Implementing Health Care Reform

On March 23, 2010, the President signed the Patient Protection and Affordable Care Act, which was then amended through reconciliation and signed by the President on March 26, 2010, completing the health care reform package.  Beginning in 2014, individuals will be required to have health care coverage. Coverage may be purchased through state-run insurance exchanges, and federal premium assistance may be available, based upon household income and coverage under employer-provided minimum essential coverage.  Before 2014, a series of specific benefit mandates apply.  This Benefits Blackboard focuses on compliance with these mandates, which must be addressed for the 2011 plan year.  Later Benefits Blackboards will address other issues raised by reform, including mandated coverage.

KEY TERMS:

Several key terms are necessary to understand and apply the provisions of health care reform:

• Essential Benefits: Although the Secretary of Health and Human Services is expected to provide additional guidance, “essential benefits” include benefits offered in the following categories: emergency services; hospitalization; ambulatory patient services; maternity and newborn care; mental health and substance abuse; prescription drugs; laboratory services; rehabilitative and habilitative services; preventive and wellness services; chronic disease management; and pediatric services, including oral and vision care.
• Grandfathered Plans: Health plans in effect as of March 23, 2010.  The act provides that grandfathered plans may enroll new employees and family members after March 23rd without losing grandfathered status.  The act is silent about whether more substantive changes can be made to grandfathered plans. While this omission suggests that some changes are permissible, care should be taken if substantial changes are contemplated since substantial changes may result in the loss of grandfathered status. (Different grandfathering rules apply to collectively-bargained plans.)
• Minimum Essential Coverage: Coverage and benefits that must be provided beginning in 2014.
• New Plans: Plans adopted after March 23, 2010, and grandfathered plans that lose their status as such.

DESIGN CHANGES FOR 2011 PLAN YEAR:

Each of the following provisions applies to plan years beginning six months after the date of enactment, or January 1, 2011, for calendar year plans.  These provisions apply to self-insured and fully-insured arrangements, to both grandfathered and new plans:

• No lifetime or annual limits on essential benefits can be imposed; limits are permitted for non-essential benefits, and the Secretary of Health and Human Services may identify “restricted” benefits to which some limits may be applied (some small plans may be excepted).  
• Dependent coverage must be available for adult children until attainment of age 26; this coverage must be available regardless of student, marital or actual dependent status; before 2014, coverage is not required if the child is otherwise eligible to enroll in a group plan and coverage need not be provided for the children of adult dependents; employer-premium subsidies need not be provided, even if other dependents benefit from subsidized premiums.
• There can be no pre-existing condition exclusions for enrollees who have not yet attained age 19.
• Preventive benefits cannot be subject to cost sharing
• Code Section 105(h) testing (the annual non-discrimination testing rule currently applicable to self-insured group medical plans) will be extended to all plans, including fully insured plans. 
• For plans that include gate keeper provisions or otherwise limit the selection of providers, a pediatrician may be designated as a primary care giver for children and prior authorization or referral cannot be required for participating OB-GYNs.
• Emergency services must be treated as in-network benefits and be available without prior authorization.
• New appeals will be required; plans must have an internal review process (similar to the current claims review process under ERISA) and an external review opportunity; the Secretary of Health and Human Services will define the external process by regulation; pending the final outcome of these appeals, coverage must be continued.

OTHER PROVISIONS:

Automatic Enrollment: Large employers (for this purpose, 200 or more full-time employees) must automatically enroll new hires in their major medical plan, although employees must have the opportunity to affirmatively “opt out” of this coverage.  This provision applies to both fully-insured and self-insured plans and whether or not plans are grandfathered.  The act did not assign a specific effective date to this provision, but instead provides that auto enrollment must be administered “pursuant to” regulations. Accordingly, employers may consider delaying compliance until regulations are issued.

Reporting: For the 2011 calendar year, all employers must determine the cost of each employee’s health benefits, including vision and dental benefits, and report the value on IRS Form W-2.   For this purpose, the reported value refers to premiums, the amount of which will be determined in a manner consistent with the determination of COBRA continuation premiums. 

Medicare Part D Subsidy: Employers who offer retiree medical coverage may receive a subsidy for retirees who elect employer coverage in lieu of Medicare Part D.  Previously, the value of the subsidy was deductible. Beginning in 2013, the deduction will be eliminated. Immediate accounting charges necessary to reflect the change in tax treatment have recently been announced by companies such as AT&T, Boeing, and Caterpillar.

Long-term Care Insurance: The act creates a form of public long-term care insurance, which will be administered by the Secretary of Health and Human Services and is expected to provide a modest daily benefit after at least five years of contribution to the system.  Effective January 1, 2011, employers who opt in to the system must automatically enroll employees in the insurance (i.e., employers must deduct premiums, similar to the collection and remission of Medicare tax), except that employees must be afforded the opportunity to “opt out” of the coverage.

Small Business Tax Credit:  Beginning in 2010, small employers (for this purpose, those with 25 or fewer full-time employees and average annual wages of $50,000 or less) are eligible for a small business tax credit to offset the cost of health plan coverage. To be eligible, the employer must pay at least 50% of the premiums for each employee who enrolls in its qualified health plan.  The maximum amount of the credit is 35% of the employer’s premium contribution; the credit is subject to a phase-out and is fully available only to employers with ten or fewer employees.

Subsidies for Retiree Coverage: Effective immediately, subsidies for reinsurance claims may be available for self-insured plans that offer coverage to retirees between ages 55 and 64.  Details about the subsidy, which has been compared to “cash for clunkers,” are limited.  We do know that amounts received under the program must be applied to reduce the cost of operating the plan; that plans must register with the Department of Health and Human Services, that the subsidy is limited to 80% of claims paid between $15,000 and $90,000; and that the aggregate amount appropriated to fund the subsidy is $5 billion.  
 

REMINDERS:

• As employers consider plan design changes for the 2011 plan year: All employers should carefully monitor regulatory guidance about the definition and treatment of  “essential benefits,”  which is expected later this summer.  Essential benefits will be subject to significant plan design limitations, but benefits outside the scope of the definition may continue to be subject to lifetime and annual limits.
• If coverage for adult dependents will be limited to those who are not eligible for alternative group coverage, consider developing a certification or other method to audit this class of dependents.
• If an employer maintains a fully-insured executive benefit plan, usually adopted to avoid the application of Code Section 105(h) (the anti-discrimination rules for self-insured plans), care must be taken to preserve the grandfathered status of this plan.  Significant plan design changes should be carefully considered pending the issuance of additional guidance.

Beginning in 2014, large employers (for this purpose, those with at least 50 full-time employees) will be required to provide at least “minimum essential coverage” to their employees.   Later editions of our Benefits Blackboard will discuss this coverage and actions that should be considered as we transition to this mandate.

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