and free from intrusion from co-workers and the
public, which may be used by an employee to express breast milk.
The law does not require employers to pay employees for such break
time.
The requirements do not apply to employers with less than 50
employees if such requirements would impose an undue hardship by
causing the employer significant difficulty or expense when
considered in relation to the size, financial resources, nature or
structure of the employer's business. These provisions do not
preempt a state law that provides greater protections to
employees.
Are there new employer reporting
requirements?
Yes. Every employer who files more than 250 W-2s will be
required to report the value of the health insurance benefit for
each employee on his or her annual W-2 beginning in 2012. This is
to determine whether an individual has coverage as required and if
his or her health plan will be subject to the excise tax.
Relative to HCR, what exactly is the
definition for small group?
1-100 for the market reform starting 2014. But for the employer
responsibility requirements it is 50 employees or less, with
part-time workers taken into the calculation on an aggregate
basis.
We're getting lots of questions about all
the 'tests' employers can use to see if he or she is meeting the
nondiscrimination rules. I've heard there are maybe three tests
(70% of employees having the same benefits, 80% being offered them
but at least 70% participating, 25% key employee concentration,
etc.???). It's mind boggling. Do you have a simple list of these
tests? Also, relative to small employers, simple cafeteria plans
and meeting the non-discrimination rules: What are the specified
contribution, eligibility and participation requirements needing to
be met?
Detailed information regarding the issues raised is available on
HR.BLR.com . Some of the relevant portions are
highlighted below:
Nondiscrimination Rules
A cafeteria plan must not discriminate in
favor of highly compensated individuals (HCIs) as to eligibility
for benefits, discriminate in favor of highly compensated
participants (HCPs) as to contributions and benefits or
discriminate in favor of key employees as to utilization of
benefits. If the plan discriminates, the benefits of these
employees are included in their taxable income.
Definitions. A "highly compensated individual"
is any employee who, for the prior year (or the current year for a
new employee), is an officer, 5 percent shareholder or employee
whose compensation exceeds the IRC Sec. 414(q)(1)(B) amount
(currently $100,000) and is in the top-paid group of employees. A
"highly compensated participant" is a HCI who is eligible to
participate in the plan. Statutory nontaxable benefits are
qualified benefits excludable from gross income plus group term
life insurance exceeding $50,000. Total benefits are qualified
benefits plus taxable benefits.
Eligibility test rules. The benefit eligibility
test requires that a cafeteria plan not discriminate in favor of
HCIs as to eligibility to participate in the plan in the plan year
being tested. For the eligibility test, a plan may exclude
employees who do not meet a minimum service requirement only if the
plan requires 3 years of service for participation. However,
employees with less than 3 years of service may be treated as if
they are covered by a separate plan.
Benefit availability test rules. The benefit
availability test requires that either qualified benefits and total
benefits or employer contributions (including salary reduction
contributions) for statutory nontaxable benefits and for total
benefits do not discriminate in favor of HCPs. For this test, all
similarly situated employees must have the same opportunity to
elect benefits, and HCPs must not disproportionately utilize or
elect qualified benefits.
Utilization test rules. The utilization test
requires that the statutory nontaxable benefits for key employees
not exceed 25 percent of the aggregate statutory nontaxable
benefits for all employees. A premium-only plan satisfies this test
if it satisfies the eligibility test.
All members of a controlled group are treated as a single
employer for purposes of these tests. Employers may, but need not,
aggregate two or more cafeteria plans for purposes of the tests, as
long as the plans are not aggregated to manipulate the results. If
discriminatory benefits are provided to highly compensated
participants, to highly compensated individuals or to key
employees, the benefits are included in these employees' gross
income.
Safe Harbor Cafeteria Plans for Small
Employers
Effective for years beginning after December 31, 2010, a small
business may adopt a "simple cafeteria plan" that provides a safe
harbor from nondiscrimination requirements. A simple cafeteria plan
must be established and maintained by an eligible employer and meet
specific contribution, eligibility and participation requirements
in order to qualify for the safe harbor. This provision should
encourage small employers that would otherwise be vulnerable under
the nondiscrimination rules to adopt a cafeteria plan.
Eligible employer. An eligible employer for any
year is an employer that employed an average of 100 or fewer
employees on business days during either of the 2 preceding years.
A year may be taken into account only if the employer was in
existence throughout the year. If an employer was not in existence
throughout the preceding year, the determination of the number of
employees is based on the average number of employees that it is
reasonably expected the employer will employ on business days in
the current year.
Treatment of growing employers. An employer
that was an eligible employer for any year is treated as an
eligible employer for subsequent years when it has grown to more
than 100 employees until the employer employs an average of 200 or
more employees on business days during any preceding year preceding
any such subsequent year.
Contribution requirements. The contribution
requirements are met if the plan requires the employer, without
regard to whether a qualified employee makes any salary reduction
contribution, to make a contribution to provide qualified benefits
under the plan on behalf of each qualified employee in an amount
equal to:
- A uniform percentage (not less than 2 percent) of the
employee's compensation for the plan year, or
- An amount that is not less than the lesser of 6 percent of the
employee's compensation for the plan year or twice the amount of
the salary reduction contributions of each qualified employee.
The contribution requirements will not be met if, under the
plan, the rate of contributions for any salary reduction
contribution of a highly compensated or key employee at any rate of
contribution is greater than that for an employee who is not a
highly compensated or key employee. The contribution requirement
does not prohibit an employer from making additional contributions
to provide qualified benefits under the plan.
Minimum eligibility and participation requirements. The minimum
eligibility and participation requirements are generally met for
any year if:
- All employees who had at least 1,000 hours of service for the
preceding plan year are eligible to participate, and
- Each employee eligible to participate in the plan may, subject
to terms and conditions applicable to all participants, elect any
benefit available under the plan.
When does the timeline start for employer
groups to have a 90-day waiting period as the maximum period - and
does the obligation vary by employer size?
The requirement takes effect in 2014 - and it does not vary by
employer size.
Could you provide me with even more details
regarding HCR and W-2 reporting?
Starting in the 2012 tax year, health care reform legislation
will require you, as an employer, to report the aggregate value of
your employees' health benefits on their W-2 forms (regardless of
whether the employer or the employee paid the cost). The intent of
the law is to improve health care transparency and cost
awareness.
It's important to note upfront that the cost of an employee's
health benefits will not be included in the employee's taxable
income. The coverage costs that must be reported include:
- Medical plans
- Prescription drug plans
- Dental and vision plans, unless they're 'stand alone' plans
(i.e. an employee may elect only dental or only vision and is not
required to also enroll in medical coverage)
- Executive physicals
- On-site clinics (providing full-scale medical treatment)
- Medicare supplemental policies
- Employee assistance programs
- MSA, HSA, HRA and health FSA contributions by the employer
Employers will not be required to provide a breakdown of the
various types of coverage but must report the total cost (say for
medical, dental and drug coverage).
The following employer-provided benefits are not required to be
reported on the W-2:
- Long-term care, accident or disability income benefits
- Specific disease or illness policies and hospital (or other)
indemnity insurance policies where the full premium is paid by the
employee on an after-tax basis
- Archer MSA or HSA contributions of the employee or employee's
spouse
- Employee contributions through salary reductions to FSAs
The employer will calculate the value of the premiums under the
rules for COBRA continuation coverage (not the portion of the
premium that the employee has to pay).
Say a client has an employee who is
currently not enrolled in the group benefits plan (waived
coverage). However, he has a daughter who is now eligible as a
result of the age 26 provision to join his plan. Can he enroll
during the special open enrollment period in order to add him and
his daughter to the coverage? And, as an employer, is our client
required to accept him?
Yes, the rules governing coverage of adult children require that
a non-enrolled employee be given the opportunity to enroll during
the special open enrollment, along with the employee's eligible
adult child.
Pursuant to the Patient Protection &
Affordable Care Act, Employers Are Required to Provide Employees
With the Four Written Notices Below. (The sample language has been
issued and approved by the Department of Labor and can be
customized in the [Insert] sections.) The Notices Must Be Provided
No Later Than the First Day of the First Plan Year Beginning On or
After September 23, 2010. Note: The Notices May Be Included With
Other Enrollment Materials That a Plan Distributes, Provided the
Statements Are Prominent.
To: All Employees From: [Insert company name] Date: [Insert
date] Re: Employee Notice - Lifetime Limits Employee Notice - To
Age 26 Requirement Employee Notice - Designation of a Primary Care
Provider Employee Notice - Grandfathered Plans
Employee Notice - Lifetime Limits
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 [insert plan administrator
or issuer] at [insert contact information].
Employee Notice - To Age 26 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].
Employee Notice - Designation of a Primary
Care Provider
[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 children, you may designate a
pediatrician as the primary care provider.
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].
Employee Notice - Grandfathered Plans
[Insert 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. As permitted by the
act, a grandfathered health plan can preserve certain basic health
coverage that was already in effect when the law was enacted. Being
a grandfathered plan means that your plan or policy may not include
certain consumer protections of the act that apply to other plans
(for example, the requirement for the provision of preventive
health services without any cost sharing). However, grandfathered
plans must comply with certain other consumer protections in the
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 status can be
directed to the plan administrator at [insert contact information].
For ERISA plans, you may also contact the Employee Benefits
Security Administration, U.S. Department of Labor at 1-866-444-3272 or
www.dol.gov/ebsa/healthreform . This website has a table
summarizing which protections do and do not apply to grandfathered
health plans. You may also contact the U.S. Department of Health
and Human Services at www.healthreform.gov.
Tax Credits
What help is available to small
employers?
A small employer (no more than 25 employees and average annual
wages of less than $50,000, not including the owner's) who
purchases health insurance for employees is entitled to a tax
credit as follows:
Phase I: For tax years 2010 through 2013, there
will be a tax credit of up to 35% of the employer's contribution
toward the employee's health insurance premium if the employer
contributes at least 50% of the total premium cost or 50% of a
benchmark premium. The full credit will be available to employers
with 10 or fewer employees and average annual wages of less than
$25,000. The credit phases-out as firm size and average wage
increases. Tax-exempt small businesses meeting these requirements
are eligible for tax credits of up to 25% of the employer's
contribution toward the employee's health insurance premium.
Phase II: For tax years 2014 and later, for
eligible small businesses that purchase coverage through the
exchange, there will be a tax credit of up to 50% of the employer's
contribution toward the employee's health insurance premium if the
employer contributes at least 50% of the total premium cost. The
credit will be available for two years. The full credit will be
available to employers with 10 or fewer employees and average
annual wages of less than $25,000. The credit phases-out as firm
size and average wage increases. Tax-exempt small businesses
meeting these requirements are eligible for tax credits of up to
35% of the employer's contribution toward the employee's health
insurance premium.
What is the definition of a 'family
member'? Everything I see does not include a spouse in the
definition. I have a group that is a sole proprietor. The husband
owns the company 100%, and the wife is a paid employee. Is the wife
included in the calculation for the tax credit?
According to the IRS FAQ, a family member of any of the business
owners or partners, or a member of such a business owner's or
partner's household, is not considered an employee for purposes of
the credit. A family member is defined as a child (or descendant of
a child); a sibling or step-sibling; parent (or ancestor of a
parent); a niece or nephew; an aunt or uncle; or a son-in-law,
daughter-in-law; father-in-law; mother-in-law; brother-in-law or
sister-in-law.
My company has 30 employees and about half
are union. Are union members included when entering information in
the tax credit calculator?
Unionized employees are counted when determining if the employer
is eligible for the small business tax credit. An employer with 25
or more full-time equivalent employees is not eligible for the
credit.
How does a small business apply for the tax
credit?
The credit is claimed on the employer's annual income tax return
(e.g. Form 1120 and presumably Form 3800) as a nonrefundable
general business tax credit, which can be carried forward 20
years.
We have a group that says it doesn't pay
federal taxes, but it does pay payroll taxes/FICA. It is an
independent government entity with 22 employees and does not fall
under a not-for-profit category (thus no 501(c) status) - Would
this group be able to qualify for any of the HCR small tax
credit?
Governmental employers are not eligible for the Small Business
Health Care Tax Credit.
Relative to health care reform and tax
credits: If not-for-profits are eligible for the tax credit (but
only at a 25 percent max vs. the 35 max for for-profit companies)
how do they obtain the credit if they're not filing 'for-profit'
tax returns?
The credit is claimed against the non-profit's income tax and
Medicare tax withholding from employees and the employer's share of
Medicare taxes. The amount of the credit cannot exceed the total
amount of income and Medicare (i.e. hospital insurance) tax the
employer is required to withhold from employees' wages for the year
and the employer's share of Medicare tax on employees' wages for
the year. The IRS has stated that it will be providing further
information on how tax exempt organizations can claim the
credit.
Grandfathered Plans
If a group loses its grandfathered
status, could it keep eligibility requirements at 40 hours per week
or would it have to change to 30 hours per week?
In 2014, 30 hours is considered full-time regardless of
grandfathered status.
What is a 'grandfathered' plan?
A grandfathered plan is any plan in which an individual is
enrolled - either directly or through any group plan - on March 23,
2010. Grandfathered plans are exempt from the market reforms
included in the law. However, there are some notable exceptions.
Grandfathered plans will be subject to the following new
requirements for the first plan year starting six months after
enactment:
- The new coverage disclosure rules
- The medical loss ratio/rebating-related informational filing
requirements
- No lifetime coverage limits for essential benefits
- No annual coverage limits on essential benefits
- Extension of dependent coverage to age 26
Does grandfathering apply to dental
plans?
Insurance reform, including grandfathering, does not apply to
limited dental and vision plans offered separately from a medical
plan.
As I understand the new health bill, if we
make a significant change to our medical plan we would lose our
"grandfathered" status. Since we're seriously considering changing
to a high deductible/HSA for our renewal plan this fall, please
tell me what are the implications of losing this grandfathered
status for a group of our size.
Under the Affordable Care Act grandfathered plans are those in
existence on March 23, 2010. A major change in such a plan could
result in the loss of grandfathered status. Guidance is expected on
what types of changes could affect grandfathered status. The
following are the primary provisions that do not apply to
grandfathered plans:
Minimum Coverage Without Cost-Sharing for Preventive
Services
Plans established after March 23, 2010 must provide coverage
without cost-sharing for preventive services, including
immunizations; preventive care for infants, children and
adolescents; and additional preventive care and screenings for
women for plan years beginning after September 23, 2010.
Nondiscrimination Testing
The existing rules barring discrimination in favor of the highly
compensated employees apply to insured group health plans
established after March 23, 2010, effective for plan years
beginning on or after September 23, 2010.
Other Coverage Requirements
Effective for plan years beginning on or after September 23, 2010,
group health plans established on or after March 23, 2010 will:
- Have to allow plan participants to choose any participating
primary care provider.
- Be prohibited from requiring prior authorization or referrals
for visits to an obstetrician/gynecologist.
- Have to treat an obstetrician/gynecologist as a primary care
provider.
- Have to provide emergency care services without prior
authorization and with the same cost-sharing both in and out of
network.
- Have to provide coverage for costs of participating in a
clinical trial.
Could you please provide me with a succinct
list of what plans cannot do if they want to remain
grandfathered?
On June 17, 2010, the Internal Revenue Service (IRS), Department
of Labor (DOL) and Department of Health and Human Services (HHS)
jointly issued interim final regulations regarding a group health
plan's status as a "grandfathered health plan" (i.e., one in
existence on March 23, 2010). Generally, grandfathered health plans
are able to make routine changes to their policies and maintain
their status.
Changes That Will Cause a Plan to Lose Grandfathered
Status
A plan will lose its grandfathered plan status if changes are made
to the plan's coverage that significantly decrease the benefits,
materially increase cost sharing by participants in ways that might
discourage covered individuals from seeking needed treatment or
substantially increase the cost of coverage paid by participants.
Specifically, the following changes cannot be made to maintain
grandfathered status:
- Cannot significantly cut or reduce benefits. For example, if
your plan covers care for people with diabetes, cystic fibrosis or
HIV/AIDS, it cannot drop coverage for those diseases
- Cannot raise co-insurance charges. For example, it increases
your share of a hospital bill from 20% to 25%
- Cannot significantly raise co-payment charges. For example, it
raises its copayment from $30 to $50 over the next 2 years
- Cannot significantly raise deductibles. For example, it raises
a $1,000 deductible by $500 over the next 2 years
- Cannot significantly lower employer contributions by more than
5 percent. For example, it increases its workers' share of the
premium from 15% to 25%
- Cannot add or tighten an annual limit on what the insurer pays.
Some insurers cap the amount that they will pay for covered
services each year. If they want to retain their status as
grandfathered plans, plans cannot tighten any annual dollar limit
in place as of March 23, 2010. Moreover, plans that do not have an
annual dollar limit cannot add a new one unless they are replacing
a lifetime dollar limit with an annual dollar limit that is at
least as high as the lifetime limit (which is more protective of
high-cost enrollees)
- In addition, changing policies (or insurance carriers prior to
11/15/2010) will cause a plan to lose grandfathered status.
Finally, keep in mind that premium amounts are not included among
the above restrictions on plans that wish to maintain grandfathered
status.
If plan sponsors comply with the mental
health parity law and are forced to change their plan design will
it cause them to lose their grandfathered status?
No. The regulatory guidance on grandfathering specifically
states that changes made by plans to comply with federal or state
laws will not cause loss of grandfathered status.
If a plan sponsor applies for the early
retirement reinsurance will they lose their grandfathered
status?
No. The regulatory guidance on grandfathering specifically
states that changes made by plans to comply with federal or state
laws will not cause loss of grandfathered status.
Sorry, I keep getting confused - I know
group health plans can't rescind health coverage after coverage
begins except in the case of fraud or intentional
misrepresentation. But does this apply to grandfathered plans?
Yes, it's applicable.
How about cost-sharing coverage of
preventive health for grandfathered plans?
Not applicable. Health plans offering group or individual health
insurance coverage must cover certain preventive services,
immunizations and screenings without any cost sharing - but
grandfathered plans aren't required to do so.
Wellness Grants & Discounts
What are the wellness grants and discounts
available?
The law provides grants for up to five years to small employers
that establish wellness programs, beginning in fiscal year 2011. It
also permits employers to offer employee rewards in the form of
premium discounts, waivers of cost-sharing requirements or benefits
that would otherwise not be provided of up to 30% (or 50%, if
Health and Human Services deems appropriate) of the cost of
coverage for participating in a wellness program and meeting
certain health-related standards.
Can you provide any additional
clarification on the 5-year wellness grants?
Below is the text directly from the legislation. The 5-year
grant program refers to small businesses offering a qualified
wellness program. Currently, few details have been provided about
this program. A government agency reporting to the Health and Human
Services secretary will be responsible for implementing this
program.
SEC. 10408. GRANTS FOR SMALL BUSINESSES TO PROVIDE
COMPREHENSIVE
WORKPLACE WELLNESS PROGRAMS.
(a) ESTABLISHMENT.-The Secretary shall award grants to
eligible employers to provide their employees with access to
comprehensive
workplace wellness programs (as described under subsection
(c)).
(b) SCOPE.-
(1) DURATION.-The grant program established under this
section shall be conducted for a 5-year period.
(2) ELIGIBLE EMPLOYER.-The term ''eligible employer''
means an employer (including a non-profit employer) that-
(A) employs less than 100 employees who work 25
hours or greater per week; and
(B) does not provide a workplace wellness program
as of the date of enactment of this Act.
(c) COMPREHENSIVE WORKPLACE WELLNESS PROGRAMS.-
(1) CRITERIA.-The Secretary shall develop program criteria
for comprehensive workplace wellness programs under this
section
that are based on and consistent with evidence-based
research and best practices, including research and
practices
as provided in the Guide to Community Preventive Services,
the Guide to Clinical Preventive Services, and the National
Registry for Effective Programs.
(2) REQUIREMENTS.-A comprehensive workplace wellness
program shall be made available by an eligible employer to
all employees and include the following components:
(A) Health awareness initiatives (including health
education,
preventive screenings, and health risk assessments).
(B) Efforts to maximize employee engagement
(including mechanisms to encourage employee participation).
(C) Initiatives to change unhealthy behaviors and lifestyle
choices (including counseling, seminars, online programs,
and self-help materials).
(D) Supportive environment efforts (including workplace
policies to encourage healthy lifestyles, healthy
eating, increased physical activity, and improved mental
health).
(d) APPLICATION.-An eligible employer desiring to
participate
in the grant program under this section shall submit an
application
to the Secretary, in such manner and containing such
information
as the Secretary may require, which shall include a proposal
for
a comprehensive workplace wellness program that meet the
criteria
and requirements described under subsection (c).
(e) AUTHORIZATION OF APPROPRIATION.-For purposes of carrying
out the grant program under this section, there is
authorized
to be appropriated $200,000,000 for the period of fiscal years
2011
through 2015. Amounts appropriated pursuant to this
subsection
shall remain available until expended.
Carrier Requirements
As part of health care reform, are
high deductible health plans required to pay wellness visits at 100
percent?
High deductible health plans (HDHPs) are covered by the
requirements of the health care reform law in the same way as other
group health insurance plans. Thus, unless a plan has grandfathered
status, coverage without cost-sharing must be provided for
preventive services. This provision is effective for the first plan
year beginning on or after September 23, 2010, but does not apply
to grandfathered plans (plans that were in existence on March 23,
2010 and which have not been amended).
[Additional background information
for those interested: Interim final regulations provide
that a group health plan, or a health insurer offering group health
insurance coverage, must provide coverage for all of the following
items and services without any cost-sharing requirements (such as a
copayment, coinsurance, or deductible) for the items or
services:
- Evidence-based items or services that have a rating of A or B
in the current recommendations of the United States Preventive
Services Task Force for the individual involved (Note:
recommendations of the United States Preventive Services Task Force
on breast cancer screening, mammography, and prevention issued in
or around November 2009 are not considered to be current);
- Immunizations for routine use in children, adolescents, and
adults that have in effect a recommendation from the Advisory
Committee on Immunization Practices of the Centers for Disease
Control and Prevention for the individual involved (for this
purpose, a recommendation from the Advisory Committee on
Immunization Practices of the Centers for Disease Control and
Prevention is considered in effect after it has been adopted by the
Director of the Centers for Disease Control and Prevention, and a
recommendation is considered to be for routine use if it is listed
on the Immunization Schedules of the Centers for Disease Control
and Prevention);
- For infants, children, and adolescents, evidence-informed
preventive care and screenings provided for in comprehensive
guidelines supported by the Health Resources and Services
Administration (HRSA); and
- For women, if not included by the first item above,
evidence-informed preventive care and screenings provided for in
comprehensive guidelines supported by the HRSA.
A plan may provide coverage for services in addition to those
recommended by U.S. Preventive Services Task Force and may deny
coverage for services that are not recommended by the Task
Force.
HHS is authorized to set a minimum interval of not less than 1
year between when a preventive services recommendation or guideline
is issued and the plan year for which the recommendation or
guideline applies. Interim final regulations provide that coverage
must be provided for plan years beginning on or after the later of
September 23, 2010, or 1 year after the date a recommendation or
guideline is issued. Thus, recommendations and guidelines issued
before September 23, 2009, must be provided for plan years
beginning on or after September 23, 2010. A recommendation or
guideline of the Task Force is considered to be issued on the last
day of the month on which the Task Force publishes or otherwise
releases the recommendation. A recommendation or guideline of the
Advisory Committee is considered to be issued on the date on which
it is adopted by the Director of the Centers for Disease Control
and Prevention.
A recommendation or guideline in the comprehensive guidelines
supported by HRSA is considered to be issued on the date on which
it is accepted by the administrator of HRSA or, if applicable,
adopted by the Secretary of HHS.
For recommendations and guidelines adopted after September 23,
2009, the information at http://www.HealthCare.gov/center/
regulations/prevention.html will be updated on an ongoing basis and
will include the date on which the recommendation or guideline was
accepted or adopted.
Cost-sharing requirements and office visits.
Because an office visit where preventive services are provided may
include other services, the interim final regulations provide the
following clarifications of the cost-sharing requirements when a
recommended preventive service is provided during an office
visit:
- If a recommended preventive service is billed separately (or is
tracked as individual encounter data separately) from an office
visit, a plan or insurer may impose cost-sharing requirements with
respect to the office visit.
- If a recommended preventive service is not billed separately
(or is not tracked as individual encounter data separately) from an
office visit and the primary purpose of the office visit is the
preventive service, a plan or insurer may not impose cost-sharing
requirements for the office visit.
- If a recommended preventive service is not billed separately
(or is not tracked as individual encounter data separately) from an
office visit and the primary purpose of the office visit is not the
preventive service, a plan or insurer may impose cost-sharing
requirements for the office visit.
Tracking individual encounter data applies to plans that use
capitation or similar payment arrangements and do not bill
individually for items and services.
Out-of-network providers. The interim final regulations
make clear that a plan that has a network of providers is not
required to provide coverage for recommended preventive services
delivered by an out-of-network provider and may also impose
cost-sharing requirements for recommended preventive services
delivered by an out-of-network provider.
Coverage limitations. The interim final regulations
provide that if a recommendation or guideline for a recommended
preventive service does not specify the frequency, method,
treatment, or setting for the provision of that service, the plan
or insurer can use reasonable medical management techniques to
determine any coverage limitations. The use of reasonable medical
management techniques allows plans and issuers to adapt such
recommendations and guidelines to the coverage of specific items
and services where cost-sharing must be waived.
Thus, a plan or insurer may rely on established techniques and the
relevant evidence base to determine the frequency, method,
treatment, or setting for which a recommended preventive service
will be available without cost-sharing when not specified in a
recommendation or guideline.]
A lot of carriers are still showing an
out-of-network lifetime maximum on their quotes. Have not heard any
final ruling if out-of-network lifetime maximums are permitted
under the new HCR law. Please provide any information.
Although the Affordable Care Act bars annual
and lifetime limits, annual or lifetime per-beneficiary limits on
specific covered benefits that are not essential health benefits
are allowed to the extent that such limits are otherwise permitted
under federal or state law. Essential health benefits include at
least the following general categories and the items and services
covered within these categories:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder services, including
behavioral health treatment
- Prescription drugs
- Rehabilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease
management
- Pediatric services, including oral and vision care
Regulations will be issued defining other items that are
essential benefits so that an essential benefits package equals in
scope the benef
Although the Affordable Care Act bars annual
and lifetime limits, annual or lifetime per-beneficiary limits on
specific covered benefits that are not essential health benefits
are allowed to the extent that such limits are otherwise permitted
under federal or state law. Essential health benefits include at
least the following general categories and the items and services
covered within these categories:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder services, including
behavioral health treatment
- Prescription drugs
- Rehabilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease
management
- Pediatric services, including oral and vision care
Regulations will be issued defining other items that are
essential benefits so that an essential benefits package equals in
scope the benefits provided under a typical employer plan. For plan
years beginning before the issuance of regulations defining
"essential health benefits," for purposes of enforcement, IRS, DOL
and HHS will take into account good faith efforts to comply with a
reasonable interpretation of the term "essential health benefits."
For this purpose, a plan or issuer must apply the definition of
essential health benefits consistently.
A group health plan or group health insurer may exclude all
benefits for a particular condition unless barred by federal or
state law. However, if any benefits are provided for the condition,
then the ban on annual and lifetime limits will apply.
It would appear that a lot of carriers believe that
out-of-network benefits are not essential benefits. Note, however,
that PPACA Sec. 1302(b)(4)(D) provides that a qualified health plan
shall not be treated as providing coverage for the essential health
benefits unless the plan provides that coverage for emergency
department services will be provided without imposing any
requirement under the plan for prior authorization of services or
any limitation on coverage where the provider of services does not
have a contractual relationship with the plan.
its provided under a typical employer plan. For plan years
beginning before the issuance of regulations defining "essential
health benefits," for purposes of enforcement, IRS, DOL and HHS
will take into account good faith efforts to comply with a
reasonable interpretation of the term "essential health benefits."
For this purpose, a plan or issuer must apply the definition of
essential health benefits consistently.
A group health plan or group health insurer may exclude all
benefits for a particular condition unless barred by federal or
state law. However, if any benefits are provided for the condition,
then the ban on annual and lifetime limits will apply.
It would appear that a lot of carriers believe that
out-of-network benefits are not essential benefits. Note, however,
that PPACA Sec. 1302(b)(4)(D) provides that a qualified health plan
shall not be treated as providing coverage for the essential health
benefits unless the plan provides that coverage for emergency
department services will be provided without imposing any
requirement under the plan for prior authorization of services or
any limitation on coverage where the provider of services does not
have a contractual relationship with the plan.
Does anyone know if a plan renews on 09/23
or after -- but before that time someone had reached the lifetime
limit -- what happens with his or her coverage?
An individual who had been previously covered and who had
reached his or her lifetime limit is once again eligible for
benefits under the plan. Health plans must now give written notice
to all employees, stating that individuals whose coverage ended by
reason of reaching a lifetime limit under the plan are again
eligible to enroll in the plan. Individuals have 30 days from the
date of the notice to request enrollment
What are the new carrier requirements?
The law requires carriers to report the proportion of premium
dollars spent on clinical services, quality and other costs and
provides rebates to consumers for the amount of the premium spent
on clinical services and quality that is less than 85% for plans in
the large group market and 80% for plans in the individual and
small group markets. Carriers must justify premium increases.
I had a client tell me today that the HCR
bill included a refund for employers starting next year. He said
that if a group pays at least $10,000 in premiums, the carrier has
to use at least 20% of that premium in services or administrative
services - and, if they don't, the employer gets a premium refund.
Can you confirm if this is part of the bill?
The client's statement deals with medical loss ratio (MLR). As
quick background: HCR requires health plans to spend a percentage
of premium revenues on clinical services and "activities to improve
health-care quality." That percentage is 85% for plans in the large
group market and 80% for plans in the individual and small group
markets. Said differently, a carrier (small group) must spend at
least 80% of premiums on claims cost for the block of business. A
carrier can spend more than 80% on claims (and therefore less than
20% on administrative costs), but they can't spend less than 80%.
If they do spend less they will need to refund that portion of the
premium to policyholders that were impacted. It is important to
note, however, that this is not handled at the individual client
level. These MLR requirements apply to a carrier's entire block of
business in a particular market. Finally, carriers will be required
to report MLR for 2010 and provide rebates to consumers and
businesses effective January 1, 2011.
What does 'guaranteed issue' and
'guaranteed renewal' really mean?
The terms are pretty straightforward: All existing insurance
plans will be barred from imposing lifetime caps on coverage.
Restrictions will also be placed on annual limits on coverage.
Insurers can no longer cancel insurance retroactively for things
other than outright fraud.
I'm confused on a healthcare reform matter.
I know I've seen that dependent children are eligible for coverage
to (not through) age 26. Now I'm reading an IRS headline: "Tax-Free
Employer-Provided Health Coverage Now Available for Children under
Age 27." Which is correct? Or are these two different matters?
The Patient Protection and Affordable Care Act, more commonly
known as healthcare reform, requires group health plans that
provide dependent coverage of children to continue to make such
coverage available for an adult child until age 26. The law also
amends the Internal Revenue Code to give certain favorable tax
treatment to coverage for adult children. The IRS recently
published guidance addressing questions about tax treatment of such
coverage.
In Notice 2010-38, the IRS stated that employers that offer
cafeteria plans can allow employees to begin making pre-tax
contributions immediately for health coverage for dependents who
are under 27, even if the changes to the plan have not yet been
made on paper.
The IRS said the new law allows employers with cafeteria plans
to permit employees to begin making pre-tax contributions to pay
for this expanded benefit. Cafeteria plans allow employees to
choose from a menu of tax-free benefit options and cash or taxable
benefits. Employees who have children who will not have reached age
27 by the end of the year are eligible for the new tax benefit from
March 30, 2010, forward, if the children are already covered under
the employer's plan or are added to the employer's plan at any
time.
The notice said that employers with cafeteria plans may permit
employees to immediately make pre-tax salary reduction
contributions to provide coverage for children under age 27, even
if the cafeteria plan has not yet been amended to cover these
individuals. Plan sponsors then have until the end of 2010 to amend
their cafeteria plan language to incorporate the change.
To clarify, the distinction in the provisions is that the "to
age 26" is the requirement that dependent children up to age 26
have to be eligible for coverage under a group health plan. The
"under 27" provision has to do with the definition of dependent for
purposes determining if the cost of coverage of the dependent is
tax free. It is not a coverage mandate. There is no requirement to
cover adult children over age 26, but if they are covered, the
coverage of those under age 27 is eligible for tax exemption.
Could you provide a brief description of
HCR's early retiree reinsurance program?
The Patient Protection and Affordable Care Act includes an early
retiree reinsurance program that is available to group health plan
sponsors who provide medical coverage to early retirees and their
spouses, surviving spouses and dependents.
It is intended to encourage employers to provide health coverage
to early retirees until state health exchanges and federal
subsidies for health coverage are implemented. This temporary
program will provide $5 billion to help employers to continue to
provide coverage to certain retirees. The program provides for
reimbursement of an early retiree's (and covered dependents')
healthcare claims in an amount equal to 80% of the costs between
$15,000 and $90,000.
The employer is then expected to use the reimbursement to help
lower healthcare costs (such as premium contributions, copays and
deductibles) for participating enrollees. The program provides for
reimbursement of an early retiree's (and covered dependents')
claims in an amount equal to 80% of health benefits costs between
$15,000 and $90,000.
This program is expected to be effective from June 1, 2010, to
January 1, 2014. After January 1, 2014, retirees will have
additional coverage options through the health insurance exchanges.
Both self-insured and fully insured employer groups can
participate. To participate in the program, employers must first
submit applications (likely available beginning in June) to the
Department of Health and Human Services.
When does the pre-existing conditions
prohibition go into effect?
It goes into effect for plan years that start on or after 2014.
However, for children younger than 19, the prohibition goes into
effect for plan years that start on or after September 23,
2010.
Is there a requirement that a benefit plan
with in- and out-of-network benefits (say a PPO-style) provide full
compliance with benefit requirements (preventive, essential,
annual, lifetime) both in-network and out-of-network? Or is the
availability of compliant benefits on an in-network basis
considered compliant?
The law generally does not distinguish between in-network and
out-of-network benefits plans with respect to the market reforms.
For example, the prohibitions on annual and lifetime limits apply
regardless of whether the participant is using in- or
out-of-network benefits. Note: There is one isolated instance we've
seen that pertains to the requirement that participants be given
the right to designate a primary care physician: A plan can require
that the particular primary care physician a participant designates
be an in-network physician.
Cadillac Plans
How does the "Cadillac" plan tax work?
There's an excise tax on certain high-cost employer-sponsored
health plans (referred to as "Cadillac" plans), effective January
1, 2018. The tax is equal to 40% of amounts over the cost limit for
health coverage.
The cost limit for health coverage is the annual premium cost
(determined using COBRA principles) of $10,200 for employee-only
coverage and $27,500 for family coverage. This amount is increased
for those in 17 high-cost states, as determined by HHS, by 120% for
2013, 110% for 2014 and 105% for 2015. There's also an increase for
retirees age 55-65 and those engaged in a high-risk profession or
employed to repair or install electrical or telecommunications
lines of $1,650 for employee-only coverage and $3,450 for family
coverage. All amounts are adjusted annually.
The annual amount is determined by aggregating monthly amounts
for which each employee has an excess benefit. Per a Kaiser
Foundation study, in 2009 the average annual premiums for
employer-sponsored health insurance were $4,824 for employee-only
coverage and $13,375 for family coverage.
The benefit provided under the health plan is not a factor.
The health coverage is any employer-provided health coverage,
whether insured or self-insured, whether employer-paid or
employee-paid. Health coverage includes coverage under medical,
wellness programs, flexible spending accounts ("FSAs"), HSAs and
Archer medical savings accounts ("MSAs").
Health coverage does not
include:
- Dental plans
- Vision plans
- Any coverage only for accident or disability income insurance
or any combination thereof
- Long-term care
- Coverage only for a specified disease or illness or hospital
indemnity or other fixed indemnity insurance where the payment is
not excludable from gross income and for which a business deduction
is not allowable.
The employer determines the allocation of amounts between the
various benefits.
The tax is paid by the carrier with respect to insured health
coverage, the person who administers the plan benefits with respect
to self-insured health coverage (which could be a third party
administrator (TPA), other vendor or the employer) and the employer
with respect to any HSA or Archer MSA contribution.
Tax Changes
What are the proposed tax changes affecting
group plans?
The law increases the tax on distributions from an HSA that are
not used for qualified medical expenses to 20% of the disbursed
amount, effective January 1, 2011; does not permit over-the-counter
drugs to be reimbursable through an HSA, Archer medical savings
account, health reimbursement arrangement or flexible spending
arrangement for medical expenses effective January 1, 2011; and
limits the amount of contributions to a flexible spending account
for medical expenses to $2,500 per year, effective January 1,
2013.
Exchanges
Where can individuals get insurance if they
don't have employers that provide it?
Per the law, insurance exchanges are run by each state in
conjunction with the federal government, and states are allowed to
create additional mechanisms for offering insurance to their
residents. Traditional insurance companies are allowed to compete
for customers through the exchanges, provided they meet a set of
requirements set by the federal government. The least expensive
plans offer catastrophic coverage only and aren't available to
everyone. There are several other levels of coverage, priced more
for each bump-up in benefits. The exchanges go into effect in
2014.
Can you go a little more into the health
insurance 'exchanges'?
There will be a state-by-state creation of exchanges, where
individuals and small employers can purchase qualified health
benefits plans. No new federal agency would be created under the
law to oversee the process. HHS would be charged with establishing
and operating an exchange in any state that fails to establish one
on or before January 1, 2014. The exchanges will initially be
limited to employers of fewer than 101 employees. States would have
the option to reduce this to employers with less than 51 employees.
In 2017, a state would also have the option of expanding its
exchange to accommodate larger employers.
I keep hearing about required 'essential'
benefits for health plans. What are considered 'essential'
benefits?
Ambulatory patient services, emergency services,
hospitalization, maternity, newborn care, mental health and
substance abuse treatment, including behavioral health treatment,
prescription drugs, rehabilitative services and devices, laboratory
services, wellness and preventive services, chronic disease
management and pediatric services, including oral and vision care.
Bronze, silver, gold and platinum coverage levels at 60%, 70%, 80%
and 90% respectively.
High Risk Pools
What if an individual can't get health
coverage on account of a pre-existing condition?
Under the law, people who cannot obtain traditional coverage on
account of a pre-existing medical condition are eligible for
insurance under a new national high-risk pool, with rates
comparable to those for the general population. The pool goes into
effect quickly - within 90 days of enactment.
Class/Long-Term Care
Can you explain the CLASS program and new
long-term care provisions?
The Community Living Assistance Services and Supports (CLASS)
Act requires HHS to create a national, voluntary long-term care
program that would provide a cash benefit to participants if they
become unable to perform at least two activities of daily living,
such as dressing and bathing. Workers would pay a monthly premium
to buy coverage, most likely through their employer. They would
have to pay into the program for at least five years before
qualifying for benefits. The benefit would be at least $50 a day.
The program is intended to be self-supporting, and the HHS would
determine premium amounts. Employers are not required to
participate in the program.
Medicare/Medicaid
How does the legislation affect Medicare
beneficiaries?
The Medicare prescription-drug benefit should be improved
substantially, and the sizable coverage gap called the 'doughnut
hole' will be eliminated.
Government payments to Medicare Advantage, the private-plan part
of Medicare, will be cut back so that Medicare beneficiaries may
lose extra benefits that many of the plans offer, such as free
eyeglasses, hearing aids and gym memberships.
The bill makes all Medicare preventive services, such as
screenings for colon, prostate and breast cancer, free to
beneficiaries.
How does the legislation affect those with
low incomes?
The law expands Medicaid, the state-federal program for poor
people and those with disabilities, to include millions of people,
including childless adults. Eligibility reaches 133 percent of the
FPL or $14,404 for individuals.
Those who make too much for Medicaid can get help buying private
insurance in the new exchanges. The subsidies end at four times the
FPL or $88,200 for a family of four.
Employees who are offered coverage by an employer are not
eligible for premium credits unless the employer plan does not have
an actuarial value of at least 60% or if the employee share of the
premium exceeds 9.5% of income.
Paying For Reform
Who is paying for healthcare reform?
Under the law, there are penalties for those who do not obtain
coverage and employers that do not provide coverage. The Medicare
payroll tax rate will increase from 1.45% to 2.35% for individuals
who earn more than $200,000 a year and families that earn more than
$250,000. The law also subjects the investment income of these
households, such as dividends, interest and rent, to a 3.8%
Medicare tax. The Cadillac plan tax will help subsidize the cost,
and the law also raises the threshold for deducting unreimbursed
medical expenses from 7.5% of adjusted gross income to 10%.
Beginning in 2010, there is an additional 10 percent tax on the
cost of indoor tanning services. Finally, the law imposes new fees
on healthcare companies, such as pharmaceutical companies, medical
device manufacturers and insurance carriers.
Reform is also supposed to be financed from savings from the
following:
- Reducing Medicare overpayments to private insurance carriers
through competitive payments
- Improving Medicare and Medicaid payment accuracy
- Improving care after hospitalizations and reducing hospital
readmission rates
- Expanding the hospital quality improvement program
- Reforming the physician payment system to improve quality and
efficiency
Note: Answers to posted questions are based on a general review
of widely available sources and do not represent legal advice.
