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Employer Webinar 866.390.1871 Copyright 2010 This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors This Employer Webinar Series program is presented by Spencer Fane Britt & Browne LLP in conjunction with United Benefit Advisors Kansas City = Omaha = Overland Park St. Louis = Jefferson City www.spencerfane.com www.UBAbenefits.com Health Care Reform Update Presented by Julia M. Vander Weele Robert A. Browning Copyright 2010 Focus of This Update Provisions effective in 2011 (or earlier) Provisions affecting all plans, including “grandfathered” plans Provisions affecting only non-grandfathered plans Guidance re: “grandfathered” plans Copyright 2010 Changes causing loss of “grandfathered” status Other regulatory guidance issued since Health Care Reform legislation was enacted Provisions Applicable to All Plans Effective for plan years beginning on or after 9-23-10: No lifetime dollar limits on “essential health benefits” Restricted annual limits on “essential health benefits” (until 2014) No preexisting condition exclusions may be applied to children under age 19 Copyright 2010 Prohibition will be extended to adults in 2014 Provisions Applicable to All Plans Effective for plan years beginning on or after 9-23-10: No rescission of coverage allowed, except for fraud or intentional misrepresentation (in violation of specific plan terms) Dependent coverage (if offered) must continue through 26th birthday, even if child marries Copyright 2010 Tax exclusion is extended to end of calendar year in which child attains age 26 (effective 3-30-10) Until 2014, grandfathered plans may terminate coverage if child becomes eligible for other employerprovided health coverage Provisions Applicable to All Plans Effective for plan years beginning on or after 1-1-2011: Insured plans will be subject to minimum medical-loss ratios: Copyright 2010 Based on percentage of premium income spent on clinical services and activities to improve health care quality At least 85% in large group market At least 80% in small group market Any “excess” profits must be rebated to participants Provisions Applicable to All Plans Beginning in 2011, employer must report on Form W-2 the total value of employer-provided health coverage Excludes HSA or FSA contributions Applies to W-2s issued in early 2012 (for 2011) Employers with more than 200 full-time employees must implement automatic enrollment of all new full-time employees Copyright 2010 Subject to employee opt-out Effective date is still to be determined Provisions Applicable to All Plans Beginning January 1, 2011, health FSAs, HSAs, HRAs and Archer MSAs cannot reimburse expenses for OTC drugs (other than insulin) unless the drug is prescribed by a physician Effective in 2011, the excise tax on non-medical distributions from HSAs is increased from 10% to 20% Copyright 2010 Additional Requirements for Non-Grandfathered Plans Copyright 2010 Effective for plan years beginning on or after 9-23-10: Must permit enrollee to designate any network physician as his or her primary care physician (same rule applies to pediatricians) May not require pre-authorization or referral for female to visit OB-GYN Emergency care (if offered) must be covered without preauthorization and as though provided in-network Expanded claims and appeals procedures Additional Requirements for Non-Grandfathered Plans Effective for plan years beginning on or after September 23, 2010: Must cover certain preventive services without cost-sharing Fully insured plans must comply with nondiscrimination requirements of Code Section 105(h) Copyright 2010 These are the same rules to which self-funded plans are already subject However, the consequences of noncompliance fall on the plan (in the form of a $100 daily penalty), rather than the highly compensated individual (in the form of taxable benefits) Additional Requirements for Non-Grandfathered Plans Copyright 2010 Effective when HHS issues implementing regulations (which is to be done by 3-2312), plan must provide annual reports to HHS and participants (during open enrollment) of steps taken to improve quality of care – e.g.: Wellness programs Effective case management Preventing readmissions Guidance Issued to Date Tri-agency request for information re: medical loss ratio provisions – April 14 IRS Notice re: tax treatment of coverage for children under age 27 – April 27 Tri-agency regulations re: extension of dependent coverage to age 26 – May 13 Tri-agency regulations re: status as “grandfathered” plan – June 17 Copyright 2010 Guidance to Date (cont.) Tri-agency regulations re: pre-existing conditions, lifetime/annual limits, rescissions, and patient protections – June 28 Tri-agency regulations re: preventive health services – July 19 Tri-agency regulations re: internal claims/appeals, external review – July 23 Copyright 2010 Grandfathered Plans Definition – Health plan in effect on 3-23-10 Grandfathered status is not lost because new employees are covered, or because covered employees add dependents Statute was not clear on whether adding current employees, benefit changes, or plan mergers will undermine grandfathered status Special rules for collectively bargained plans Copyright 2010 Grandfathered Plans Determination of grandfathered status is made separately with respect to each benefit package made available under a group health plan One benefit package might retain grandfathered status while the other benefit package loses grandfathered status Copyright 2010 Grandfather Plans – Adding New Employees Copyright 2010 Regulations clarify that plan retains grandfathered status with respect to new employees (whether newly hired or newly enrolled) and their families Anti-abuse rules Principal purpose of merger or acquisition must not be to cover new individuals under grandfathered plan Transferred employees (must have bona fide employment-based reason for transfer, other than cost) Loss of Grandfathered Status Change in insurers (but not TPAs) Elimination of all or substantially all benefits to diagnose or treat a particular condition Increase in fixed cost-sharing requirements Copyright 2010 Fixed amounts (e.g., deductibles) cannot be increased more than medical inflation plus 15 percentage points Co-pays cannot be increased more than the greater of 1) medical inflation plus 15 percentage points, or 2) $5, increased by medical inflation Any increase in percentage cost-sharing requirement (e.g., coinsurance) Loss of Grandfather Status Copyright 2010 Changes to employer contributions If contribution rate based on cost of coverage, decrease in contribution toward the cost of any tier of coverage by more than 5 percentage points Total cost of coverage is equivalent to COBRA cost If contribution rate is based on formula (e.g., hours worked), decrease in contribution rate by more than 5 percent Loss of Grandfather Status Copyright 2010 Imposition of new or modified annual limit Addition of any annual limit (if no lifetime or annual limit before) Adoption of an annual limit that is lower than previous lifetime limit (if no annual limit before) Decrease in annual limit (if annual limit before) Loss of Grandfather Status Copyright 2010 Changes that are okay: Changes to premiums (other than employer cost-sharing percentage) Changes to comply with law (federal or state) Changing TPA Changes that are okay (for now): Changes to plan structure (e.g., from insured to selfinsured) Changes in provider network Changes to prescription drug formulary Other substantial change to overall benefit design Transition Rules Changes adopted prior to March 23, 2010 are still grandfathered, even if effective later Changes adopted between March 23, 2010, and issuance of regulations - good faith efforts to comply with a reasonable interpretation of statutory requirements will be taken into account Grace period to revoke or modify changes adopted prior to regulations Copyright 2010 Disclosure of Grandfathered Status Must include statement in all plan materials provided to participants describing benefits that the plan believes it is a grandfathered health plan Must provide contact information for questions and complaints Model notice available Plan must retain records demonstrating terms of plan that were in effect on March 23, 2010 Copyright 2010 Collectively Bargained Plans General Rule – Retain grandfathered status until at least the expiration of the last CBA that was in effect on 3-23-10 Copyright 2010 Applies only to insured plans Plan may be voluntarily amended to comply with selected new requirements without accelerating overall compliance date Essentially permits insured plan to change insurers during the term of the CBA without losing grandfathered status On expiration of final CBA, plan will retain grandfathered status until lost under rules in effect at that time Does not delay the effective date of requirements otherwise applicable to grandfathered plans Dependent Coverage Mandate Copyright 2010 If plan makes coverage available to dependent children, such coverage must be available until child’s 26th birthday: Even if the child is married Regardless of student status Even if child does not reside with parents Even if child is not financially dependent on parents State insurance laws that require coverage beyond age 26 are still applicable Dependent Coverage Mandate Definition of “Child” “Child” is not defined in the regulations, but Internal Revenue Code defines “child” as: Copyright 2010 Son or daughter Stepson or stepdaughter Lawful foster child A child legally adopted by or placed for adoption with the employee “Child” does not include the spouse or children of an employee’s adult child (i.e., the employee’s son-in-law, daughter-in-law, or grandchildren) Cost and Terms of Dependent Coverage Regulations restrict employers’ ability to charge for extended dependent coverage Employer’s contribution structure for other dependents must be extended to adult children now covered under the mandate (can’t charge more for “adult” children) Neither contributions nor benefit eligibility can vary based on a child’s age Copyright 2010 Cost and Terms of Dependent Coverage (cont.) Tiered or per dependent contributions are permitted (if applied uniformly) Employers may have to enroll and cover additional dependents under current family contribution rates, or they may consider adopting new contribution structures, such as charging per dependent, regardless of age Adult child surcharge not allowed Benefit options cannot be age-restricted Copyright 2010 Dependent Coverage and COBRA Dependent coverage must be extended to qualified beneficiaries under COBRA Children who have aged out of a plan and now have COBRA continuation coverage must be given the opportunity to enroll as a dependent of an active employee Copyright 2010 Former employee on COBRA would have the same right to add an adult child up to age 26 as would a similarly situated active employee Child who later loses eligibility due to a qualifying event will then have another opportunity to elect COBRA Special Enrollment Opportunity re: Dependent Coverage Encompasses all children under age 26 who have lost coverage due to aging out of the plan’s previous eligibility provisions, and those originally denied coverage or ineligible due to age If a child is eligible under these new rules, a parent not currently enrolled must be given an opportunity to enroll as well Copyright 2010 Special Enrollment Period re: Dependent Coverage Mandatory 30-day opportunity to enroll no later than the first day of the first plan year beginning on or after September 23, 2010 Can use open enrollment period, provided special notice is furnished and children are given at least 30 days to enroll Copyright 2010 Coverage must start no later than that date, even if the request for coverage is made after that date Employers planning a shorter enrollment period for their next open enrollment may wish to alter their strategy and provide at least 30 days for all coverage elections to avoid the need for a separate enrollment process Notice of Dependent Coverage Enrollment Period Plans must provide written notice of the opportunity to enroll an eligible “child” A prominent notice must be given (by the plan or an insurer) to the employee on behalf of the child, and may be included with other enrollment materials Copyright 2010 The enrollment right must offer all benefit packages available to similarly situated children under 26 Parents may switch to a benefit package option for which a child is eligible Dependent Coverage – Tax Treatment Copyright 2010 Prior to Health Care Reform, employers could provide non-taxable health care coverage and/or medical expense reimbursements only to: Employees (including retirees); Spouses (as defined under DOMA); and “Dependents,” as defined in Code Section 152 (i.e., “Tax Code Dependents) Tax Code “Dependent” Under Code Section 152, “dependent” includes a “qualifying child” A “qualifying child” must: Copyright 2010 Be a “child” (as defined in earlier slide); Live with taxpayer for over ½ the year; Not provide over ½ of own support; and Be under 19 for entire year, or a full time student who is under 24 for entire year Taxation of Dependent Coverage Health Care Reform extends the exclusion from income to: Any “child” of the employee who, as of the end of the taxable year, has not attained age 27 Applies to health plans (including premiums paid via 125 plan), health FSAs, and HRAs (but not HSAs) Applies to coverage/reimbursements provided on or after March 30, 2010 Copyright 2010 Dependent Coverage and Cafeteria Plans Copyright 2010 Exclusion from income applies to: Premiums for coverage of children < 27 paid with pre-tax employee contributions Reimbursement of medical care expense of children < 27 through a health FSA Mid-year “change in status” events may include a child who is <27: Becoming newly eligible for coverage; or Becoming eligible for coverage beyond the date child would have otherwise lost coverage Dependent Coverage and Cafeteria Plans 125 plans may need to be amended to allow payment of premiums for, or reimbursement of expenses for, a child <27 who is not a Tax Code Dependent Transition rule allows plan to allow employees to make contributions (for such expenses) immediately, so long as plan is amended by Dec. 31, 2010 Copyright 2010 Dependent Coverage Mandate vs. Tax Exclusion Copyright 2010 Different Effective Dates: Coverage Mandate: 1st plan year after Sept. 23, 2010 (i.e., 2011 for calendar year plans) Tax Change: March 30, 2010 Different Age Limit Coverage Mandate: Until child’s 26th birthday Tax Change: Thru 12/31 after 26th birthday Options for voluntary non-taxable coverage: Early implementation (during 2010) Coverage through end of year child turns 26 Lifetime/Annual Limits “Essential benefits” include at least the following (subject to regulatory guidance): Copyright 2010 Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance abuse disorder services Prescription drugs Rehabilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care Restricted Annual Limits Copyright 2010 With respect to benefits that are not essential health benefits, plan may impose annual or lifetime limits on specific covered benefits Departments will take into account good faith efforts to comply with reasonable interpretation of the term “essential health benefits” but definition must be applied consistently Exclusion of all benefits for a condition is not a lifetime or annual limit Restricted Annual Limits Three-year phased approach Annual limits for essential health benefits may not be less than: Copyright 2010 $750,000 (for plan years beginning on or after September 23, 2010, but before September 23, 2011) $1.25 million (for plan years beginning on or after September 23, 2011, but before September 23, 2012) $2 million (for plan years beginning on or after September 23, 2012, but before January 1, 2014) Applicability to HRAs When HRA integrated with other group health plan coverage (that complies with annual limit restrictions), combined coverage will satisfy requirements Stand-alone HRA is subject to restricted annual limit requirements Copyright 2010 Limited Benefit Plans HHS to establish program under which “mini-med” plans may be excused from complying with restricted annual limit requirements if compliance would result in a significant decrease in access to benefits or a significant increase in premiums Scope and application process unknown Copyright 2010 Notice of Lifetime Limit Individual who previously reached lifetime limit must be notified that lifetime limit no longer applies (if otherwise still eligible) Must include opportunity to re-enroll in any benefit package Copyright 2010 Rescissions May not rescind coverage, except for fraud or intentional misrepresentation Rescission = cancellation or discontinuance of coverage that has retroactive effect (unless attributable to a failure to pay required premium) 30-day advance notice of rescission required Copyright 2010 Patient Protections Choice of any participating and available primary care provider Notice required – model notice available; must be included in SPD Regular plan provisions or exclusions relating to pediatric care or OB/GYN care may still apply Copyright 2010 Emergency Services Copyright 2010 Cost-sharing requirements: Co-payment and coinsurance cannot exceed cost-sharing requirements that would be imposed for in-network services “Reasonable” amount must be paid before patient responsible for balance billing amount Emergency Services Copyright 2010 Plan must cover out-of-network emergency services in amount equal to greatest of: Negotiated in-network amount In-network cost-sharing provisions Medicare rate Claims and Appeals Procedures Copyright 2010 Applicable only to non-grandfathered plans Even non-ERISA plans will be subject to existing ERISA regulations (which the DOL plans to strengthen) Recent regulations apply the following additional requirements: Rules will apply to coverage “rescissions” Deadline for notifying of ruling on “urgent care claim” will be only 24 hours (versus current 72 hours) Claims and Appeals Procedures Copyright 2010 Must disclose additional evidence considered, as well as any new rationale Must take steps to avoid conflicts of interest by decision makers Expanded notice rules, including communications in foreign languages Strict compliance standard will apply (no more “substantial compliance” or “de minimis error” defenses) Claims and Appeals Procedures Plans must offer external appeal process Copyright 2010 Insured plans must comply with state-law rules (if consistent with NAIC model act) Self-funded plans must comply with federal standards (to be announced) Coverage must be continued during appeal of a “concurrent care claim” Generally effective for plan years beginning on or after 9-23-10 (but all state-law external appeal standards are deemed to comply through 7-1-11) Preventive Care Services Copyright 2010 Non-grandfathered plans must provide benefits for the following categories of preventive care services: Evidence-based, recommended items or services carrying a rating of “A” or “B” by the U.S. Preventive Services Task Force; Immunizations included in the CDC’s Immunization Schedules; and Evidence-informed, preventive care and screenings supported by the Health Research and Services Administration Preventive Care Services Copyright 2010 Benefits must be provided without costsharing (deductibles, copays, or coinsurance) But may limit to in-network providers (or charge more for out-of-network) and apply cost-sharing to other preventive services And may apply reasonable medical management techniques (so long as not inconsistent with recommended frequencies) Preventive Care Services Copyright 2010 Treatment of concurrent office visits: May still charge for separately billed office visits And may charge for office visit if primary purpose of visit was not for preventive services But may not bill for office visit if primary purpose was preventive services Short-Term Incentives for Expansion of Coverage Copyright 2010 High Risk Pools for Long-Term Uninsured Established by state or federal governments Eligibility conditioned on having a preexisting condition and being without health coverage for at least six months Program is already in effect; set to expire on 1-1-14, when preexisting condition clauses are prohibited Insurer or self-funded plan must reimburse pool if found to have encouraged individual to disenroll Short-Term Incentives for Expansion of Coverage Tax Credit for Small Employers Beginning in 2010, small employers (under 25 FTEs, with average annual wages of less than $50,000) may receive a credit of up to 35% of employer contributions for health coverage Copyright 2010 Employer must pay at least 50% of total premium After 2010, employer must pay uniform percentage of premium for all employees To receive full credit, employer must have 10 or fewer FTEs and average annual wages of less than $25,000 In 2014, maximum credit increases to 50% Short-Term Incentives for Expansion of Coverage Copyright 2010 Early Retiree Reinsurance Program Program will reimburse “eligible plans” for certain claims paid on behalf of early retirees (age 55-64) To be an “eligible plan,” a plan (insured or selffunded) must use procedures designed to generate cost-savings for participants with chronic and highcost conditions (defined as a condition likely to result in annual claims by one participant of $15,000 or more) For 2010, program will reimburse 80% of claims between $15,000 and $90,000; dollar amounts will be adjusted for inflation in later years Short-Term Incentives for Expansion of Coverage Copyright 2010 Reimbursements may be used either to offset insurance premiums (employer or retiree) or to reduce retirees’ cost-sharing requirements However, reimbursements may not be used as employer’s general revenue (must prove “maintenance of effort”) Program ends on 1-1-14 (or sooner, if $5 billion funding amount is exhausted) Penalties for Noncompliance Generally subject to excise tax of $100 per day per affected participant (under Code Section 4980D) Penalty for unintentional violations is capped at lesser of $500,000 or 10% of employer’s annual health care costs Most provisions are also enforceable under ERISA or Public Health Service Act Certain requirements (e.g., auto enrollment and notification concerning Exchanges) are subject to FLSA penalties Tax-reporting requirements are subject to reporting penalties Copyright 2010 Employer Webinar 866.390.1871 Copyright 2010