September 1, 2010 – Grandfathered Plan Notice to
To maintain status as a grandfathered health
plan, the plan must include a statement, in any plan materials
provided to a participant or beneficiary describing the benefits
provided under the plan, that the plan believes it is a
grandfathered health plan within the meaning of section 1251 of
the Patient Protection and Affordable Care Act and must provide
contact information for questions and complaints.
The following model language can be used to
satisfy this disclosure requirement:
This group health plan believes this plan 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 at [insert
contact information]. You may also contact the Employee Benefits
Security Administration, U.S. Department of Labor at
www.dol.gov/ebsa/healthreform. This website has a table
summarizing which protections do and do not apply to
grandfathered health plans.
August 27, 2010 – We have posted new
information on Non Discrimination Rules for Fully Insured Plans
on our blog:
www.ebsc.wordpress.com. Some fully insured plans that lose
their Grandfathered status may face significant changes in the
structure of their plans.
August 2, 2010 – Can you maintain your
Grandfathered Status and is it worth it?? The first Health Care
Reform changes to an employer’s health insurance plan start with
plan renewals on October 1, 2010. Employers have very few
choices to make under Health Care Reform. One of them is
whether or not they should maintain their status as a
The plan renewals for October 1 are out, and
there is some interesting information available. If you renew
your current plan you would normally keep your Grandfathered
status. The plan should have removed any annual or lifetime
limits on essential benefits and extended coverage for dependent
adults to age 26.
If you change from one insurance company to
another, you automatically lose your Grandfathered status. If
you stay with the same company but adjust your deductible or
copays, you will most likely lose your Grandfathered status.
What are the consequences of that loss? Your new
non-Grandfathered plan must satisfy the following requirements:
Provide certain preventive care
benefits with no copays or deductibles
Have no pre-existing condition
limitations for dependents under 19
Provide certain mandated patient
protections (discussed below)
Have both an internal and external
claims appeal process
What is the cost for all of these changes? The
initial results from three Blue Cross renewals are in a range of
.35% to .5%. This is remarkably low, leading to the conclusion
that most plans will save more by increasing deductibles or
copays and losing their Grandfathered status.
We cannot help but wonder whether or not the ever
increasing claims from the free preventive care and the no
pre-ex on children will eventually lead to a much higher cost
for the loss of the Grandfathered status.
June 21, 2010 - Presbyterian has
provided new information on how it will implement some the
changes to comply with Health Care Reform:
Age 26 Dependents – For
small groups (2 to 50 eligible Employees) coverage will be
effective 10/1/2010. You do not have to wait until your plan
renewal after 9/23/10 for this change to be effective. For
large groups the change will be implemented on your renewal
date, unless you request an earlier effective date.
Pre Existing Condition Exclusions
– For plans that are subject to pre-existing limitations (PPO
Plans), effective 10/1/2010 Presbyterian will not impose a
pre-existing condition exclusion for insured members under the
age of 19.
Lifetime Maximum Benefits
– Effective 10/1/2010 Presbyterian will no longer impose a
lifetime maximum benefit on “essential benefits”. Regulations
are needed to define what the law means by “essential benefits”.
June 15, 2010 Yesterday the
Departments of Treasury, Labor, and Health and Human Services
released interim final regulations on the requirements for a
health plan to keep its Grandfathered Status under the Health
Care Reform legislation.
Under the new law, all plans are required to make
certain changes on their first renewal after September 23,
2010. If a plan was in effect on March 23, 2010 and it
maintains its Grandfather Status, it will be exempt from making
certain changes. There are 120 pages of regulations, detailing
the requirements for keeping the Grandfathered Status. The
following is a brief summary of the requirements:
∙ cannot significantly reduce
∙ cannot raise the coinsurance
percentage paid by the employee
∙ cannot significantly raise
co-payments paid by the employee
∙ cannot significantly raise
∙ cannot significantly lower employer
∙ cannot reduce an annual limit on
what the insurer pays
∙ cannot change insurance companies
There are detailed formulas to define what the
regulations mean by “significantly” in each of the above
We believe that increasing costs will eventually
force all plans to lose their grandfathered status. In that
event, the plan will bear the increased cost of providing
preventive services with no cost sharing and must not have a
pre-existing condition limitation for children under age 19.
Also management carve out plans may not be permitted.
We will continue to provide additional
information on these requirements as it becomes available.
June 10, 2010 Blue Cross Blue Shield
of New Mexico, and Lovelace Health Plan have announced that they
are implementing the extension of coverage for adult children to
age 26 earlier than required by the Health Care Reform
legislation. Under this legislation, plans are required to
cover adult children up the age 26 on the first plan renewal
after September 23, 2010. However these insurance plans have
voluntarily implemented this change now so that current college
graduates will not lose their coverage. If you have any
questions please call us or your health plan.
May 13, 2010
Department of Labor, Treasury and
Health & Human Services have issued interim rules on extending
health insurance coverage for adult children up to age 26.
Under the health reform legislation, this change is effective on
your medical plan renewal after September 23, 2010. However
many insurance companies are voluntarily extending coverage now
so that college graduates will not lose coverage and then
reapply at your plan renewal. We will be looking for
announcements from the local New Mexico health insurance
companies on how they will be extending coverage.
In the meantime you can review the DOL
Fact Sheet and Frequently Asked Questions page below.
Affordable Care Act - DOL Fact Sheet
Affordable Care Act - DOL Frequently Asked Questions
IRS Notice 2010-38 provides
information for employers on covering employees’ children up to
age 27 under a health plan. This Notice explains that the value
of the benefit is excluded from their taxable income. Cafeteria
plan sponsors can permit employees to immediately make a pre tax
salary reduction for the premiums to cover their children under
age 27. The plan document must be amended by the end of 2010.
IRS Summary of Notice
Full IRS Notice 2010-38
Issues Guidelines on Early Retiree Reinsurance Program
Health Care Reform
is a brief overview of the new Health Care Reform
requirements in chronological order. Our intent is to focus on
the provisions that may affect an employer’s health plan and the
insurance companies providing the benefits under those plans.
Many areas of this legislation are missing important details
and will require additional federal regulations. As new
information is received we will expand this outline. This
information is not intended to be legal advice. Please consult
your legal counsel for additional details.
Exchange – governmental agency or nonprofit
entity that is established by the State for the purpose of
making Qualified Health plans available to eligible individuals
and eligible groups.
Some provisions do not apply to Grandfathered
Plans. (A plan in effect on March 23, 2010.)
However if you make any plan changes you will lose your
“Grandfather” status. The only plan changes allowed are adding
and deleting employees and dependents.
Effective January 1, 2010
Small Employer Tax Credit –
If your small business or tax exempt
organization pays employee health insurance premiums in
2010, you may be eligible to claim a new credit on your 2010 tax
return. Employers with fewer than 25 employees (more if you have
part-time employees), and less than $50,000 in average wages,
may be eligible.
Eligible employers could qualify for
a credit worth 35% of premium paid in 2010 for business or 25%
of premiums paid for tax exempt groups. Visit
www.irs.gov or ask your tax professional to determine if
your small business qualifies for this credit.
Adoption Assistance – The
credit for qualified adoption assistance under an employer’s
adoption assistance plan increases from $10,000 to $13,170.
This limit is adjusted for inflation after 2010.
Effective for Plan years
beginning on or after September 23, 2010
No Annual or Lifetime Coverage
Limits – plans may still place annual or lifetime limits on
specific covered benefits that are not Essential Health Benefits
(we really do not know what this is yet). This does apply to
Extension of Dependent Coverage –
Plans that provide coverage for dependent children must
continue to provide coverage until the child turns 26. The adult
child can be covered even if married and eligible for coverage
under another group plan. This does apply to Grandfathered
have announced that they are implementing this change early so
that children who graduate this year can remain covered under
their parent’s plan.
Rescission on Coverage Prohibited
– Plans are prohibited from rescinding coverage of a
participant, except in the event of fraud or intentional
misrepresentation. This does apply to Grandfathered Plans.
Mandated Coverage for Preventive
Health Services – Plans must provide first dollar coverage,
(no copays or deductibles) for certain preventive care
services. (We do not know what this means yet but should
include services recommended by the Health Resources and
Services Administration, U. S. Preventive Services Task Force,
and the Centers for Disease Control.) Grandfathered Plans are
exempt from this requirement.
Mandated Patient Protections –
Plans must allow: participants to select a primary care
provider, emergency room services must be available without
prior authorization and no penalty for out of network providers,
obstetrical and gynecological care must be available without
referral or authorization. Grandfathered Plans are exempt from
Extension of Nondiscrimination
Rules – The nondiscrimination rules that currently apply to
self-funded plans are extended to fully insured plans.
Grandfathered Plans are exempt from this requirement.
Mandated Claims Appeals –
Plans must have both an internal and external claims
appeal process. Grandfathered Plans are exempt from this
Cost Ratio Requirements – No
later than January 1, 2011 a health insurance company must
provide an annual rebate to each enrollee of the plan if the
benefits paid are less than 85 % of the premium received. For
the small group market the trigger is 80% of the premium
received. This applies to Grandfathered Plans. (This should not
affect the employer’s responsibilities for operating the plan
and we do not believe that is will apply to self-funded plans.)
of a Pre-Existing Condition Exclusion for Dependents under 19 –
A plan may not impose a Pre-Existing Condition
Exclusion for dependents under the age of 19. Grandfathered
Plans are exempt from this requirement.
Cost of Employer- Sponsored Health Coverage
reported on W-2 – Effective January 1,
2011, employers must report the cost of employer provided health
coverage (including the employee’s contribution) on the
employees’ W-2. The cost does not include contributions to
Flexible Spending Accounts or Health Savings Accounts.
Effective January 1, 2011
Flexible Spending Accounts (FSAs), Health Reimbursement Accounts
(HRAs) and Health Savings Accounts (HSAs)-
Over the counter (OTC) drugs are no longer and
eligible expense under these plans.
Regulations are needed for final clarification, but we believe
that supplies and equipment will still be allowed as an eligible
expense under these plans. Also OTC drugs that are used with a
physician’s prescription may also be allowed.
The penalty on distributions from HSAs for non
qualified expenses increased from 10% to 20%.
CLASS Act – Employer Premium Collection
– The Community Living Assistance
Services and Support Act is a national voluntary insurance plan
for purchasing community living assistance service and
supports. Employers will automatically enroll employees in the
program. Employees will be able to opt out of the program.
Regulations are needed to clarify the procedures for employees
to opt out.
The benefits will be no less than an
average of $50 per day. An individual must pay premiums for 5
years before benefits can be paid. (This allows the government
plan to avoid a pre existing condition exclusion.)
recent article published on a blog for the New York Times
indicated that the regulations needed to implement this program
will not be issued this year.)
Simple Cafeteria Plan –
an employer with an average of 100 or less
employees over the last two years can establish a Simple
Cafeteria Plan with specified eligibility, participation and
contribution requirements. This plan creates a safe harbor from
the nondiscrimination rules of Section 125.
Grants to Small Employers to Establish
Wellness Programs – The Secretary of
HHS is authorized to award grants to an eligible employer that
establishes a comprehensive wellness program.
By March 23, 2012
Employer Disclosure and Reporting
Requirements – Plan administrators
(employers) and insurers must provide a summary of benefits that
meets certain standards developed by the Secretary of Health and
Human Services (HHS). The summary must be in language
understandable by the average plan participant. (We can only
hope that the regulations will be written the same way!)
HHS has until March 23, 2011 to provide the
regulations. (As a practical matter, employers will look to
their insurers to provide the required information.)
Employer Annual Reporting
Requirements on Quality of Care - Plans must provide
participants and the Secretary of HHS an annual report on the
provider reimbursements available for the improvement of the
quality of care, wellness and health promotion activities. The
Secretary will make these reports available on the internet.
(We cannot help but wonder about the consequences of not
providing any reimbursements for these activities.)
Grandfathered Plans are exempt from this requirement.
(This will place an additional
administrative burden on employers who provide wellness plans,
and could discourage the further development of these types of
Information to the Secretary of
Health and Human Services – Plans must provide information
to the Secretary of HHS on many things such as: claims paying
practices, enrollment data, claims denied, cost sharing, out-of-
network coverage and anything else deemed appropriate by the
Secretary. Grandfathered Plans are exempt from this
(We think employers will depend on
the health insurer to provide this information. At the same
time that insurers are being asked to do more administrative
work they are also required to keep administrative fees under
15% of premiums.)
Effective for Plan Years Ending
after September 30, 2012
Federal Tax –
Plans will be assessed a tax of $2 per average
number of insured lives to finance a comparative effectiveness
research program. The tax will be paid by the plan sponsor
(employer). The tax will be indexed annually and sunset for
plan years ending after September 30, 2019.
Effective January 1, 2013
Flexible Spending Accounts (FSAs) –
Contributions to Health FSAs are
limited to $2,500 per year. This amount is indexed for
inflation after 2013.
Increase in Medicare Taxes on
Earned Income – There is a tax increase of .9% on the
employee for wages above $200,000 for single tax returns and
$250,000 for joint returns. Employers will be responsible for
withholding and reporting taxes.
Increase in Medicare Taxes on
Unearned Income – A new tax of 3.8% will be imposed on the
lesser of: the net investment income for the year or the
modified adjusted gross income above $200,000 for single returns
and $250,000 for joint returns.
Net investment income includes income
from interest, dividends, annuities, royalties and rents.
(This does not affect employers. Employees
will pay through their personal tax returns.)
Effective March 1, 2013 -
Disclosure to Employees
Employee Notices Regarding Exchange
– Employers must provide written notices to new employees and
all other employees by March 1, 2013. The notice must include
details on the available Exchange, how to contact it,
eligibility for a Premium Tax Credit, etc.
(Employers will be required to help market the
services of the Exchange.)
Effective January 1, 2014 –
Reporting and Disclosure Requirements
Reporting to IRS on Health Insurance
Coverage – Employers that provide
plans with Minimum Essential Coverage are required
to file a report to the IRS by January 31 of the following
year. This report will provide information to the IRS on your
employees, their portion of the premium, whether or not the
benefits are under an Exchange, etc. The employer is also
required to tell each employee the information provided to the
IRS on his or her status.
This report is designed to tell the
IRS if individuals are meeting their requirement for mandated
coverage and whether or not they qualify for a Premium Tax
Credit of Cost Sharing Reduction. Grandfathered Plans are
not exempt from this requirement.
(This may be the most onerous requirement for
employers under Health Care Reform.)
Large Employer Reporting to The
IRS on Health Insurance Coverage - By January 1 of the
following year, the employer must report: whether or not the
employer offers full time employees Minimum Essential Coverage,
waiting periods, premiums paid by the employer, etc. The
employer is also required to tell each employee the information
provided to the IRS on his or her status.
This report is designed to give the
IRS information to determine if the employer should be subject
to a penalty. Grandfathered Plans are obviously not exempt from
this requirement either.
of information may be available from the insurer. Either way it
is another significant administrative burden.)
Effective January 1, 2014 for
through an Exchange - a small employer
can offer a Qualified Health Plan from an Exchange to its full
time employees. A small employer must have no more than 100
employees during the preceding year. EXCEPT that for plan years
beginning before January 1, 2016, a state can elect to limit the
size of a small group to employers with no more than 50
employees. HOWEVER starting in 2017, a state may decide to
allow large employers to offer employees coverage through an
For Plan Years Beginning on or
after January 1, 2014 –
Prohibition of a Pre-Existing Condition
Exclusion – A plan may not impose a
Pre-Existing Condition Exclusion. Grandfathered Plans are exempt
from this requirement.
Guaranteed Coverage –
A health insurance company that offers coverage
in a state must accept any employer or individual that applies
and must renew the coverage at the option of the employer.
In New Mexico, a group health insurance company
is already required to accept and renew group coverage for
groups of 2 to 50 employees as long as the employer pays the
premium and meets minimum participation requirements.
Waiting Periods –
Plans may not have a waiting period of more than 90 days. This
applies to Grandfathered Plans.
No Discrimination based on Health Conditions
– Plans may not use health conditions to determine eligibility.
This applies to Grandfathered Plans.
Cost Sharing Limits
– Out of Pocket costs (deductibles, coinsurance and copays) to
the participant are limited to the amounts under a Health
Savings Account qualified Plan. (For 2010 these amounts are
$5,950 for single coverage and $11,900 for family coverage).
This applies to Grandfathered Plans.
Coverage for Clinical Trails
– Plans cannot: deny participation of a qualified individual in
a clinical trial, or deny coverage of routine costs for a
clinical trial. This applies to Grandfathered Plans.
Employer Coverage Requirements -Starting
in 2014 employers with more than 50 full time equivalent
employees (includes part time employees) will be penalized if
they have employees who are covered under a state run insurance
Exchange and qualify for subsidy assistance.
(Individuals are eligible for subsidy assistance
in the form of tax credits when household income is between 133%
and 400% of the Federal Poverty Limit and they buy coverage
through a state Exchange)
The amount of the penalty will depend
on whether or not the employer offers health coverage:
∙ if the employer does provide
coverage, an employee can opt out and purchase coverage
from the Exchange. If the employer’s plan requires an employee
contribution that exceeds 9.5% of household income OR the
employer’s contribution is less than 60% of the cost of the
plan, then the employee may qualify for subsidy assistance.
THEN the employer will pay an annual penalty of $3,000 for each
employee who opted out of the employer’s plan and into the
Exchange. But the penalty is capped at $2,000 per year times
the number of full time employees.
∙ if the employer does not
provide coverage, and one employee obtains coverage
through the Exchange and qualifies for subsidy assistance, the
employer will pay a penalty of $2,000 for each full time
Free choice vouchers for Certain Low-Income
Employees – Employers that
offer Minimum Essential Coverage (You guessed it! We do not
know what that is yet) to their employees and pay a portion of
the premium are required to provide vouchers to eligible
employees for the purchase of coverage in an Exchange.
An employee is eligible for the voucher if the
employee’s portion of the premium for the employer’s plan is
between 8% and 9.8% of the employee’s household income for the
year, and the employee’s household income for the year does not
exceed 400% of the federal poverty limit. The voucher must be
equal to the employer’s contribution to the group health plan.
Insurance and Premium Rating –
Premium rates charged for health insurance
for small groups (and large groups covered in an Exchange)
cannot vary except for certain factors: individual vs. family,
geographic rating area, age (but limited to a ratio of 3 to 1),
tobacco use (but limited to ratio of 1.5 to 1)
Requirements for Wellness Programs
– Subject to a list of certain requirements, employers can
establish wellness programs with premium discounts that do not
violate nondiscrimination rules. This provision takes the
federal wellness plan regulations and makes them a law. It also
increases the wellness incentives from a 20% of premium limit to
Effective January 1, 2018
Excise Tax on High Cost Employer-Sponsored Health
Coverage – A tax is imposed on the
high-cost plans equal to 40% of the excess benefit. For fully
insured plans the tax is imposed on the insurance company. For
self-funded plans the tax is imposed on the plan administrator.
The excess benefit is coverage that
costs more than $10,200 for single coverage and more than
$27,500 for family coverage. These amounts include employer and
employee pretax contributions to flexible spending accounts,
health reimbursement accounts and employer contributions to
health savings accounts.
The following are not included in the
cost calculation: cost of long-term care coverage, dental and
vision coverage offered under a separate plan, specific disease
and hospital indemnity policies if the benefits are not
excludable for the employee’s income.