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Health Care Reform and Employee Benefit Plans: What Employers Need to Know in 2010

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

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Health Care Reform and Employee Benefit Plans: What Employers Need to Know in 2010

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  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

  2. 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

  3. 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

  4. 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

  5. “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

  6. “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

  7. 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

  8. New and Grandfathered Plans:Lifetime and Annual LimitsImplementation 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

  9. 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

  10. New and Grandfathered Plans:Prohibition on RescissionImplementation 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

  11. 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

  12. 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

  13. New and Grandfathered Plans: Eligibility for Adult ChildrenImplementation 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

  14. 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)

  15. 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

  16. 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

  17. 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

  18. 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).

  19. 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.

  20. 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

  21. 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

  22. 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”).

  23. 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.

  24. 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).

  25. 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”.

  26. 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.

  27. 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 pre-authorization.

  28. 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)

  29. New Plans Only:Certain Patient Protections-Implementation Steps • Decide if the NEW group health plan will cover hospital emergency department services and OB/GYN services.

  30. 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.

  31. 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.

  32. 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.

  33. 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.

  34. Impact on Health FSAs, HRAs and HSAs • Effective for tax years beginning 1/1/2011, over-the-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

  35. 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

  36. 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

  37. 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!

  38. Thank You for Participating! • Kristen Gentry, Esq. • (317)238-6288 • kgentry@kdlegal.com • Catherine (Katy) Stowers, Esq. • (317)238-6257 • cstowers@kdlegal.com 2677044v2

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