Transcript Slide 1

Health Care Reform and
Employee Benefit Plans: What
Employers Need to Know in 2010
Kristen L. Gentry, Esq.
Catherine M. Stowers, Esq.
Health Care Reform Webinar Series: Part 1
April 13, 2010
New Legislation
 Patient Protection and Affordable Care Act
 Enacted on March 23, 2010
 Significant impacts group health plans and health
insurers; changes largely limited to “new” plans and
policies
 Health Care and Education Affordability
Reconciliation Act of 2010
 Enacted on March 30, 2010
 Amended PPACA; expanded certain provisions to
impact existing plans and policies
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Major Components of the Act
Effective in 2014 and Later
 Individual mandate
 Most individuals required to obtain insurance or pay a
tax penalty
 Employer mandate
 50+ EEs, $2,000 penalty per FTE, first 30 exempt
 State-run insurance exchanges for small groups
and individuals
 All preexisting condition exclusions eliminated
 Excise tax on “Cadillac plans” – effective 2018
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Group Health Plan Compliance
Begins in 2010
 Many federal mandates related to eligibility
and coverage are effective for the first plan
year beginning on or after September 23,
2010 – January 1, 2011 for calendar year
plans.
 Small business tax credit available in 2010
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“Grandfathered” Plans
 The Act creates a distinction between group
health plans and insurance policies in existence
upon enactment and those created after
enactment, and exempts “grandfathered” plans
from some provisions of the Act
 Grandfathered plans do not lose exemption
even if family members and new employees are
allowed to join after the Act’s enactment date
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“Grandfathered” Plans
 Act is silent regarding whether changes in
plan design (such as modifying deductible,
coinsurance, or available benefits)
jeopardize grandfathered plan status
 If Act is interpreted consistently with existing
legal principles, plan design changes should
be allowed without creating “new” plan
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Provisions Impacting New and
Grandfathered Plans After 9/23/10 :
Lifetime and Annual Limits
 Lifetime limits on dollar value of essential health
benefits available under group health plans or
individual health insurance policies are
prohibited
 Annual limits on dollar value of essential health
benefits are restricted
 Guidance from HHS will define scope of restrictions
that will continue to be permitted with respect to
annual benefit limits
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New and Grandfathered Plans:
Lifetime and Annual Limits
Implementation Steps-
 Remove lifetime limits from “essential health
benefits” in plan; modify summary plan
description (SPD) consistent with this change or
issue summary of material modifications (SMM)
 Modify annual limits as required once HHS
guidance is offered, or consider removing if
guidance not provided
 All annual limits prohibited after 1/1/2014
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New and Grandfathered Plans:
Prohibition on Rescission
 A group health plan or health insurance issuer
may not rescind coverage after it is issued
except in cases of fraud or intentional
misrepresentation by a participant
 Does not appear to prevent group health plan
termination with notice, or termination of
participation when eligibility criteria no longer
met
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New and Grandfathered Plans:
Prohibition on Rescission
Implementation Steps Review plan provisions to ensure that
termination of coverage is limited to
reasons such as nonpayment, loss of
eligibility (COBRA Qualifying Events)
 If Plan intends to terminate coverage for
fraud or misrepresentation, include
express provision in plan document, SPD
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New and Grandfathered Plans:
Extension of Eligibility to Adult
Dependent Children
 Group health plans/individual insurance policies
must extend coverage to adult children of
participants until child’s 26th birthday
 Applies to married children
 Secretary of HHS required to issue regulations
defining dependents covered under this
provision; no timeframe for issuance in statute
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New and Grandfathered Plans:
Extension of Eligibility to Adult
Dependent Children
 Important provisions:
 Grandfathered plans may exclude adult dependents
who are eligible for other employer-sponsored
coverage
 Plans/insurers not required to cover the child of a
dependent receiving coverage (no grandchild
mandate)
 Medical coverage provided to adult children under
this provision excludable from gross income until tax
year in which child turns 27
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New and Grandfathered Plans:
Eligibility for Adult Children
Implementation Steps Amend plan eligibility provisions to extend dependent
child eligibility, eliminate full-time student requirements
 Eliminate student status verification procedure
 Issue updated SPD or SMM informing participants of
extended eligibility
 Review internal tax practices to eliminate any taxation or
imputed income calculation on value of such coverage
 For insured plans, coordinate state eligibility
requirements for adult children with new federal
requirements
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
New and Grandfathered Plans:
Elimination of Preexisting
Exclusions
–Under
Age19
Group health plans/health insurance issuers are
prohibited from imposing any preexisting condition
exclusion to “enrollees under 19 years of age”
 Applies to all participants effective January 1, 2014
 Secretary of HHS has indicated that regulations will be
issued “in the weeks ahead” to address both access to
and benefits from insurance policies under this provision
(the “guaranteed issue” loophole)
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New and Grandfathered Plans:
Preexisting Exclusion Elimination:
Implementation Steps Review plan provisions to ensure that any
preexisting condition exclusion is eliminated for
participants in this age group
 Update SPDs or issue SMMs with modified
preexisting condition provisions
 Consult TPA/insurer to ensure appropriate
application of this change
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New and Grandfathered Plans:
“High Risk Pool” Reimbursement
 The Act requires HHS to establish a temporary “high risk
pool” for individuals with preexisting conditions who are
not otherwise covered under a plan or policy; effective
90 days after enactment
 Plans must reimburse pool if the provide financial
incentives provided to high risk individuals to disenroll in
a health plan and enroll in high risk pool
 HHS must establish criteria for determining if financial
incentives offered
 Pool expires 1/1/2014 when exchanges in place
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New and Grandfathered Plans:
“High Risk Pool” Implementation Steps Review enrollment/renewal processes and
employee communications to ensure that
improper disenrollment incentives are not being
offered, directly or indirectly, to participants with
adverse health conditions
 Examine any cash alternatives offered for declining
health care coverage to ensure not disproportionately
selected by high risk employees
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New and Grandfathered Plans:
Automatic Enrollment Requirement
 Employers with more than 200 employees
must automatically enroll new full-time
employees in group health plan
 Employees can opt out of coverage
 Effective by final regulation (yet to be
issued).
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New and Grandfathered Plans:
Uniform Notice of Coverage
 By March 23, 2012, plan administrators, plan
sponsors and insurers must provide a summary
of benefits and coverage explanation describing
the benefits and coverage under the plan to
participants PRIOR to enrollment.
 Much of the content of the UNOC is specifically
described in statute. The rest will be described
by rule by the Secretary of HHS, which rule must
be developed by March 23, 2011.
 Penalty for noncompliance is $1000 per failure.
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New and Grandfathered Plans:
W-2 Reporting Requirement
 Effective for the tax year beginning
January 1, 2011, employers will be
required to report the total cost of
employer-provided health coverage on
employees’ Form W-2
 Will be reported on Form W-2 issued in
January 2012 for 2011 tax year
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New and Grandfathered Plans:
Cost Ratio Rebates
 In a nutshell, for plan years on or after 9/23/10,
insurers who offer group health plans will be
required to report their medical loss ratios to the
Secretary of HHS
 An insurer whose medical loss ratio is less than
85% (80% in the small market) will be required
to pay a rebate annually to plan enrollees
 Applicable to insured plans
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Provisions Applicable to New Plans
ONLY beginning after 10/1/10
 These provisions are effective for Plan
Years beginning on or after September 23,
2010 for group health plans not in
existence on the date of enactment of the
PPACA (i.e. “New Plans”).
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New Plans Only:
Prohibition on Cost-Sharing for
Preventive Care
 Plans cannot apply deductibles, coinsurance
provisions, or any other cost-sharing provisions
for certain services, as follows:
 Preventive care services recommended by the United
States Preventive Services Task Force;
 Immunizations recommended by the Centers for
Disease Control;
 Preventive care and screenings recommended by the
Health Resources and Services Administration for
women, infants, children, and adolescents.
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New Plans Only:
Prohibition on Cost-Sharing for
Preventive Care: Implementation Steps
 New Plans will be required to provide first –
dollar coverage for all preventive services,
immunizations, and screenings recommended
by these entities, with one Plan Year notice
period after the recommendation is made.
 Currently, certain specific services such as
breast cancer screening and mammography are
not included.
 May cause increased premiums for new high
deductible health plans (HDHPs).
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New Plans Only:
Fully-Insured Plans Subject to
Nondiscrimination Rules
 Fully-insured plans will be subject to the IRC
§105(h) nondiscrimination rules. (Previously,
only self-funded plans were required to comply
with these rules.)
 For plans not in compliance with the
nondiscrimination rules, highly compensated
participants (top 25%) will be subject to taxes on
“excess reimbursements”.
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New Plans Only:
Fully-Insured Plans Subject to
Nondiscrimination Rules:
Implementation Steps
 New Executive Plans are likely to fail testing.
 Because Highly Compensated Employees in a plan that
fails testing are taxed on the value of “excess” benefits
received (rather than premiums paid), there is
substantial risk to HCEs if a Plan fails.
 Be sure to test any new fully-insured plans prior to
implementation to ensure the Plan will pass testing.
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New Plans Only:
Certain Patient Protections
 Primary Care: Plans requiring a designation of a
primary care physician must allow a participant
to choose the physician and must allow children
to designate a pediatrician.
 OB/GYN services: Women must have direct
access to OB/GYN services without the
requirements to obtain a referral or preauthorization.
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New Plans Only:
Certain Patient Protections
 Emergency Services: If a group health plan
covers emergency department services, it
cannot require prior authorization (including for
non-network providers) and cannot impose
higher costs than those imposed for a network
provider.
 Clinical Trials: Plans must cover routine costs
for services received by participants in certain
clinical trials and cannot deny participation by
qualifying participants in clinical trials (1/1/2014)
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New Plans Only:
Certain Patient ProtectionsImplementation Steps
 Decide if the NEW group health plan will
cover hospital emergency department
services and OB/GYN services.
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New Plans Only:
Claims Appeals Procedure
Requirements
 New Plans must comply with internal claims
appeal processes and external review
processes consistent with applicable state law
(for insured plans) and new to-be-determined
HHS requirements (for self-funded plans).
 Until new rules are drafted, all new plans must
comply with the DOL’s claims regulations,
regardless of whether governed by ERISA.
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New Plans Only:
Claims Appeals Procedures
Requirements: Implementation Steps
 For New Plans, until HHS issues new
rules, the ERISA claims procedures must
be used.
 After they are issued, New Plans will be
required to implement an additional
external claims appeal process not
required for Grandfathered Plans.
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New Plans Only:
Reporting Requirements
 After the Secretary of HHS develops rules, a
new plan will be required to provide an annual
report to participants at open enrollment and to
HHS regarding the plan’s reimbursements to
providers that improve quality of care for
participants.
 These reports will be put on the internet by the
HHS.
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New Plans Only:
Reporting Requirements
 For each new plan, detailed reporting of plan
information will be required to be provided to the
Secretary of HHS and be made public regarding
plan policies and actual data of enrollment/
disenrollment/ denied claims/ rating
practices/cost-sharing/ rights under the plan/
claims payments.
 The DOL is required to update its reporting
requirements to coincide with these new
reporting requirements.
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Impact on Health FSAs, HRAs and
HSAs
 Effective for tax years beginning 1/1/2011, overthe-counter medications (not including insulin
and doctor prescribed medication) may not be
reimbursed from health FSAs, HRAs and HSAs
 Effective 1/1/2011, excise tax for ineligible
expense reimbursements from individual HSAs
increases from 10% to 20%
 Effective 1/1/2013, contributions to health FSAs
are limited to $2,500 annually, indexed for
inflation beginning 2014
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Tax Credits For Small Employers
 Effective for tax years beginning 1/1/2010,
“eligible small employers” may receive tax
credit of up to 35% for employer
contributions to purchase group health
coverage for its employees
 Employers with up to 25 full-time
equivalent employees may qualify;
percentage indexed based on number of
FTEs and average income of FTEs
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Next Steps to Receive Tax Credits Determine number of “full-time equivalent”
employees and average income in order to
determine eligibility
 Must count employees based on “control
group” under Internal Revenue Code
 Part-time employees must be counted
fractionally
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Save the Date: May 4, 2010
 Teleconference in May.
 We’ve scheduled a follow-up teleconference on 5/4/10 at 10 a.m. for an
informal discussion of these topics.
 Your input is requested!
 You will receive a survey regarding today’s presentation, including an
opportunity to list topics of interest for future webcasts and to ask us
questions to be addressed at the 5/4/10 teleconference regarding what
we’ve discussed today.
 Employee Benefits and Health Care Reform
Webinar, Part II:
 We are planning another webcast in July to address health care reform
provisions not included today, and any new HHS/DOL/IRS guidance
that is issued on topics already discussed.
 Watch for your invitations and register!
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Thank You for Participating!
 Kristen Gentry, Esq.
 (317)238-6288
 [email protected]
 Catherine (Katy) Stowers, Esq.
 (317)238-6257
 [email protected]
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