On July 14, 2010, the Departments of Labor, Health and Human Services and Treasury released final interim rules implementing the preventive health services provisions under the Affordable Care Act. Read this alert to learn more about the new rules.
Click here for the full text of this alert.
Source: Proskauer Rose Law Firm
By Kathleen Koster
July 15, 2010
Two integral provisions of the health care reform legislation, “dependent eligibility” and “affordability,” will likely result in much higher health care costs for employers than previously estimated by government officials and other industry consultants, according to a new report.
The bswift Special Report on the Impact of Health Reform on Employers analyzes the 2010 benefits premium, contribution and dependent data of 242 bswift client organizations. The sample includes mid-sized and large employers with 50 to 15,000 employees representing a variety of industries, including retail, manufacturing and professional services.
“The bswift Special Report highlights the dramatic differences in impact of PPACA among employers. For some, the impact is negligible. For many others, PPACA may increase costs substantially for 2011 and may also require a complete overhaul of the organization’s health strategies in the next three years,” says bswift CEO Rich Gallun.
“Dependent eligibility” provision’s impact on employers
HHS had originally determined the effect of requiring organizations to cover employees’ children up to age 26 to be 0.7% of total health care costs for employers. On the other hand, the bswift Special Report found the likely impact to be 1.6%, more than double the initial HHS estimate.
The HR and benefits administration firm looked at the statistical median and discovered that a company with 1,000 enrolled employees and a median health premium cost of $8,325 per employee annually is likely to experience $133,200 in additional costs for 2011 because of this provision.
Nevertheless, the bswift Special Report found a widely disparate impact of the provision among employers.
On the high end of the spectrum, the impact could be more than 13% of an employer’s total health care costs. On the low end, the impact could be less than 0.3% of total health care costs.Impact varies based on size, age and family composition of the company’s workforce, as well as the employer’s current dependent eligibility rules.
In order to minimize employee confusion surrounding the dependent eligibility extension and reduce administrative hassle, many companies have already changed their dependent eligibility rules in advance of the law’s 2011 deadline, analysts at bswift found.
The “affordability” provision’s impact on employers
Companies with more than 50 employees will face stiff penalties beginning in 2014 if they do not offer full-time employees an affordable health plan option that costs less than 9.5% of the employee’s total household income.
Under the provision, the new law will penalize employers $3,000 per year for each full-time employee who receives a federal tax credit or subsidy to buy coverage within a state-based insurance exchange because his or her health plan is considered unaffordable. To qualify for the credit, employees must disclose household income information to the government.
Using employee salary data, bswift analysts estimated an organization’s risk of failing the “affordability” test in 2014. They uncovered that 52% of employers are likely to have more than 5% of employees in the “danger zone” (who pay more than 9.5% of their compensation for health premiums).
Again, bswift looked at the statistical median and found that a company with 1,000 employees is likely to have 5.8% (58 employees) in this “danger zone,” which entails $174,000 annually in penalties or 2% of the employer’s total health care costs.
Unfortunately, some employers face a more expensive problem. For employers with more lower-salaried employees and less generous health contributions, the “affordability” provision has even more costly repercussions.
In this case, bswift found that a company with 1,000 employees and 20% in the “danger zone” could experience penalties of $600,000 annually or 7.5% of the employer’s total health care costs.
Overall, the bswift Special Report finds that approximately one in three employers has more than 20% of their employees in the “danger zone.”
“For employers, this legislation puts a whole new level of urgency not only around compliance but also around the evolution of their health and employee benefit strategies. In response to PPACA, employers are modifying their health plans and employee contribution programs for 2011 and beyond. We are also seeing employers re-visit how health care fits into their employees’ total compensation package,” says Gallun.
The bswift CEO concludes, “As employers modify their health programs over the next several years, the role of the Exchanges should remain top of mind – not just as a negatively perceived ‘dumping ground’ (‘Pay or Play’) but rather as an opportunity to refine the implicit health care contract between employer and employee. Some leading edge employers are looking seriously at a Defined Contribution approach – with the Utah Health Exchange and also in the large employer market – as an incremental pathway out of the relentless burden of providing increasingly expensive health coverage to employees.”
Source: Employee Benefit News article used by permission
July 13, 2010
Having recently surpassed the $1 billion mark in HSA assets, OptumHealth’s Todd Berkley shares how the consumer-directed accounts are fairing as the economy struggles to recover. Click here to listen
Source: Employee Benefits News used by permission
By Editorial Staff
June 21, 2010
As industry practitioners continue to peel the onion on health care reform’s impact, a new layer of concern is now reverberating across the worksite market.
The survival of so-called mini-medical plans, most of which are offered on a voluntary basis and target part-time or seasonal employees, hangs in the balance under the Patient Protection and Affordable Care Act. At issue is a provision stipulating that health insurers cannot offer such coverage through state exchanges and ruling that the plans do not qualify as “essential benefits.”
Dave Evans, senior vice president of the Independent Insurance Agents & Brokers of America, known as the “Big I,” says the uncertain fate of mini-med policies hinges on a U.S. Department of Health and Human Services ruling on whether the new health care mandates will apply to these plans.
“There has been an appetite for these products,” he observes, “and we hope that they are not taken off the menu under the guise of health care reform.”
One industry official was quoted in a recent report as saying HHS has the “regulatory latitude to completely destroy these plans, eliminating them from the marketplace, if they choose to say that the market reforms – no annual or lifetime limits – apply to mini-med plans.”
Intensive lobbying efforts are under way to preserve such coverage, which also are known as limited-benefit health insurance plans that pay benefits for specified medical conditions.
Joel Kopperud, a director for congressional relations at the Council of Insurance Agents and Brokers (CIAB), recently met with HHS staffers to push for an exemption of the plans from an upcoming rule on annual dollar limits. Without such a ruling, he warns that nearly 1.4 million Americans could lose their coverage until 2014.
“We’re working closely with industry allies that include carriers and employers, and hope we can continue to serve as a resource for the administration as they look for ways to preserve coverage for more these Americans during the transition to state exchanges,” he reports.
CIAB, along with the Big I, National Association of Health Underwriters and National Association of Insurance and Financial Advisers, offered input on this issue – specifically, how to define the medical-loss ratio – in a comment letter to HHS.
Ternian Insurance Group LLC, whose founders helped pioneer the concept of mini-meds, recently issued an analysis of health care reform’s impact on mini-med plans and was sanguine that the company’s product offerings would remain a viable option – noting that supplemental medical products are expected to play a significant role in filling gaps created by qualified health benefit plans.
Source: Employee Benefit News article used by permission
May 11, 2010
On May 10, 2010, the Departments of Labor and Health and Human Services published interim final regulations (the “Regulations”) implementing the requirements regarding dependent coverage of children who have not attained age 26 for group health plans and health insurance issuers under the provisions of the Affordable Care Act (the “Act”).[1]
Background
The Act requires plans and issuers that provide dependent child coverage to make that coverage available for children until the attainment of age 26. There is no requirement for a group health plan or insurance issuer to provide coverage to dependent children; however, if a plan or issuer offers dependent child coverage, that coverage must be available until the attainment of age 26. This coverage mandate applies to all plans otherwise subject to the Act but not those that are excepted from coverage (such as HIPAA-excepted flexible spending accounts or HIPAA-excepted stand-alone dental or vision plans).
Understanding The Regulations
Effective Date Issues/Grandfathering
In general, the requirement to make available dependent coverage for children who have not attained age 26 is effective for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans). However, there is a limited delayed effective date for certain grandfathered plans (i.e., plans in existence on March 23, 2010), which may exclude an adult child who has not attained age 26 from coverage if the adult child is eligible to enroll in an eligible employer-sponsored health plan other than a group health plan of either parent. Thus, for example, in the case of an adult child who is eligible for coverage under the plans of the employers of both parents, neither plan may exclude the adult child from coverage based on the fact that the adult child is eligible to enroll in the plan of the other parent’s employer.
Plans and issuers are allowed to adopt the coverage mandate rule earlier than otherwise required. In fact, the preamble to the Regulations clarifies that this early adoption should not adversely affect a plan’s grandfathered status. Separate guidance is expected on the definition of grandfathering and what types of amendments, if any, will adversely affect grandfathering treatment.
Definition of Dependent
The Regulations clarify that plans and issuers may no longer condition coverage on whether a child under the age of 26 is a dependent under the Internal Revenue Code (the “Code”) or student. Instead, the term “dependent” may only be defined in terms of the relationship between the child and the participant. Specifically, the following factors may not be used for defining “dependent” for purposes of eligibility or continued eligibility for children under age 26: (1) financial dependency; (2) residency; (3) student status; (4) employment; (5) eligibility for other coverage; or (6) any combination of these factors. Presumably, a plan could impose these types of requirements for covered children who are age 26 or older, subject to applicable state law for insured plans.
In light of this, employers should review the specific terms of their group health plans (as well as summary plan descriptions and open enrollment materials) for the following issues and amend them as necessary:
Tax Treatment of Coverage
As described in more detail in our April 28, 2010 Client Alert entitled “Important IRS Guidance on Tax Treatment of Health Coverage for Children Under Age 27,” [click here] employers are permitted to exclude from an employee’s taxable income the value of any employer-provided health coverage for an employee’s child for the period before the child turns age 26 and for the entire taxable year in which the child turns 26.
In this regard, however, there is some uncertainty about the extent to which the definition of “child” under the Regulations is the same as the definition of child under previously issued IRS guidance. For purposes of determining whether coverage for a child is tax free, the IRS clarified that a child is defined based on the Code list of parent-child relationships (without regard to any financial dependency or whether the parent can claim the child as a tax dependent). Under the Regulations, however, no specific definition is used. Instead, the rule appears to be based on the plan’s or issuer’s definition of dependent child. Therefore, it is possible that if a plan’s or issuer’s definition of child is broader than the Code’s definition, the coverage mandate may apply based on the specific coverage terms, even if that coverage is not tax-free coverage. Further clarification on this point is needed.
Premium Differences for Children Under Age 26
The Regulations clarify that separate premiums for covered children are not allowed if they are based solely on the age of a child. For example, a group health plan cannot charge one premium amount for children up to age 22 and another premium amount for children between ages 23 and 26. On the other hand, if a plan has a tiered premium structure for single coverage as opposed to single plus a certain number of dependents, the plan is allowed to charge the employee for the appropriate number of dependents as long as it is without regard to age.
Coverage Differences for Children Under Age 26
Under the Regulations, the coverage terms of a plan or policy for dependent children cannot vary based on the age of a child under age 26. Additionally, dependent child coverage may not be limited based on whether a child is married. Nevertheless, a plan is not required to cover the spouse or child of a child receiving dependent coverage.
Transitional Rule
When this mandate becomes applicable for a plan or issuer, children under age 26 may not be excluded, regardless of whether or when a child was enrolled in the plan or coverage. The Regulations therefore provide transitional relief for a child whose coverage ended or who was denied coverage because, under the terms of the plan or coverage, the availability of dependent coverage ended before the attainment of age 26.
The Regulations require plans and issuers to give these adult children a special opportunity to enroll (or re-enroll) as well as notice of that opportunity no later than the first day of the first plan year beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans). The enrollment opportunity must continue for at least 30 days, regardless of whether the plan or coverage offers an open enrollment period and regardless of when any open enrollment period might otherwise occur. A plan could provide this enrollment opportunity as part of its regular open enrollment period as well.
Importantly, even if the request for enrollment is made after the first day of the plan year, if the child is enrolled, coverage must begin not later than the first day of the first plan year beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans). This could raise issues regarding premium refunds for children who were enrolled in COBRA coverage prior to enrolling in dependent coverage as permitted under the transitional rule. In subsequent years, dependent coverage may be elected for an eligible child in connection with normal enrollment opportunities under the plan or coverage.
The Regulations clarify that notice of this enrollment right may be provided to an employee on behalf of the employee’s child. Additionally, the notice may be included with other enrollment materials distributed to employees so long as the statement is prominent. Although the Regulations do not specify a means of delivery for this notice, presumably a notice sent by first class mail to the employee’s last known address should be sufficient.
Also, note that the mandate for covering dependent children up to age 26 would have to be extended to qualified beneficiaries under COBRA coverage as well. Therefore, if a former employee is on COBRA coverage, that former employee would have the same right to add an adult child up to age 26 as a similarly situated active employee.
Children who enroll in group health plan coverage pursuant to this transitional rule must be treated as HIPAA special enrollees. This means, among other things, that the child (1) must be offered all benefit packages available to, and (2) cannot be required to pay more for coverage than, similarly situated individuals who did not lose coverage by reason of cessation of dependent status. It also means that parents have the ability to enroll themselves in the plan in addition to the child.
State Law
Notably, state laws that impose stricter requirements on health insurance issuers than those imposed by the Act are not preempted. Therefore, employers offering insured group health plans in states such as New York, New Jersey, and Pennsylvania, which already require dependent coverage to continue beyond age 26, must continue to meet these state law insurance requirements.
Outstanding Issues
Although the Regulations clarify many important issues and are relatively straightforward, certain open issues remain:
We will monitor these and all other issues related to health care reform and provide updates as guidance becomes available.
Source: Proskauer
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