This article provides a list of issues that employers should consider when preparing for compliance with the various provisions of the Patient Protection and Affordable Care Act (“PPACA”). This article is not a technical explanation of the provisions; rather it lists some interesting issues that should be noted by employers, which may not be obvious when first considering PPACA and the related guidance issued to date.
Items for 2012
Form W – 2 Reporting
Beginning on Forms W – 2 issued in January of 2013, employers are required to report the cost of employer sponsored health coverage. The IRS has issued guidance (in Notice 2012 – 9) regarding compliance with the Form W – 2 health care reporting requirements, and employers have begun the process of tracking and calculating the information to be reported in the Forms W – 2. One of the more interesting issues highlighted in Notice 2012 – 9 is that wellness plans are generally considered group health plans. An employer is not required to include the value of a wellness program as part of its Form W – 2 reporting requirements if the employer does not charge a COBRA premium for continued wellness program coverage. However, an employer who is sponsoring a wellness program should analyze their program design to determine whether the program is a group health plan. If the employer concludes that its wellness program is a group health plan, it will need to comply with such laws as ERISA, COBRA, HIPAA, etc.
Summary of Benefits Coverage (“SBC”)
This four-page plan summary must be provided to participants and dependents in connection with the first open enrollment period that begins on or after September 23, 2012. For disclosures to participants and dependents who enroll outside of open enrollment, the rule is effective on the first day of the first plan year that begins on or after September 23, 2012. Some interesting issues to consider under this rule are:
- Most Employee Assistance Programs (“EAPs”) and wellness programs will be required to provide SBCs. If an EAP or wellness program has eligibility requirements that differ from the requirements for the employer’s major medical plan (e.g., all employees are eligible to participate in the employer wellness program and/or EAP program while only certain full-time employees are eligible for the major medical plan), then these programs must be separately reported on an SBC (and not included as an “add on” to the major medical SBC).
- It is important to understand which participants can properly receive an electronic copy of the SBCs. While the government has stated that SBCs may be provided electronically to participants who enroll on-line (as long as these individuals have the option to receive a paper copy upon request), there are certain groups who may not fall within that rule — such as COBRA qualified beneficiaries, employees who are on a leave of absence, and retirees who are covered by plans subject to PPACA.
If the terms of coverage of a plan are materially modified mid-year and that modification affects the content of an SBC, then the plan must provide notice of the modification to enrollees no later than 60 days prior to the date on which the modification will become effective (provided the material change is not already addressed in the plan’s most recent SBC). Remember this rule when you are considering implementing a mid-year change to a plan. Failure to provide this advance notice will delay the effective date of the plan change.
Patient-Centered Outcomes Research Trust Fund Fees
Plan sponsors (for self-funded plans) or insurers (for insured plans) must pay an annual fee equal to $2 ($1 for plan years ending before October 1, 2013) multiplied by the average number of lives covered by the plan. This fee is temporary (e.g., if a plan is a calendar year plan, the fee applies for calendar plan years 2012 through 2018). The fee is collected like a tax and is reported using IRS Form 720. The first potential due date for filing the IRS Form 720 is July 31, 2013. Employers should:
- Remind those in finance that they need to budget for the fee. The fee may be sizeable because it is based on the number of “covered lives” in the plan (including both employee and dependent lives).
- Understand which plans are subject to the fee. Certain arrangements such as limited scope dental and vision plans, health savings accounts, expatriate plans, etc. are not subject to the fee.
- Understand the permissible methods for determining the number of covered lives.
- Track these fees separately from the premium cost of the plan. Self-funded plans generally determine COBRA premium amounts by evaluating the cost to the plan of providing coverage to participants. It is unlikely that these fees can be included in the “cost of providing plan coverage” and accordingly should not be used to determine COBRA premium rates.
Medical Loss Ratios
Effective beginning in 2011, an insurer is required to publically report how it spends the premium dollars it receives and to provide rebates if the insurer is not spending the required amounts on reimbursement of clinical services and/or health care quality improvement activities. Many employers are beginning to receive medical loss ratio rebates from their insurance carriers. If an employer receives a rebate, it must strictly follow Department of Labor (“DOL”) and IRS guidance on how to properly distribute and tax these rebates. Failure to follow those rules can result in severe penalties for the employer.
Preventive Health Services for Women
Non-grandfathered group health plans must cover women’s preventive health care services without cost sharing (i.e., without charging a co-payment, deductible or coinsurance) for plan years beginning on or after August 1, 2012 (e.g., January 1, 2013, for calendar year plans). Plan sponsors should determine which of their plans are subject to the preventive health care requirements. For example, non-grandfathered EAP and wellness plans may be subject to these requirements. Arguably, an EAP or wellness program will satisfy the preventive care rules if it is integrated with a major medical plan that provides preventive health care services without cost sharing. However, if an EAP or wellness program is not integrated with a major medical plan (e.g., it has broader eligibility requirements than the medical plan) — it may have a harder time complying with the preventive health care requirements.
A plan sponsor should also carefully evaluate which benefits it will need to cover in order to comply with the preventive health care rules. For example, although the rules require plans to cover contraception, it is not completely clear whether plans are required to only cover contraceptive devices that are prescribed (versus over-the-counter). The government anticipates issuing guidance that will clarify questions such as these.
Items for 2013
$2,500 Health FSA Limit
Cafeteria plans must limit annual salary reduction contributions for Health Flexible Spending Accounts (“Health FSAs”) to $2,500 (which may be increased in future years for cost of living adjustments). This new Health FSA limit is effective for plan years beginning on or after January 1, 2013. Employers must:
- remember to amend the plan for this change (the plan must be amended by December 31, 2014);
- work with payroll to implement this new limit; and
- understand when non-elective contributions (e.g., flex-credits) are counted against the $2,500 limit.
Notice of Exchanges
By March 1, 2013, employers must provide employees and new hires with a written notice which:
- describes the state exchanges;
- describes the potential availability of premium assistance for employees; and
- explains that if the employee purchases coverage through the exchange they will lose the employer contribution (if any) to the employer’s plan.
While the regulations have not yet been issued, all employers should mark their calendar as a reminder of this notice obligation.
Items for 2014
Non-grandfathered insured plans cannot discriminate in favor of highly compensated individuals as to plan eligibility or benefits. Plans must comply with these non-discrimination rules once guidance is issued. Employers should carefully review their current practices to determine if any arrangements might violate the non-discrimination rules. The most common non-discrimination violations involve severance agreements that offer highly compensated individuals extended coverage post-termination or that pay for COBRA coverage post-termination. Employers will need to gather all employment agreements and severance policies and review them for compliance with the non-discrimination rules. Failure to comply will result in significant employer penalties.
An employer with 200 or more full time employees that sponsors even one group health plan is required to:
- automatically enroll new full-time employees in one of the employer’s health benefit plans; and
- re-enroll those employees already enrolled in a health benefit plan offered by the employer.
Employees must be given adequate notice of the employer’s automatic enrollment procedures, and be provided the opportunity to opt-out.
Many open issues remain regarding this requirement. For example, who is considered an “employee” of the employer? Will it include leased employees, interns and other similar categories of employees? Who is considered “full time” for these rules? Employers should begin reviewing their plan eligibility provisions to determine which employee groups are currently excluded from plan coverage.
Prohibition on Excessive Waiting Periods
Effective for plan years beginning on or after January 1, 2014, a group health plan or health insurance issuer may not apply any waiting period (i.e., a period of time that must pass before an individual is eligible for benefits under the terms of a plan) that exceeds 90 days. Although it is anticipated that the government will allow plans to have eligibility conditions such as full time status or a bona fide job category, if an eligibility condition is designed to avoid compliance with the 90 day waiting period, it will violate these rules.
Employers should review their plan documents and determine the current plan requirements for gaining coverage under the plan. For example, does the plan currently require certain groups to work for the employer for more than three months before coverage is provided? Does the plan require that a certain number of hours of service be completed before coverage is provided? By identifying these types of provisions, employers will be prepared to act once further guidance is issued by the government.
Coverage of Dependents
Effective January 1, 2014, both grandfathered and non-grandfathered group health plans are required to cover children to age 26 — even if such children are eligible to enroll in another employer-sponsored health plan. Prior to 2014, there is a transitional rule that allows grandfathered plans to terminate a child’s coverage if he or she is eligible for employer based coverage from another source. Employers should review their plan eligibility provisions to ensure that dependent children are eligible to receive plan coverage to the age of 26. For example, a plan provision that excludes dependents who are receiving coverage under a military plan may no longer be permissible.
Employer Pay or Play Rules
Beginning in 2014, certain large employers may be subject to penalty taxes for either failing to:
- offer full-time employees minimum essential coverage; or
- provide coverage that is deemed affordable.
Employers will need to weigh various factors when deciding whether it is worthwhile to continue providing group health plan coverage to employees, rather than eliminating group health plan coverage and paying the applicable penalties. Factors that the employer may consider when making this decision might include the following:
- Evaluating the cost of compliance with PPACA (i.e., increased reporting requirements, fees, costly plan design changes etc.)
- Analyzing the cost of the penalties for non-compliance with PPACA
- Potential tax advantages of maintaining employer group health plan coverage (e.g., employees may pay for health coverage pre-tax, etc.)
- The impact of eliminating group health plan coverage on attracting and retaining employees
Group health plans will have reporting obligations regarding whether the coverage provided is minimum essential coverage, and whether the plan contains certain benefits that improve quality of care (i.e., disease management, wellness and health promotion activities, etc.). While guidance has not yet been issued, employers should be prepared to comply with these additional reporting requirements.
Limitations on Cost-Sharing
For plan years beginning in 2014, non-grandfathered group health plans will be limited in the amount of cost-sharing provisions that can be included in the plan. Cost-sharing includes deductibles, co-insurance, co-payments or other similar charges, and any other required medical expenditure with respect to essential health benefits covered under the plan. Total cost-sharing cannot exceed the maximum out of pocket expense limits for self only and family coverage for Health Savings Account compatible high deductible health plans. Employers should review their plans and analyze current cost-sharing requirements and determine whether plan design changes may be required to comply with PPACA.
Elimination of Annual Limits
Beginning on and after January 1, 2014, plans are prohibited from imposing annual limits on essential health benefits. Until 2014, plans can establish certain restricted annual limits on the dollar value of essential health benefits. In addition, employers are presently held to a good faith standard for determining which benefits were considered essential health benefits. However, the government has issued guidance clarifying that the States will determine which benefits are considered “essential health benefits.” If an employer sponsors a plan:
- that covers employees in multiple states; and
- contains dollar limits,
it will need to track the varying state definitions of “essential health benefits.” For example, assume that a plan limits coverage for autism benefits to $4,000 a year and that plan is offered to employees who reside in California and Nevada. If California defines autism benefits as an “essential health benefit” then the dollar limit must be removed — at least for the participants and beneficiaries who reside in California.
No Pre-Existing Condition Exclusions
Plans may not impose pre-existing condition exclusions. Prior to 2014, plans could impose pre-existing condition exclusions on individuals 19 and older. Employers will need to carefully review plans for any pre-existing condition exclusions.
Non-grandfathered plans may not deny participation, discriminate against, or limit or impose additional conditions on coverage to a qualified individual in an approved clinical trial. This requirement is a potentially costly requirement for plans to implement. Many plans currently treat clinical trials as “experimental treatments” which are excluded from coverage under the plan. Be on the look-out for forthcoming regulations on this issue so that you understand whether amendments to your plan are required.
Currently, if a wellness program conditions the receipt of a reward (e.g., premium discounts, rebates, etc.) on meeting certain health standards — it must limit the amount of any such reward to no more than 20% of the cost of coverage. Beginning in 2014, PPACA increases the permissible reward amount to 30% of the cost of coverage. In the future this reward could increase up to 50% of the cost of coverage (if deemed appropriate by the government).
If the rewards for these plans become high enough, participants who do not receive the rewards may scrutinize the legal compliance of these programs. Wellness programs are regulated by a large number of laws, including HIPAA, ERISA, the Internal Revenue Code, the Americans with Disabilities Act, GINA, etc. Be sure that you understand which laws govern wellness plans and make sure that your plan complies with those laws.
Now that the Supreme Court has issued its decision on the constitutionality of PPACA, employers must act immediately to understand their obligations under the Act and implement procedures for complying with the Act’s various mandates. The list of action items described above is not exhaustive, and if you have any questions regarding the law or its implementation, contact the authors of this article, or the Trucker ? Huss attorney you normally work with.