Update:  September 1, 2010 – Grandfathered Plan Notice to Employees

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 1-866-444-3272 or www.dol.gov/ebsa/healthreform.  This website has a table summarizing which protections do and do not apply to grandfathered health plans.

Update:  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.

Update: 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 Grandfathered Plan.

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.

Update: 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”.

Update: 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 benefits

            ∙ cannot raise the coinsurance percentage paid by the employee

            ∙ cannot significantly raise co-payments paid by the employee

            ∙ cannot significantly raise deductibles

            ∙ cannot significantly lower employer contributions

            ∙ 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 requirements.

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.

Update: 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.

Update: 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 (PDF)

Affordable Care Act - DOL Frequently Asked Questions (PDF)

Update:  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 (External Link)

Full IRS Notice 2010-38 (External PDF)

Update: HHS Issues Guidelines on Early Retiree Reinsurance Program (PDF)

Health Care Reform Timeline

          The following 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 Grandfathered Plans.

            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 Plans.

            Some Plans 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 this requirement.

            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 requirement

            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.)

            Prohibition 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.

Update: 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.)

            Update:(A 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 plans.)

            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 requirement.

            (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.

            (This type of information may be available from the insurer.  Either way it is another significant administrative burden.)          

Effective January 1, 2014 for “Small Employers”

          Coverage 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 Exchange.

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 employee.

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 30%.

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.