Benefits Industry News

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:

• Review definitions and other applicable provisions to ensure that they do not reference only Code dependent children.
• Review definitions and other applicable provisions to ensure that, where appropriate, the plan terms clearly distinguish between dependent children who have not attained age 26 and other non-Code dependents who may also be eligible for coverage, such as domestic partners or children of domestic partners.
• Remove references to Michelle’s Law, to the extent it no longer applies to the plan at issue.

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:

• It is clear that a child under age 26 who is receiving COBRA coverage under his or her parent’s plan must be afforded an opportunity to enroll as a dependent of his or her parent under the Regulations’ transitional rule.  However, it is not clear whether a child under age 26 who is receiving COBRA coverage under his or her former employer’s plan or spouse’s employer’s plan must be given the same enrollment opportunity under a grandfathered plan for pre-2014 years.
• As indicated above, the Regulations do not include a definition of the term “child.”  Thus, for example, it is not clear whether a broad plan definition of child will apply to the coverage mandate even if it is broader than the definition of child for tax exclusion purposes.
• Guidance regarding the effective date of the dependent coverage provisions for collectively-bargained plans has not been provided.

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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[1] “Affordable Care Act” means The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 (HCERA).

By Nancy L. Bolton

May 2, 2010

As the economy continues to sputter – whether firms are optimistic or pessimistic or politicians are right or wrong – the cost of health care continues to rise. I can’t think of any colleagues who aren’t looking for ways to address the ever increasing numbers that plague their bottom lines year after year.

Since the latter half of the 2000s, employers have been turning away from shifting costs to employees and toward strategic efforts like consumer-driven health care, high performance networks, onsite medical clinics and wellness programs.

But most of those innovative and reputable ideas don’t show immediate savings. Return on investment can be impressive, but often aren’t seen until year two, three or more after implementation. In these trying and unpredictable times – and as annual budgets become tighter – health care savings are needed STAT! ASAP! Yesterday!

So, it appears (at least from the view from my corner office) that cost-shifting to employees has once again take center stage as we attempt to control costs, avoid employee pay-cuts and keep jobs.

The playing field has changed dramatically since the mid-2000s. Benefits managers now find themselves dealing with a stressed-out employee population that increasingly feels overworked and underpaid. Many employers have tabled annual raises, while reducing staff and expecting surviving employees to pick up the slack.

Sure, most folks I know are grateful they still have jobs in this economy, but slashing benefits with wild abandon could lend itself to the proverbial straw that breaks the camel’s back if employers aren’t thoughtful in their approach.

The goal should be to find cost-shifting measures that don’t necessarily take benefits away, but rather redirect employees to lower cost plan alternatives.

Benchmark your plan

First and foremost, benefits professionals should review their plans against popular benchmarks like those found in annual Mercer and Kaiser surveys. Those wonderful documents are chock-full of interesting tidbits such as the average annual cost per employer, average annual deductible, average monthly premiums paid by employees and more.

This information will help benefits managers discover areas where their plans might be a bit richer than the national average, and lead to some low hanging fruit to slash, which will render immediate savings at renewal.

Secondly, survey local employers with whom you compete. Granted, that might be easier in some states than others – Florida law, for example, makes a public record of just about everything a local government does in the course and scope of its duties, including health plan design.

It was relatively easy for me to identify millions of dollars of potential cost savings for the coming year just by calling my good friends in the surrounding area. A quick survey of these “corporate cousins” revealed that many areas of our plan are considerably richer than the local norm.

Five years ago, we’d take those comparisons to the unions and start bargaining. But these days, we must closely review every potential cost cut and consider its personal effect on employees. If the cost-cutting of yesteryear bore the axe marks of a lumberjack, then today’s cost-cutting requires the skill of a surgeon.

For example, if your cost-shifting efforts include a bump in emergency room copays or coinsurance, it is wise to leave the copays for urgent care facilities alone.

If you’re going to apply a split copay for a specialist, then the primary care doctors should keep collecting the same copay as the prior year. If you’re going to bump pharmaceutical copays for brand name and preferred drugs, leave your generic copay alone, or even consider reducing it.

Review your data

Also, it’s time (in fact, it’s always time) to review your data. Is your disease management program working to ensure high levels of compliance employees with chronic disease? If not, consider dropping copays for treatment of those targeted conditions into the lower tiers or eliminate them entirely.

Employees may perceive such a strategy as a benefit enhancement and it provides the plan with an ounce of prevention (which we all know is worth a pound of cure).

While you’re reviewing your data, have a look at your diagnostic and imaging statistics. Significant tort reform doesn’t have a place in Obamacare, so if you’re offering imaging services at no charge, litigation-weary providers may be encouraged to prescribe expensive PET scans, CT scans, and MRIs at a rapid pace, knowing there are no out-of-pocket costs to their patients.

Consider cost-sharing for these services, or make sure your carrier has a prior authorization process in place.

Other ways to cut costs before the ink is dry on the next renewal is to conduct a dependent eligibility audit. With the average annual cost of dependents reaching thousands of dollars per year, employers should only be covering those that meet their eligibility requirements.

From my neck of the woods, it seems like cost-shifting in the benefits plan has once again taken center stage. Employers finding themselves back at this drawing board should remember that when making cost-shifting decisions for their health plans, balance is key.

Recession-weary employees need to know that employers have taken a thoughtful approach to cut costs, while still offering a competitive health plan with alternatives available from which they can still receive quality care. As long as we have our health, we have everything we need.

Used by Permission Employee Benefit News

April 13, 2010

By Kelley M. Butler

Although many tea-leaf readers predicted that health care reform would spur employers to drop health benefits, a new poll of nearly 3,700 executives by Crain Communications shows such forecasts may have been based more on fear than fact.

Granted, the full force of reform’s impact has yet to be felt by employers – and won’t for several more years. We all know the stats: The Patient Protection and Affordable Care Act puts employers with more than 50 employees on the hook for a $2,000 per employee-per year fine, starting in 2014.

Still, Crain found that 52.5% of employers strongly disagreed that it would be better for their organizations to stop offering health care benefits and pay a fine under the new law.

Another 15.3% somewhat disagreed with the notion of dropping coverage and paying the fine. Eighteen percent somewhat agreed with the idea of dropping coverage; 14.1% strongly believe their organizations would be better off in dropping benefits.

Among employers with 25,000 or more workers, 64.9% strongly disagreed that their organizations would be better off dropping health care benefits. Another 12.4% somewhat disagreed; 14.2% somewhat agreed and 8.4% strongly agreed.

Crain also finds that you pros still are a bit fuzzy on understanding PPACA – but who could blame you?

Among survey respondents with benefits decision-making responsibility, about 18% strongly agreed they understood the impact of the law, while 37.3% somewhat or strongly disagreed. More than half (51.3%) of benefits decision makers say they strongly disagree it would be better for their organizations to drop benefits, while about 18.5% somewhat agreed it would be better, and 14.8% strongly agreed, Crain reports.

Lastly, 65.7% of respondents strongly agreed that they would continue offering health care benefits because they are critical to employee recruiting and retention.

So, was employer opposition to reform real or imagined? Was the idea of reform more unsettling than the reality?

Used by permission Employee Benefit News

Tuesday, April 13, 2010

1:00 p.m. – 2:00 p.m. EST

The recent passage of the Patient Protection and Affordable Care Act and the Health Care & Education Affordability Reconciliation Act affects nearly every American and will reshape approximately one-sixth of the national economy. Under this new legislation, Americans for the first time will be required to purchase health insurance, and will face penalties if they fail or refuse to do so. Additionally, employers for the first time will be required to offer their workers health insurance coverage, and those that don’t will face fines and penalties. In this one-hour webinar, we will provide an up-to-the minute clear and complete review of Health Care Reform’s main requirements as well as a practical discussion of what it means to employers.

Why Should You Attend This Webinar? Understanding and interpreting the new sweeping healthcare reform changes is now a top priority for all employers, and you have likely been inundated with invitations from your lawyers and other vendors to participate in their Health Care Reform-related events. To help clients work through the myriad of issues and changes, we established an interdisciplinary Health Care Reform Task Force comprised of Benefits, Tax, Health Care and Labor lawyers in mid-2009 to focus on the new law and how it will affect our clients. During the webinar, we will share our collective insights, clarify common misconceptions about the new law, and highlight the instances in which the law fails to provide clear guidance. We will also help you to anticipate what the final rules might look like once they are released by the government. By participating, you will reap the benefits of our months of learning on this critical topic.

Speakers:

Peter J. Marathas, Jr., Partner, Proskauer

James R. Napoli, Senior Counsel, Proskauer

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It is time to scrap the current bill and come up with a true bipartisan bill that is based on the free market and not government take over of the entire system. Admittedly, there are major issues but government take over is not the solution.