For Your Benefits 03/29/10 J. Paul Jacobson, Robert D. Rothacker, David P. Olson, Amy A. Ciepluch, Sarah M. Linsley, Marla B. Anderson
This Special Edition of For Your Benefits expands the information on employer health plan mandates included in Quarles & Brady's March 26, 2010 Client Alert on Health Care Reform and includes tips on what employers need to be doing now to get ready for those changes that are effective as early as six months from now.
On Tuesday, the President is expected to sign the Health Care and Education Affordability Reconciliation Act of 2010 (the "Reconciliation Act") into law. The Reconciliation Act modifies a number of provisions in the Patient Protection and Affordable Care Act (the "Affordable Care Act"), which became law last week. In particular, the Reconciliation Act eliminated a number of the "grandfathering" provisions that would have allowed employer health plans to avoid offering various changes under the Affordable Care Act to participants who are currently enrolled.
The Reconciliation Act and the Affordable Care Act (referred to herein collectively as the "Act") are widely considered to be the biggest change in American health care in 40 years. Although there are State challenges to provisions in the Act that require individuals to purchase health coverage underway and talk from some members of the U.S. Congress of overturning the law, employers should begin to prepare themselves for the changes described below, with a focus on those with the earliest effective dates.
PROVISIONS EFFECTIVE BY 2011
Required Employer Health Plan Provisions. The Act requires a number of employer health plan changes effective for plan years beginning six months from enactment (January 1, 2011 for calendar year plans), including the following:
- Plans must offer coverage to employees' adult children up to age 26 as long as they are not eligible for coverage under another employer's health plan. This coverage will be tax free to the employee.
- Plans may not impose lifetime limits and are restricted in the annual limits they may impose through 2013. Beginning in 2014, no annual limits may be imposed.
- Plans may not impose pre-existing condition exclusions on children under 19, and no pre-existing condition exclusions are permitted for any participant beginning in 2014.
- Plans must cover certain preventive care services, including immunizations and infant care and screenings, at no cost to the employee.
- Plans must follow a new appeals process with guaranteed receipt of benefits during the appeals process and external review required in certain situations.
- Plans must allow enrollees to select any available doctor as a primary care doctor or pediatrician.
- Plans cannot require authorization or referral for OB/Gyn care.
- Plans cannot require preauthorization or greater cost sharing for emergency services, even if services are out of network.
- Plans must cover clinical trials for life-threatening conditions if benefits would otherwise be covered but subject to out-of-network provider restrictions.
- Both self-funded and insured health plans must satisfy the nondiscrimination requirements of Code Section 105(h), which currently applies only to self-funded plans.
- Employers may not rescind health plan coverage without prior notice.
- Employer FSAs may no longer reimburse over-the-counter drugs.
Employer Credits. Employers offering retiree health care to retirees age 55-64 are eligible to participate in a $5 billion reinsurance fund that will provide a credit equal to 80 percent of claims paid between $15,000 and $90,000 for such retirees. This reinsurance program is effective 90 days after enactment of the Act and will continue until 2014 or when funds are exhausted.
PROVISIONS EFFECTIVE AFTER 2011
Pay or Play. The heart of the Act, from the perspective of employer health plans, is the pay or play provision effective in 2014. The Act encourages employers to offer coverage by forcing employers to pay a penalty of $2,000 per employee per year if they do not offer "minimum essential coverage" to full-time (30+ hours per week) employees. Where employees are offered coverage by an employer health plan, the employer must limit the employee contributions required of low income employees or pay $3,000 per year for each low income employee who elects to receive premium assistance in lieu of that employer coverage. Governmental reporting and reporting to participants is also required in connection with the penalties. The penalties are not applicable to employers with fewer than 50 employees.
Required Plan Provisions
- Employer plans may not impose pre-existing condition limitations or annual benefit limitations after 2013.
- Employer plans may not impose waiting periods of more than 90 days after 2013.
- Beginning in 2013, contributions via pretax dollars to health flexible spending accounts will be capped at $2,500 per year.
- Beginning in 2018, an excise tax 40 percent of the value of health coverage in excess of $10,200 for single coverage and $27,500 for family coverage will be imposed on employers and insurers that offer high cost health plans.
Retiree Drug Subsidy Taxation. For tax years beginning after 2013, employers will no longer be able to deduct any subsidy that they may receive for continuing their retiree prescription drug program; however, accounting rules will require immediate recognition of this tax treatment.
WHAT DO EMPLOYERS NEED TO BE THINKING ABOUT TODAY?
Some changes made by the Health Care Reform Legislation are effective in 2010 and 2011. As a result, employers may need to consider the following changes immediately:
- Retiree Health Reinsurance Program Enrollment. The federal program which provides reinsurance for a portion of the costs of providing benefits to retirees 55 through 64 begins 90 days after enactment. Employers providing coverage to retirees 55-64 should determine whether enrollment is worthwhile and, if enrollment appears worthwhile, enroll in the program as soon as it is established.
- Risks Associated With the Elimination of Lifetime Maximums. In connection with the elimination of the lifetime maximums described above, employers are exposed to more risk with respect to catastrophic claims by employees. Employer should immediately consider how to address that risk through stop-loss insurance or other measures now.
- Accounting Treatment of Loss of Retiree Subsidy Deduction. Although the loss of deduction for the retiree drug subsidy does not take effect until 2013, employers will want to consider options for dealing with the accounting impact of that change.
- Impact of Nondiscrimination Testing Requirement. Employers should review insured health plan arrangements that could be impacted by the application of nondiscrimination testing requirements, such as arrangements covering or providing retiree health benefits to only executives, and may need to eliminate or modify such arrangements.
- Required Plan Design Changes. Employers must prepare for the health plan changes that are required for the upcoming plan year, such as elimination of lifetime limits and coverage of adult children, and consult with their vendors and legal advisors to coordinate the implementation and communication of any changes to employees.
- New Appeals Process. The new appeals process rules will require external review in certain situations. Self-funded plan sponsors will want to review this and the other appeals process requirements with their third-party administrators to determine how best to comply.
- Flexible Spending Account Reimbursements. Flexible spending account plan communications will need updating to reflect the elimination of reimbursement for over-the-counter drugs.
If you have questions regarding health care reform, please contact the Employee Benefits and Executive Compensation Law Group: Paul Jacobson at (414) 277-5631 / firstname.lastname@example.org, Robert Rothacker at (414) 277-5643 / email@example.com, David Olson at (414) 277-5671 / firstname.lastname@example.org, Amy Ciepluch at (414) 277-5585 / email@example.com, Sarah Linsley at (312) 715-5075 / firstname.lastname@example.org, Kerri Hutchison at (414) 277-5287 / email@example.com, Marla Anderson at (414) 277-5453 / firstname.lastname@example.org or your Quarles & Brady attorney.