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
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