Importance of Essential Benefits

Transcription

1 IN THIS ISSUE Importance of Essential Benefits... 1 About the ViewsLetter... 1 Did You Know... 2 Your Questions... 3 Debt Deal Impact on Health Care Reform... 4 Trend Tidbits... 4 Technical Corner... 5 Volume Fourteen Issue Three August 2011 Importance of Essential Benefits Most employers have navigated the frenzy surrounding the first wave of changes required by health care reform. Employers waited for clarifying guidance; for many, changes needed to be made quickly. Although the pace of legislation slowed during the first half of 2011, employers should not be lulled into complacency. The year 2014 will bring significant changes to employer health plans. A new marketplace will be created through health Exchanges, which will offer individual health coverage with no medical underwriting. In addition, subsidies will be available to individuals whose earnings are below 400% of the federal poverty level, who aren t offered affordable coverage through their employees. Carriers in the Exchange will be required to cover essential benefits. In addition, the measure of whether your health plan has adequate coverage will be based About the ViewsLetter on the value of coverage for essential benefits. These were initially defined by the statute as including the following: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services, including behavioral health treatment Prescription drugs Rehabilitative and habilitative services and devices Laboratory services Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care Continued on page 2 We welcome you to the third quarterly issue in Volume Fourteen of the McGraw Wentworth ViewsLetter. It is our mission to be the leader in the employee group benefits brokerage and consulting industry to mid-sized organizations. We have established the ViewsLetter as an integral part of our commitment to keep you informed of benefit trends, legislative and marketplace developments that may affect your group benefit programs. We welcome your comments and suggestions regarding the ViewsLetter. You can pass your comments directly to your McGraw Wentworth Account Director or Account Manager, or you can reach us at

2 Importance of Essential Benefits, cont. It was expected that the government would seek feedback from stakeholders on what services would be considered essential benefits, and if the initial list sufficiently reflected what most health plans covered. That review process is already well underway. The Department of Health and Human Services (DHHS) charged the Institute of Medicine (IOM) to establish preliminary guidelines for defining essential benefits. IOM is expected to offer proposed essential benefits in the fall of 2011, with the DHHS finalizing essential benefits by the end of the year. The final definition of essential benefits will have a significant impact on individual and small group coverage in the Exchange. Essential benefits will establish a baseline of expected benefits that is likely to influence coverage for large insured DID YOU KNOW? and self-funded employers as well. IOM is challenged with determining which benefits should be included, weighing both costs and medical necessity. However, DHHS also has a free hand to recommend a number of treatments for inclusion. For example, DHHS could stipulate coverage of treatment for autism and/or infertility as essential benefits. This would prompt coverage for these services for any plans offered through the Exchange; these services would also have to be covered by Medicaid. If these services are added to the list of essential benefits, it will impact the costs of almost all health plans. Regarding compliance with the 2014 health care reform mandates (i.e. extending coverage to employees working 30 or more hours/week; auto-enrolling full-time employees, offering at least a 60% actuariallyvalued health plan): 28% of employers surveyed indicate costs will increase by 3%. 15% expect the increase to be 5% or more. 27% expect an increase of 2% or less. 15% were already in compliance and noted no increase. The remainder could not estimate the impact. Despite potential cost increases, only 2% of respondents indicated that they were very likely to terminate the medical plan as of Auto-enrollment is generating concern - 21% of respondents see auto enrollment as a very significant or significant concern. Employers are concerned about the cost of managing the auto-enrollment requirements. The Cadillac tax on high-value health plans is also an issue; 22% of survey respondents view it as a very significant concern and 23% state it is a significant concern. Source: 2011 Mercer Survey on HCR Impact on Employers Employers should stay attuned to the discussion. We recently saw how a small change in required covered services could affect the costs of the health plan. The Health Resources and Services Administration modified the recommended preventive care services for women, which must be covered with no required copayments by most health plans. These recommended services include FDA-approved contraceptive methods and contraceptive counseling, as well as breastfeeding support, supplies and counseling. Most employers will have to make plan changes to accommodate these new recommendations. This above change will not affect plans until the first day of the first plan year beginning on or after August 1, 2012, so employers have some time to react. The scope of the required changes will determine the cost to your plan. Just as the modification to preventive services will have a cost impact on employer plans, the determination of essential benefits could have similar or even more dramatic results. The list of essential benefits in the statute fairly represents services covered today by most health plans. In fact, the DHHS collected plan documents from health insurance carriers and health plans to determine the typical services covered. Many are already aligned with the essential benefits defined by the statute. However, there are some services under possible consideration that were not included in the initial list, such as infertility treatment, organ transplants and durable medical equipment. The DHHS report might not fairly reflect the typical benefits covered by employers. For example, the report details a rather high rate of coverage for infertility treatment. Many health plans exclude coverage for infertility treatment due to its expense, and arguments can be made that it is not medically necessary. It is likely that the high coverage rate for infertility Continued on page 3 2

3 Importance of Essential Benefits, cont. treatment is directly influenced by the number of states (approximately 15) mandating this coverage for fully insured plans. Coverage for autism is being lobbied as an essential benefit. According to the Centers for Disease Control and Prevention, it is estimated that one in every 110 children falls somewhere on the autism spectrum, and the prevalence rate may be increasing. Roughly 26 states currently require insurance carriers to cover some form of autism behavioral health treatment, which can be very expensive. If a plan adds autism coverage, plan costs are estimated to increase between 1% and 3%. The decision over what to include as an essential benefit is likely to be a difficult one. Very few would want to argue against covering treatment for infertility or autism. It will be important to evaluate the benefit considerations and their associated cost impact. Unfortunately, health benefits cost a significant amount of money. Mandating that employers widen the scope of what is already covered under the plan will ultimately influence cost. The other responsibility of regulators is to recommend a plan that will result in a reasonable cost. In order to achieve affordability, IOM and DHHS must weigh the cost versus benefit of potential essential benefits. The unfortunate reality is that the plan cannot cover all possible treatments and still remain affordable. The government must cautiously approach the establishment of essential benefits. Any benefits added to the scope of coverage are likely to increase costs, so a conservative approach is critical. Once a benefit is YOUR QUESTIONS Q. Our company plans on launching a high-deductible health plan with health savings accounts (HSAs) effective January 1, Our plan covers same-sex spouses or domestic partners. How are HSA contribution limits calculated for same-sex couples, and can benefits be paid by an HSA for same-sex couples? A. The HSA contribution limit for family coverage in 2012 will be $6,250. If both a husband and wife contribute to an HSA, their combined contributions can t exceed the $6,250 maximum (unless the accountholder is age 55 or older; an additional $1,000 catch-up contribution is then allowed). The challenge with same-sex spouses or domestic partners is that they aren t considered spouses under federal law. The HSA contribution limit is determined by the accountholder s coverage status. In this case, the employee enrolls for two-person coverage and the maximum contribution amount is the family limit of $6,250. Since federal law will generally fail to recognize the samesex spouse or domestic partner as a Section 152 dependent, none of the employee s HSA funds can be used on a tax-favored basis for the same-sex spouse or domestic partner. In fact, if HSA funds are used for a non-section 152 dependent, they would be treated like a nonmedical distribution with a 20% penalty and income tax would be applied. However, the same-sex spouse or domestic partner can establish his or her own HSA. The accountholder s coverage status is still twoperson. The maximum contribution amount is the family limit of $6,250, which is the contribution limit for the same-sex partner s HSA. Only expenses for the same-sex partner can be taken on a taxfavored basis from his/her own HSA. Federal law is unlikely to recognize your employee as a Section 152 dependent of the same-sex partner, and therefore none of the same-sex partner s HSA funds can be used on a tax-favored basis for the employee. This is a tricky situation, and should be communicated carefully to any employee covering a same-sex spouse or domestic partner in a qualified high-deductible health plan. Continued on page 4 3

4 Debt Deal Impact on Health Care Reform officially designated as essential, it will be almost impossible to remove it in the future. The process of establishing essential benefits has not gotten much attention in the press, but it is an important issue for employers and health plans. MW Debt Deal Impact on Health Care Reform The end of July and early August was a whirlwind of political activity, as Congress tried to hammer out a debt-limit deal. The compromise bill that allowed the federal government to avert default included several measures to help cut costs over the next decade. The passage of that bill, and Standard & Poor s subsequent downgrading of the United States AAA rating, sent the stock market on a wild ride. The immediate impact of the debt deal is reflected in the current market instability. However, the longer term impact may influence certain aspects of health care reform. The compromise bill includes incentives for Congress to develop a broad deficit reduction plan by December, A super committee of 12 lawmakers, to be named during August, will be charged with the creation of this plan. If they fail in their task, then $1.2 trillion in mandatory cuts over the next decade will be enacted. Many of these cuts target defense spending and Medicare providers, and may directly impact the funding of many health care reform provisions, such as: Funds for community health and prevention programs In 2011, before any plan changes: TREND TIDBITS $ PPO and POS plans are projected to increase by 10.6% with Rx coverage and by 11.0% without Rx coverage. $ HMO plans are projected to increase by 10.0% with Rx coverage and by 10.2% without Rx coverage. $ Prescription drug plans are forecasted to increase by 9.2%, which is less than the trend increases for medical plans overall. $ Price inflation for inpatient hospital stays is the largest component of overall plan cost trend. $ Medical plan cost trends are eight times higher than CPI-U (Consumer Price Index for all urban consumers). Source: 2011 Segal Health Plan Cost Trend Survey Grants to help states establish health Exchanges and health cooperatives Funds to help states review the appropriateness of health insurance rates Temporary high risk pools designed to provide a coverage option until 2014 for uninsurable individuals Grants to improve maternal care and child health Cost-sharing subsidies designed to help low-income individuals with the out-of-pocket expenses of their health insurance coverage purchased in the public health Exchange The Republicans have asked the Congressional Budget Office to determine which aspects of health care reform could be included in the mandatory cuts. Although the compromise bill specifically protects several programs for the poor and those with low incomes, some parts of health care reform are vulnerable. The end of 2011 will be telling. The super committee has until Thanksgiving to propose deficit reduction legislation, and the proposed legislation must pass Congress by December 23. Failure to pass the legislation will result in the triggered cuts, thus impacting the health care reform provisions noted above. Even if the super committee is able to avoid the triggered cuts by passing the legislation on time, funding for health care reform may still be at risk. The super committee can pull funding for almost any aspect of health reform as part of the deficit reduction legislation. Employers should keep an eye on the super committee and their deficit reduction ideas. The cost of health care reform will be staggering and the government may choose to make critical cuts. Any such cuts may impact employer plans today and in MW Continued on page 5 4

5 Technical Corner Automatic Enrollment and Online Enrollment One feature of health care reform requires employers with 200 or more full-time employees to automatically enroll full-time employees in their health plan. Currently, there is no effective date for this requirement, which will be determined when regulations are issued. The basic description of auto-enrollment in the health reform statute includes the following broad details: Employers must automatically enroll new full-time employees in one of the health plans offered (subject to any lawful waiting period). Employers must continue to enroll current employees in the health plan. An employer must notify new employees of the opportunity to opt out of any automatic coverage. This section of the law does not supersede any state law, unless a state law prevents an employer from instituting the automatic enrollment program. Regulators have sought written comments from stakeholders, and even held public forums to solicit comments on the best way to structure the automatic enrollment provisions. Have you considered how you might implement auto-enrollment in your organization? Electronic enrollment is common. It may make sense to have an initial discussion with your enrollment vendor to assess the capabilities and processes that need to be adopted to meet the auto-enrollment requirement. Having an understanding of system capabilities today will help you to determine any future changes once the auto-enrollment regulations are released. MW Copyright McGraw Wentworth, Inc. Our publications are written and produced by McGraw Wentworth staff and are intended to inform our clients and friends on general information relating to employee benefit plans and related topics. They are based on general information at the time they are prepared. They should not be relied upon to provide either legal or tax advice. Before making a decision on whether or not to implement or participate in implementing any welfare, pension benefit, or other program, employers and others must consult with their benefits, tax and/or legal advisor for advice that is appropriate to their specific circumstances. This information cannot be used by any taxpayer to avoid tax penalties West Big Beaver Road, Suite 200 Troy, MI Telephone: Fax: McGraw Wentworth, Inc. 250 Monroe Ave. NW, Suite 400 Grand Rapids, MI Telephone: Fax: