Health Care Reform
Health care reform contained two packages: The Patient Protection and Affordable Care Act (referred to as PPACA or ACA) was signed by President Obama on March 23, 2010, and H.R. 4872, the Health Care and Education Reconciliation Act of 2010, was signed into law on March 29, 2010. These acts include employer mandates. We have previously sent emails to our clients and brokers which explained many of the changes contained in these laws. This summary has been compiled to include an updated version of those emails, arranged alphabetically by each topic. If you have specific questions on these issues, please send an email to Marsha Phillips at MarshaP@sfpi.com. As future emails are sent regarding these topics, they will be posted on this website.
Click on a topic below to see more about each item, or scroll down to see everything all at once.
2. CAFETERIA PLANS-LIMITS ON HEALTHCARE REIMBURSEMENT
9. MEDICAID CHIP REQUIRED ANNUAL NOTICE
10. NON-MONETARY ANNUAL LIMITS
11. NOTICE OF MATERIAL MODIFICATIONS
12. PATIENT CENTERED OUTCOMES RESEARCH INSTITUTE (PCORI) FEES
14. PRE-EXISTING CONDITION EXCLUSION
15. REINSTATEMENT OF MAXIMUM BENEFITS
17. SUMMARY OF BENEFITS AND COVERAGE (SBC)
20. WOMEN'S PREVENTATIVE SERVICES COVERAGE
The IRS has released draft forms that employers will use to report the health coverage they offer their employees. The IRS says it provided the draft forms to help employers, tax professionals and software providers prepare for these new reporting provisions and to invite comments from them.
The IRS says that it anticipates draft instructions relating to the forms will be posted on its website in August, and said both the forms and instructions will be finalized later this year.
The draft versions of the forms are to be used by employers filing information returns and providing individual statements under Code § § 6055 and 6056. First filings will be due in early 2016 to report health coverage provided in 2015.
The draft forms are as follows (copies of the draft forms are available at IRS Draft Forms (you can put the form number in the “find” category to get to the desired form).
Draft Form 1095-B – Information Reporting of Minimum Essential Coverage (IRC § 6055)
All employers (not just applicable large employers) and health insurance issuers that provide minimum essential coverage must report information about the type and period of health coverage to IRS as well as to covered individuals. IRS will use the information to verify the months (if any) in which individuals were covered by minimum essential coverage. This information will assist the IRS in enforcing the individual mandate.
Draft Form 1095-C – Employer-Provided Health Insurance Offer and Coverage (Information Reporting by Applicable Large Employers (IRC § 6056)
Applicable large employers must file a return with the IRS and furnish a statement to full-time employees about the health care coverage the employer offered to that employee (or, that the employer did not offer). This reporting will assist with the administration of the employer shared responsibility provisions, as well as the administration of the premium tax credit.
Draft Form 1094-B – Transmittal of Health Coverage Information Returns.
Draft Form 1094-C – Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.
Note that the forms that refer to “applicable large employers” (ALEs) – refer to employers with more than 50 full-time employees, including full-time equivalent employees.
IRS continues to puplish updated draft forms annually.
CAFETERIA PLANS-LIMITS ON HEALTHCARE REIMBURSEMENT
Effective January 1, 2011, participants in flexible spending accounts will no longer be permitted to use these accounts for pre-tax reimbursements of expenses incurred for over-the-counter items purchased without a prescription. Effective in 2018, there is a $2,650 limit on annual contributions to a cafeteria healthcare (flexible spending arrangement) reimbursement plan. The limit will be indexed for inflation.
DENTAL AND VISION BENEFITS
Questions have been raised as to whether dental and vision benefits are subject to the new regulations –here are the rules:
HIPAA’s portability provisions (and thus the PHSA mandates) do not apply to any group health plan in relation to the plan’s provision of certain benefits, if the benefits are (1) provided under a separate policy, certificate, or contract of insurance; or (2) otherwise not an integral part of the group health plan. This two-pronged exception applies only to:
- limited-scope dental benefits;
- limited-scope vision benefits;
- benefits for long-term care, nursing-home care, home care, or community-based care;
- other similar, limited benefits specified in the regulations (but no such regulations have been issued).
For purposes of this exception, benefits are not considered to be an integral part of a plan, whether the benefits are provided through the same plan or a separate plan, if the following two conditions are met:
- the participant has the right to elect not to receive the coverage; and
- if the participant elects to receive the coverage, the participant must pay an additional premium or contribution for it.
Put another way, under the “not integral” prong of the exception, limited-scope dental/vision coverage that is bundled with medical coverage in a single group health plan will be subject to the Public Health Service Act [PHSA] PHSA mandates unless the dental/vision coverage can be elected separately for an additional premium.
HIPAA’s final regulations take a broad view of what dental and vision benefits are limited in scope. Limited-scope dental benefits are defined as “benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth).”Limited-scope vision benefits are defined as “benefits substantially all of which are for treatment of the eye.”These definitions, which were added by the final regulations, are intended to reflect the benefits that are typically included in most independent dental and vision coverages, which may include procedures associated with oral cancer or with an injury that results in broken, displaced, or lost teeth, or ophthalmological services such as treatment of an eye disease (e.g., glaucoma or a bacterial eye infection) or an eye injury.
Effective for plan years beginning on or after September 23, 2010, group health plans that provide dependent coverage for children are required to continue to make that coverage available until the child reaches age 26 (irrespective of the dependent’s marital or student status). Until the first plan year beginning on or after September 23, 2013, grandfathered plans are not required to provide coverage to such children if the children are eligible to enroll in another group health plan (after that date, that exception no longer applies). Under this law, if dependent coverage is provided under family coverage, then the health plan may not impose an additional premium surcharge for children over age 18. However, if the health plan offers tiers of coverage based on the number of dependents, then a surcharge can be added, provided the surcharge is not based on the adult child’s age.
Exchanges are new organizations that will be established to offer individuals and workers a more organized and competitive market for buying health insurance. They will offer a choice of different health plans, certifying plans that participate and providing information to help consumers better understand their options. Beginning in 2014, Exchanges will serve primarily individuals buying insurance on their own and small businesses with up to 100 employees, though states can choose to include larger employers in the future. States are expected to establish Exchanges–which can be a government agency or a non-profit organization–with the federal government stepping in if a state does not set them up. States can create multiple Exchanges, so long as only one serves each geographic area, and can work together to form regional Exchanges. The federal government will offer technical assistance to help states set up Exchanges.
There is a lengthy FAQ relating to PPACA here, on the Department of Labor FAQ about PPACA page.
Grandfathered plans are those that were in effect as of March 23, 2010. Grandfathered plans are exempt from some of the mandates. The significant exemptions include not having to offer preventive benefits and not being subject to internal appeals and external reviews that are otherwise required under the law. In addition, with respect to the part of the law that covers children to age 26, grandfathered plans do not have to provide this coverage if the child is eligible for other employer-sponsored coverage (but this only applies to plan years prior to 2014; it will have to provide this coverage after that date).
The following actions that are made effective on or after March 23, 2010 will cause a plan to lose grandfathered status: the addition of a limit that previously did not exist; elimination of all or substantially all benefits to diagnose or treat a particular condition; or any increase in percentage cost-sharing (i.e., an increase in coinsurance paid by covered persons). For increases in fixed amount cost-sharing (i.e. deductibles or co-payments), an inflationary adjustment of up to 15% above medical inflation is allowed. A special rule applies for co-payments. Any increase in fixed-amount cost-sharing other than co-payments (such as a deductible) of more than 15% above medical inflation will cause a group health plan or insurer to lose its grandfathered status. For co-payments, any increase in fixed-amount co-payments above the greater of (1) $5, increased by medical inflation; or (2) 15% above medical inflation, will cause a group health plan or insurer to lose its grandfathered status. A plan will lose its grandfather status if the employer decreases its contribution rate (whether based on a formula or on cost of coverage) for any tier of similarly situated individuals by more than 5% below the contribution rate on March 23, 2010. For purposes of this rule, total cost of coverage is determined by using the COBRA rate of coverage. For self-funded plans, contributions by an employer are equal to the total cost of coverage minus the employee contributions toward the total cost of coverage.
To maintain grandfather status, a plan must provide, in any plan materials describing benefits for participants or beneficiaries, (a) a statement that the plan or coverage is believed to be a grandfathered plan, and (b) contact information for questions or complaints. Presumably, this notice requirement would apply to any summary plan description or benefit enrollment materials provided to participants. The following model language is provided for this purpose:
This Plan believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your plan may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.
Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the Plan Administrator (as defined in the summary plan description). [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1–866–444–3272 or Department of Labor Website. This website has a table summarizing which protections do and do not apply to grandfathered health plans.]
On the date that a group plan is affected by PPACA (which is the day following the last day of the plan year as defined in the plan document [in the General Information section]), the maximum lifetime benefit must be removed. There will be a phase-in of the allowable maximum annual benefits, which will be $750,000 for year 1; $1,250,000 for year 2, and $2,000,000 for year 3. Thereafter, there can be no annual limits. The annual limit restriction applies to “Essential Health Benefits,” which include ambulatory patient services; emergency services; maternity and newborn care; mental health and substance disorders; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services, chronic-disease management; and pediatric services, including oral and vision care. Until HHS issues regulations, there is no way to precisely determine which benefits will be considered “essential” within the categories listed above. Until such regulations are issued, the agencies will take into account “good faith” efforts to comply with a reasonable interpretation of “essential health benefits,” but a plan must apply this definition consistently.
MEDICAID CHIP REQUIRED ANNUAL NOTICE
The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) requires that employers release this notice on an annual basis to its employees, informing them of eligibility for premium assistance under Medicaid or the Children’s Health Insurance Program (CHIP).
The model notice includes information on how employees can contact their state for additional information and how to apply for premium assistance.
Here is the link to the US Department of Labor page regarding CHIP.
NON-MONETARY ANNUAL LIMITS
The interim final regulations do not specifically address whether non-monetary limits, such as limits on the number of visits allowed rather than dollar limits, are permissible. This will hopefully be addressed in the regulations.
NOTICE OF MATERIAL MODIFICATIONS
Plans must provide notice of material modifications to enrollees not later than 60 days prior to the date on which such modification will become effective. Group health plans are not required to comply with the 60-day notice requirement for material modifications until plans are required to provide the summary of benefits and coverage explanation.
PATIENT CENTERED OUTCOMES RESEARCH INSTITUTE (PCORI) FEES
The Affordable Care Act (ACA) established the Patient-Centered Outcomes Research Institute and charged it with synthesizing and disseminating clinical effectiveness research to help clinicians, patients and policyholders to make informed health decisions.
To fund this Institute, the ACA requires self-funded group health plan sponsors and fully insured plans to pay an annual fee.
On April 17, 2012, the IRS issued proposed regulations regarding these fees, which are sometimes referred to as “CER” or “PCOR” fees.
The fees apply only to plan years ending after October 1, 2012 and before October 1, 2019 (i.e., for seven full plan years). For years ending before October 1, 2013, the fee is $1.00 times the average number of covered lives under the plan. For later years, the fee increases, subject to adjustment based on changes in per capita National Health Expenditures as reported by the Treasury.
For plan years that ended between October 31, 2012 and December 31, 2012, the fee is due no later than July 31, 2013. For plan years that ended after 12/31/12, the fee is due no later than July 31, 2014.
The Regulations provide plan sponsors three different methods for determining the average number of lives covered under the plan for the plan year. Generally, the three methods available with respect to plans that offer coverage for dependents as well as participants, are: (1) actual count of total lives covered on each day of the plan year; (2) average of the total lives covered on one date in each quarter, using either actual headcount or the sum of the number of participants with self-only coverage on that date plus the product of the number of participants with coverage other than self-only multiplied by 2.35; or (3) number of participants reported on the Form 5500 for the plan at the beginning of the plan year plus the number reported at the end of the plan year.
A plan sponsor must use the same method of calculation throughout a plan year, but may change methods from one plan year to the next.
The Regulations permit the fee to be paid annually, via IRS Form 720. The return will cover plan years that end during the preceding calendar year. Thus, for example, in the case of a plan with a calendar year, the first tax return and payment of fee would be due July 31, 2013, and would relate to the 2012 calendar year plan year.
The IRS has issued a legal memorandum generally concluding that health insurers and self-funded plan sponsors can deduct patient-centered outcomes research (PCORI) fees as ordinary and necessary business expenses.
Here is a link to the federal register page regarding fees.
PAY OR PLAY
What are the Employer Shared Responsibility (also known as “pay or play”) provisions?
Starting in 2015, for employers with 100 or more full-time employees (and postponed to 2016 for employers with between 50 and 99 employees) employers will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code (added to the Code by the Affordable Care Act). Under these provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees, they may be subject to an Employer Shared Responsibility payment if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges.
To be subject to these Employer Shared Responsibility provisions, an employer must have at least 50 full-time employees or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees (for example, 100 half-time employees equals 50 full-time employees). As defined by the statute, a full-time employee is an individual employed on average at least 30 hours per week (so half-time would be 15 hours per week).
The Department of Treasury and the Internal Revenue Service have issued proposed regulations implementing the new “shared responsibility” requirement (also known as the “employer mandate” or “pay or play”). The link to the regulations on the IRS site can be found here: IRS Questions and Answers on Employer Responsibility Provisions.
PPACA PAY OR PLAY PENALTIES
SPBA PAY OR PLAY FLOWCHART
PRE-EXISTING CONDITION EXCLUSION
Effective for plan years beginning on or after September 23, 2010, plans may not impose pre-existing condition limits against any enrollees who are under the age of 19. Effective for plan years beginning on or after 9/23/2013, this prohibition will apply to all persons.
REINSTATEMENT OF MAXIMUM BENEFITS
Individuals who had previously exhausted a lifetime limit and who are otherwise eligible under the plan must be given a written notice that the lifetime limit no longer applies.
RESCISSIONS OF COVERAGE
A rescission is a termination of coverage that has a retroactive effect. A health plan cannot rescind an individual’s coverage (employee, spouse, dependents) except where there is a case of fraud or an intentional misrepresentation of material fact.
SUMMARY OF BENEFITS AND COVERAGE (SBC)
Employers are obligated to provide a Summary of Benefits and Coverage (SBC) to their employees. SFPI will be preparing the SBC for the plans that we administer, at no additional charge. It will be emailed to our clients in a Word format for our clients to distribute to their employees.
What is SBC requirement? Generally, you must provide a separate SBC for each health plan option that you make available to your employees. The SBC is a four-page (double-sided) document that provides key information about coverage and out-of-pocket costs for a particular plan option. Separate and distinct from a Summary Plan Description, the SBC is intended to help employees compare different medical coverage options, whether offered under your plan, another employer’s plan or in the individual market. The statute requires that the SBC be presented in a uniform format, utilize terminology understandable by the average plan participant, not exceed four pages in length, and not include print smaller than 12-point font. The regulations, consistent with the NAIC recommendation, interpret the four-page limitation as four double-sided pages.
There is a penalty for non-compliance that applies to the employer (up to $1,000 per failure) but the penalty will not apply the first year this law is in effect as long as a good faith effort is made to comply.
When must the SBC be provided? This duty applies to open enrollment periods beginning on and after September 23, 2012. For plans with open enrollment materials, the SBC must be delivered effective the first day of the first open enrollment period beginning on or after September 23, 2012. Your best practice will be to include the SBC with your open enrollment materials. For those enrolling other than through an open enrollment period, the delivery must take place on the first day of the first plan year on or after September 23, 2012. Otherwise, the SBC must be provided seven business days after a request is received.
How should the SBC be distributed? The same ERISA rules that apply to your summary plan description also apply to the SBC. Thus, you must use a method this is reasonably calculated to result in actual receipt of the SBC by those enrolled in or eligible to be covered by your health plan. You can do this either in paper or electronic form. If you are using paper, you can distribute it by U.S. mail, interoffice mail or even by hand — but merely making the documents available in your HR office or in the break room will not satisfy the DOL’s requirements.
If you choose to distribute the document electronically, keep in mind that the DOL has a safe harbor rule that distinguishes between (1) individuals who have the ability to access documents at the location where they work and whose access to the company’s electronic information system is an integral part of their duties; and (2) individuals with no work-related computer access who consent to electronic distribution.
The rules that apply to individuals in the second category are cumbersome, and most employers find that it’s easier to simply provide paper documents to these employees. But for the first group (those with work-related access), the rule is pretty simple: give the employee notice (by paper or by email) that the documents are being distributed electronically, the significance of the documents, how the documents may be accessed and that the employee has the right to request and receive a paper version at no charge.
While you can rely on the safe harbor rules for individuals who are currently enrolled in your health plan, the federal guidelines also allow for electronic disclosure to individuals who are eligible to participate in your plan but not yet enrolled (even if they do not normally use a computer as part of their job duties). For these individuals, you can post the SBC on the Internet in a generally accessible format (for example, MS Word, Adobe Acrobat or html format) and then provide the individuals notice by email or via postcard of how they can access the document. Keep in mind that you must provide a free, paper copy of the SBC, upon request.
The SBC regulations require that you distribute the SBC not only to employees, but also to their eligible dependents. Fortunately, you are deemed to have provided the SBC to eligible dependents when you provide it to the employees, unless you have knowledge that the dependents are living at a different address (in which case you will probably need to provide the SBC to the dependents in paper form). To make sure that this is clear, you may want to include a statement in your enrollment forms and instructions alerting employees that you will only deliver a separate SBC to dependents if you are given a separate address.
Foreign language requirements: The SBC must be provided “in a culturally and linguistically appropriate manner,” so it may need to be provided in another language when 10% or more of the population residing in the claimant’s county are literate only in the same non-English language.
Effective for 2012 W-2s issued to employees beginning in January 2013, employers are required to report the cost of coverage under an employer-sponsored group health plan on the W-2 form. All employers providing employer-sponsored coverage under a group health plan are subject to the reporting requirement; however, there is a temporary exception for employers that file fewer than 250 W-2s – these employers are not required to report the cost of health coverage until the IRS issues further guidance. Excluded from the new reporting requirement are contributions to HSAs, employee contributions to FSAs and the costs for items like long-term care insurance and stand-alone dental and vision coverages. The amount that must be reported includes both employer and employee contributions. The IRS states that this information is for information purposes only and will not cause employer-provided health coverage to become taxable. Employers may choose to consider a special communication to employees explaining the new number that will appear on their Form W-2 for the year 2012 and emphasizing that this is mandated by the healthcare reform law for informational purposes only and does not affect their tax withholding in any way. The reportable cost of employee health coverage is generally determined by referring to the premium charged. Alternatively, employers may determine the reportable cost by calculating the COBRA applicable premium. Reportable cost of coverage must be determined on a calendar year basis, even if the plan has a different plan year. Compiling this data involves computing each employee’s premium by analyzing the type of coverage each month (single, family) times the applicable premium for each month of the calendar year.
Effective for plan years beginning on or after January 1, 2014, plans cannot have a waiting period longer than 90 days.
WOMEN’S PREVENTATIVE SERVICES COVERAGE
This applies to plans that are considered non-grandfathered health plans. The DOL, HHS and IRS have issued guidelines on required coverage of women’s preventive services. This is required for non-grandfathered plans and will apply to plan years beginning on or after August 1, 2012. Required services include well woman visits; gestational diabetes screening; HPV DNA testing; STI (sexually transmitted infections) and HIV screening and counseling; breastfeeding support, supplies and counseling; domestic violence screening; and contraception and contraceptive counseling, to include sterilization procedures. These are all to be paid at 100% subject to any deductibles or co-pays. For plan years beginning on and after September 24, 2014, all non-grandfathered plans will be required to cover breast cancer preventative medications for women who are at increased risk for breast cancer without cost sharing, subject to reasonable medical management.