On February 4, 2009 President Obama signed the Children’s Health Insurance Program Reauthorization Act of 2009 (the “Act”) into law. The State Children’s Health Insurance Program (previously referred to as “SCHIP” and now as “CHIP”) is a joint federal and state program intended to provide health coverage for lowincome children and pregnant women who have incomes that are too high for them to qualify for Medicaid, but are generally less than 300% of the federal poverty level. States design their own CHIP programs with differing eligibility criteria, within very broad federal guidelines. Waivers have been granted to some states to expand coverage to parents of eligible children and other adults, and to expand coverage to include children with family incomes above 300%. These waivers will either be continued or phased out, depending on the nature of the waivers. In addition to increasing CHIP’s funding and expanding coverage, the Act contains several provisions that have a direct impact on sponsors of group health plans, both insured and self-insured. These provisions establish a new uniform premium assistance option, additional special enrollment periods, new notice and disclosure requirements, and provide penalties for noncompliance, as described below.
Premium Assistance Option
The Act’s most significant impact on sponsors of group health plans is the establishment of a uniform state option for premium assistance. The premium assistance option allows a state to offer, effective April 1 2009, a premium assistance subsidy (the “subsidy”) for “qualified employer-sponsored coverage” to all targeted low-income children (and, in some cases, their families) who are eligible for child health assistance and have access to employer-sponsored coverage, rather than providing the coverage from another source. The state will be a secondary payor for items or services provided under the employer-sponsored coverage for which the state provides a subsidy. States that have a premium assistance program included in an existing special demonstration program will be allowed to keep their existing programs.
Voluntary Participation by Employees
The parent(s) must voluntarily elect to receive the subsidy, and the state may not require election of the subsidy as a condition of receiving child health assistance. The parent must also be allowed to disenroll the child from employer-sponsored coverage and enroll the child in the state child health plan on the first day of any month for which the child is eligible for premium assistance, in a manner that ensures continuity of coverage for the child.
Amount of and Payment of Subsidy
The subsidy is generally equal to the employee’s share of the premium required to add the child to his or her qualified employer-sponsored coverage. The state may pay the subsidy as a reimbursement to the employee, or directly to the employer. An employer may opt out of direct payment of the subsidy, but if it does so it must allow eligible employees to enroll in the plan and deduct the amount of the subsidy from their pay. The state will then pay the subsidy directly to the employee.
Qualified Employer-Sponsored Coverage
For the purposes of the Act, “qualified employer-sponsored coverage” is defined as a group health plan or health insurance coverage offered through an employer:
- that qualifies as “creditable coverage” under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”);
- for which the employer contributes at least 40 percent of the premium; and
- that is offered to a classification of employees that is considered to be a nondiscriminatory eligibility classification under Section 105(h) of the Internal Revenue Code (the “Code”).
Qualified employer-sponsored coverage does not include benefits provided under a health flexible spending arrangement, or any high deductible health plan, as defined in Section 223(c)(2) of the Code.
Special Enrollment Periods
To coordinate the implementation of premium assistance subsidies with private health insurance coverage, Section 311 of the Act makes two additions to the HIPAA special enrollment periods listed in the Code, ERISA and the Public Health Service Act. An eligible employee must be permitted to enroll in the qualified employer-sponsored coverage if:
- the employee or his or her dependent is covered under Medicaid or CHIP and loses coverage as a result of loss of eligibility, and the employee requests coverage under the qualified employer-sponsored coverage within 60 days after the date of termination of coverage; or
- the employee or his or her dependent becomes eligible for Medicaid or CHIP premium assistance for coverage under the qualified employer-sponsored coverage, and the employee requests coverage under the qualified employer-sponsored coverage within 60 days after the date the employee or dependent is determined to be eligible for premium assistance.
These new special enrollment periods become effective April 1, 2009.
Notice and Disclosure Requirements
Each employer that maintains a group health plan in a state that has elected to provide premium assistance subsidies under Medicaid or CHIP will now be required to provide a written notice to employees describing the potential opportunity for premium assistance, and the benefits available to them. This notice may, but is not required to, be provided concurrently with materials informing the employee of health plan eligibility, with materials provided to the employee in connection with an open enrollment period, or with the summary plan description. The Act instructs the Secretaries of the Department of Labor and Health and Human Services to develop and issue a model notice for this use by February 4, 2010.
In addition, plan administrators of the group health plans will be required to disclose to the state, upon request, information about the benefits available under the group health plan, using a model coverage coordination disclosure form. This is to allow the state to determine the cost-effectiveness of the use of premium assistance subsidies, and in order for the state to provide supplemental benefits that may be required. Standards for this notice will be developed by a working group consisting of members of the Departments of Labor and Health and Human Services, state Medicaid directors, state CHIP directors, employers, plan administrators and plan sponsors of group health plans, insurers and others.
The annual notice to employees must initially be provided for first plan year that begins after the date on which that model notice is first issued. The model coverage coordination disclosure form will apply to requests made by states beginning with the first plan year that begins after the date on which that model form is first issued.
The Act amends Section 502 of ERISA to provide that the Secretary of Labor may impose civil penalties of up to $100 per day per affected employee, against:
- an employer who fails to provide written notice to an employee as described above; and
- a plan administrator who fails to timely provide to any state the information required to be disclosed as described above.
The premium assistance provisions of the Act and the addition of the two new special enrollment periods become effective on April 1, 2009. Therefore:
- Employers that sponsor group health plans in a state that elects to implement premium assistance subsidies will need to quickly decide whether they will opt out of receiving subsidies directly from the state.
- All employers that sponsor group health plans must immediately develop administrative procedures to incorporate the new special enrollment rules, as well as the right to disenroll from the plan on a monthly basis.
- Amendments to group health plans and Section 125 cafeteria plans may also be required to include the two new special enrollment events. A plan’s coordination of benefit rules should also be reviewed to see if they must be updated to reflect the state’s status as secondary payor when a premium assistance subsidy is being provided.