We have all been reading numerous articles on healthcare reform and are on the brink of information overload. This article is a short list of five things an employer should consider — now!
Background
After over a year of negotiations and debate on the future of health care in the United States, the House of Representatives (“House”) voted on March 21 to pass the Patient Protection and Affordable Care Act (H.R. 3590) — legislation which was passed by the Senate on December 24, 2009 (“the Act”). On March 21 the House also passed the Health Care and Education Affordability Reconciliation Act of 2010 (H.R. 4872) (the “Reconciliation Act”). The Reconciliation Act was passed by the Senate and, as revised by the Senate, was passed by the House on March 25. President Obama signed the Act on March 23, and the Reconciliation Act on March 30.
Five Things to Consider Now!
Item #1 — Grandfathered Plan Status
Technical Rule
The Act provides that there will be no changes required with respect to a group health plan in which an individual was enrolled on the date of enactment (i.e., March 23, 2010). Those plans are considered “grandfathered” and will continue to be treated as grandfathered even if coverage is renewed after March 23, 2010. In addition, family members can be added to the plan and new employees (and their family members) can be added to the plan without losing grandfathered status.
Why might you want to maintain grandfathered status? Grandfathered plans are not subject to some of the provisions in the Act, including certain required benefits and appeals procedures, required coverage of preventive services with no cost-sharing, nondiscrimination rules for insured plans, etc.
It is unclear what could cause a plan to lose grandfathered status. Does a plan lose grandfathered status if it:
- Changes any benefits under the plan?
- Expands eligibility?
- Changes insurance carriers or claims administrators?
No one knows! Officials from the IRS have stated that guidance on this topic should be released soon.
Things to Consider
Make no changes to the plan, unless required to do so by law. Otherwise, the plan may be subject to all of the provisions of the Act, rather than the more limited set that is applicable only to grandfathered plans.
Item #2 — Some Changes Are Required Even for Grandfathered Plans
Technical Rule
The Act requires that certain changes be made to all plans, including grandfathered plans. In the near future, a plan:
- Must extend dependent coverage to adult children of up to age 26, regardless of a child’s marital status or student status. This applies for the first plan year after September 23, 2010. Prior to January 1, 2014, with regard to coverage for an adult child under the Reconciliation Act, an adult child must be eligible for coverage only if he or she is not eligible to enroll in an eligible employer-sponsored health plan other than the grandfathered health plan.
- May not impose any pre-existing condition exclusions or limitations with respect to children under age 19. This applies for the first plan year after September 23, 2010.
- May not impose any lifetime or unreasonable annual limits on the dollar value of essential health benefits. The requirement of no lifetime limits for essential health benefits applies for the first plan year after September 23, 2010. Restricted annual limits on essential benefits are permissible through December 31, 2013.
What does this mean? First, plans will need to be amended to expand the definition of a dependent child. Second, pre-existing exclusions for children must be removed. Third, while the Act includes a list of items that are considered “essential benefits”, these items need to be further explained in regulations before employers will know how to amend their plans for the provision prohibiting limits on essential benefits.
At this point, it is unclear when these changes must be made to plans maintained pursuant to collective bargaining agreements. More guidance on this issue should be coming soon.
Things to Consider
Prepare to make the changes described above, even if your company maintains a grandfathered plan.
Item #3 — Early Retiree Reinsurance
Technical Rule
Employers can obtain a reimbursement equal to 80% of the claim costs between $15,000 and $90,000 for early retirees age 55 and older who are not active employees or eligible for Medicare. This will apply to coverage under the retiree health plan for the employees’ spouses and/or dependents. The proceeds received by the plan from the government must be used to lower health costs for enrollees. This provision becomes effective as of June 2010 and ends upon the earlier of January 1, 2014 or when the $5 billion funding for the program runs out.
Things to Consider
The application for this program is being developed by the government and will be available in June. This program is on a first-come-first served basis. Accordingly, if your company maintains an early retiree program and is interested in receiving these funds, make sure to complete your application as soon as possible!
Item #4 — W–2 Reporting
Technical Rule
Beginning for tax year 2011, employers who provide health insurance coverage must report the aggregate cost of the employer-sponsored health coverage on Form W-2. (Generally, for the 2011 tax year, the Form W-2 is provided to employees on January 31, 2012.) The cost of coverage will be determined based on COBRA premium rates. However, regulations are to be issued on how to determine the COBRA premium rates. The “Cadillac Plan” tax, which does not take effect until 2018, will be based on this reported value.
Things to Consider
Look at this as an opportunity to inform employees about how much your company pays for these benefits. Do not simply add it to the Form W-2, but also let employees know that it will be included on the Form W-2 and where to find it on that form. This is a PR opportunity for your company!
Technical Rule
Employers that have more than 200 full-time employees and offer at least one health plan must automatically enroll new employees and continue enrollment for existing employees. Employees must be provided notice of the automatic enrollment and have an opportunity to opt-out of the health plan. There is no specific effective date in the Act. It is likely to become effective once the government issues regulations for this rule — which could be soon.
Things to Consider
If you have more than 200 full-time employees, get ready to implement automatic enrollment for your health plan. Consider what changes would need to be made to your administrative systems to handle automatic enrollment. It may be that health plans will be required to enroll the employee in an employee-only option under the health plan. If the health plan contains several options, such as a HMO option and a self-funded plan option, the health plan
will need to determine which will be the default option, and work with the insurance carrier or third party administrator to prepare for implementation. Until guidance is
issued, it is unclear which option should be used. The cheapest option? The option with the highest level of coverage? This question should be answered by upcoming federal regulations.
Just for Fun! In a previous article, we informed readers that there is a 10% tax on indoor tanning services, which becomes effective as of July 1, 2010. The new interesting fact about this is that various reports state that this tax is expected to generate $2.7 billion over a 10 year period. Wow!
