Quick Reference Guide: Key Health Care Reform Requirements Affecting Plan Sponsors

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1 Quick Reference Guide: Key Health Care Reform Requirements Affecting Plan Sponsors The following is a brief summary of some of the key requirements affecting group health plan sponsors. This is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance. American Fidelity does not provide tax or legal advice. Provision Plan Design Mandates These plan design mandates only apply to certain types of health plans, such as major medical insurance. They do not apply to HIPAA excepted benefits, such as disability, cancer, hospital indemnity, or accident insurance. Only limited changes may be made to plans to maintain grandfathered status Pre-existing condition limits for children prohibited Lifetime limits prohibited 3/23/2010 status is available for health plans that were providing coverage as of March 23, Making certain changes to benefit offerings, plan design, or employer contributions toward the cost of coverage will cause a plan to lose its grandfathered status. plans do not have to comply with several plan design mandates imposed by Health Care Reform. The plan sponsor must maintain certain documentation and include notice of grandfathered status in any participant materials describing the coverage. may not impose any pre-existing condition limits for enrollees under age 19. may not impose any lifetime limits on the dollar value of essential health benefits. Individuals who had exhausted their lifetime limits must be allowed to reenter the plan. Regulations impose notice and specialenrollment rules for such individuals. Annual limits restricted Rescissions prohibited (except in the case of fraud or misrepresentation) may impose annual dollar limits on essential health benefits no lower than: $750,000 for plan years after September 23, 2010; $1.25 million for plan years after September 23, 2011; and $2 million for plan years after September 23, Annual limits are prohibited for plan years after January 1, may not retroactively terminate (rescind) coverage except in limited circumstances, such as for an individual who commits fraud or makes intentional misrepresentation of material facts as prohibited by the terms of the plan. Even in cases where permitted, plans must provide participants with written notice 30 days before coverage is retroactively terminated. ESB

2 Must cover adult children to age 26 (special rule available for grandfathered plans) that cover children must provide coverage to adult children up to age 26 (regardless of marital status, student status, residency, or parental support). Coverage does not have to be provided to the adult child's spouse or children. A grandfathered plan is not required to extend coverage to an adult child who is eligible for other employer-sponsored coverage until Insured plans may not discriminate in favor of highly compensated individuals (enforcement delayed until guidance is issued) Fully-insured, non-grandfathered plans may not discriminate in favor of highly compensated individuals. (Self-funded health plans are subject to similar nondiscrimination rules, whether grandfathered or non-grandfathered.) Must cover preventive care without costsharing Must allow individuals to choose their PCPs/pediatricians on-grandfathered plans cannot require cost-sharing (such as copayments or deductibles) for preventive care services that are specified by the federal government, including immunizations. can require participants to designate a primary care physician or pediatrician, but participants of nongrandfathered plans must be permitted to designate any primary care physician or pediatrician participating in the plan's provider network. Must allow access to OB/G without referral Must provide direct access to/coverage for emergency services Must follow new internal and external review standards Waiting periods over 90 days prohibited Annual limits prohibited Pre-existing condition limits for adults prohibited on-grandfathered plans cannot require females to receive preauthorization for OB/G services. on-grandfathered plans cannot require preauthorization for emergency services, limit coverage to only in-network providers, or impose higher cost-sharing for emergency services from an out-of-network provider. on-grandfathered plans must comply with new claims procedures - including improved internal claim review procedures and a new requirement for external review. External review decisions are binding on the plan or insurer. may not impose an eligibility waiting period greater than 90 days. may not impose any annual dollar limits on essential benefits. (Prior to 2014, annual limits are restricted.) may not impose any pre-existing condition limits for any enrollees. (Prior to 2014, plans are only prohibited from imposing pre-existing condition limits for enrollees under age 19.) ESB

3 plans must cover all children to age 26 Incentive for wellness participation increases to 30% (optional) plans that cover children must provide coverage for all adult children up to age 26 regardless of eligibility for other employer-sponsored coverage. Under the HIPAA wellness rules, an employer may currently offer financial incentives to participate in wellness programs up to 20% of the cost of health plan coverage. Beginning in 2014, the 20% cap is increased to 30% with federal agency discretion to increase it to 50%. on-grandfathered, small group insured plans must provide coverage for all essential benefits, to be defined by federal regulations. At a minimum, essential benefits include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness, disease management, and pediatric services. Insured, small group plans must cover all essential benefits May not discriminate against individuals in clinical trials Must comply with limits on deductibles With respect to individuals who participate in clinical trials, non-grandfathered plans may not deny participation in a clinical trial, limit coverage for routine items and services typically covered for individuals who are not enrolled in clinical trials, or discriminate against individuals based on their participation in clinical trails. do not have to pay for the investigational item, device, or service itself. on-grandfathered plans may not impose deductibles higher than $2,000 for individual coverage or $4,000 for family coverage (indexed for inflation based on health insurance premiums). on-grandfathered plans may not require a participant to pay cost-sharing (e.g., deductibles, copays, co-insurance) in excess of the out-of-pocket maximum that applies to HSA-compatible high deductible health plans (in 2011, $5,950 for individual coverage or $11,900 for family coverage). on-grandfathered plans may not discriminate against health care providers acting within the scope of their licenses. For example, this could prevent a plan from denying benefits solely because a doctor prescribed a drug for an off-label purpose or provided a service outside the doctor's typical specialty area (assuming both acts were within the scope of the doctor's license). Must comply with limits on out-of-pocket maximums May not discriminate against providers acting within the scope of their licenses ESB

4 FSA/HSA/HRA Provisions Adult children may receive tax-free health coverage/ reimbursement Over-the-counter drugs may be reimbursed only with a medical practitioner s prescription HSA penalty for nonqualified distributions increased Health FSA contributions limited Coverage or reimbursements provided on or after 3/30/2010 Change is effective taxable years beginning on or after 12/31/2010; plan document must be amended by 6/30/2011 Distributions made after 12/31/2010 Taxable years beginning after 12/31/2012 In addition to the requirement to provide health coverage for adult children, Health Care Reform extended eligibility for tax-free employer-sponsored health coverage/reimbursement for adult children until the end of the calendar year in which a child turns age 26. Participants in Health FSAs or HRAs may be reimbursed for medical expenses incurred for these individuals. Reimbursements for over-the-counter (OTC) drugs and medicines are permitted only with a medical practitioner s prescription. Restrictions also apply to the use of debit cards to purchase OTC drugs and medicines. Withdrawals from HSAs not used for qualified medical expenses will be subject to a 20% excise tax, which is an increase from 10% under prior law. The amount employees may contribute to a Health FSA is capped at $2,500 per year, indexed for inflation. Only employee, not employer, contributions are subject to the new limit. Administrative Provisions 30-day open enrollment Automatic enrollment Effective date is unclear - expected to be established by regulations, which the agencies have indicated will be completed by 2014 must offer a minimum of 30 days for open enrollment for the first plan year beginning on and after September 23, The purpose is to provide an adequate opportunity to enroll for individuals who were previously excluded from the plan due to the imposition of lifetime limits or age. Plan sponsors with 200 or more full-time employees must automatically enroll their newly-eligible full-time employees in employer-sponsored health coverage. In the event employees want different health coverage, they will be able to opt out of the employer s plan. The employer will be required to send notices to employees regarding the automatic enrollment process ESB

5 Form W-2 reporting of employer-sponsored health coverage IRS deferred the effective date until taxable years beginning after 12/31/2011, which is 2012 for most employers (W-2s generally required to be provided by 1/31/2013) Quality reporting HHS must develop guidance by 3/23/2013 and is likely to establish the effective date in that guidance Health coverage and workforce reporting Most plan sponsors must report the cost of employersponsored health coverage on employee W-2s beginning with the 2012 tax year, which are the W-2s that are generally required to be provided by January 31, Employers that filed fewer than 250 W-2s in 2011 are not required to report the information until at least the 2013 tax year. The IRS continues to emphasize that the W-2 reporting obligation does not make employer sponsored health coverage taxable for employees. Plan sponsors of non-grandfathered plans must report on plan benefits and reimbursement structures that provide certain quality-related programs like disease management. Reports must be issued annually to HHS and to employees during open enrollment. 1/1/2014 Employers with 50 or more full-time employees must submit reports to the IRS with extensive details about the employer s health coverage and the employer s workforce. Certain reporting is also required for plan sponsors that provide minimum essential coverage, even if the employer has fewer than 50 employees. Cadillac Tax Reporting 1/1/2018 Plan sponsors are required to calculate on a per month basis, the value of health coverage that each selects and, if coverage for any individual exceeds the applicable threshold, to notify the entity required to pay the tax and the IRS. For more information, see the summary of the Cadillac Tax. plans must comply with notice and documentation requirements Must provide patient protection notices Due date is unclear, but presumably must be provided at the beginning of the year the employer is first claiming grandfathered status First day of the first plan year Plan sponsors treating certain health coverage options as grandfathered must maintain records documenting the terms of coverage in effect on March 23, 2010, and any necessary substantiating documentation. In addition, any materials provided to participants or beneficiaries that describe the health coverage must include notice that the coverage is grandfathered. Plan sponsors must provide certain notices to employees in connection with the requirement to eliminate any lifetime limits, extend eligibility to adult children, and provide direct access to certain providers, such as out-of-network emergency facilities. ESB

6 Transparency disclosures federal regulations are expected to clarify effective date on-grandfathered plans must provide certain information to HHS and the public, such as claims payment policies and practices, data on specified topics (e.g., enrollment, disenrollment, claims denied, and rating practices), financial disclosures, information on cost-sharing, and payments with respect to out-ofnetwork coverage, and information on participants rights under Health Care Reform. Uniform explanation of coverage summaries Must provide 60-day advance notice of benefit changes Agencies were to develop model by 3/23/2011, employers must begin using by 3/23/2012 Plan sponsors must provide government-developed uniform explanation of coverage summaries to plan participants. Federal agencies are required to develop a template document showing the required information for the summaries, which was to be published by March 23, Plan sponsors must fill in the template with the required information for their plans and begin distributing the summaries by March 23, Plan sponsors may want to begin to use the template during the first open enrollment period after the model is published. 3/23/2012 Participants must be given 60 days advance notice of any material modifications in coverage, such as increases in cost-sharing or benefit reductions. A plan sponsor may satisfy this requirement by sending a revised uniform explanation of coverage summary. Employee education for new hires Must provide information to existing employees by 3/1/2013 and all new hires after that By March 31, 2013 and for all subsequent new hires, employers must provide information about the state Exchanges, the availability of federal premium assistance (if the actuarial value of the employer s plan is less than 60%), and the availability of Free Choice Vouchers. Plan Sponsorship Provisions State Exchange coverage available for individuals/small employers 1/1/2014 States must establish Health Insurance Exchanges to offer private insurance choices to individuals and small employers (generally with 100 or fewer employees). ESB

7 Individuals must obtain minimum essential benefits coverage or pay a penalty. Small Employer Tax Credit 1/1/2014 All individuals must obtain minimum essential coverage or pay penalty. The penalty is applied for each month during which an individual doesn t have minimum essential coverage. Exemptions apply for certain individuals, such as if employer coverage is unaffordable (costs more than 9.5% of household income), for low-income taxpayers, and for short coverage gaps. In addition, federal premium assistance to purchase Exchange coverage is available for certain individuals with household income up to 400% of the federal poverty level. 1/1/2010 Employers with 25 or fewer full-time equivalent employees who earn $50,000 or less on average may earn a tax credit if the employer provides health coverage and pays at least 50% of the premium cost. Self-employed individuals and their wages are not taken into account. The credit is available for any coverage in 2010 to Beginning in 2014, the employer must purchase Exchange coverage. The tax credit will only be available for the first two years of Exchange coverage. Free Rider Penalty 1/1/2014 An employer with 50 or more full-time equivalent employees that does not offer full-time employees (and their dependents) health coverage, or offers coverage that is either unaffordable (the premium contribution to receive health coverage from the employer costs the employee more than 9.5% of household income) or inadequate (the coverage has an actuarial value of less than 60%). The employer will only owe a Free Rider Penalty if at least one employee receives premium assistance to purchase Exchange coverage. Free Choice Vouchers /A Under the Health Care Reform law as enacted, beginning January 1, 2014, an employer offering health coverage would have owed a Free Choice Voucher (i.e., employer funds) for certain employees to use to purchase Exchange coverage. However, the Free Choice Voucher provision was repealed as part of Department of Defense and Full-ear Continuing Appropriations Act, Excise Tax on High Cost (Cadillac Tax) 1/1/2018 A 40% nondeductible excise tax will be imposed the extent the aggregate value of specified employersponsored health coverage exceeds certain threshold amounts generally, $10,200 for individual coverage and $27,500 for family coverage. Although the excise tax generally will be paid by insurers and/or third party administrators, the amount of the tax is expected to be passed through to the employer sponsoring the high cost plan(s). ESB

8 Comparative Effectiveness Research Fee Exchange Reinsurance Fee Prescription drug manufacturer annual fee (may increase employer costs) Medical device fee (may increase employer costs) Health insurance company annual fee (may increase employer costs) Medical Loss Ratio (MLR) First plan or policy year ending after 9/30/2012 and continuing for seven plan or policy years until expiring 9/30/2019. For three years beginning 1/1/2014 Plan sponsors of self-funded health plans and insurers of insured health plans must pay a fee to help fund the Patient-Centered Outcomes Research Institute based on the average number of lives covered in the plan. The fee is $1 per individual for the first plan or policy year ending after September 30, 2012., and $2 per plan participant for the next plan or policy year. For subsequent plan or policy years the $2 fee will be indexed to cost increases in per-capita national health expenditures. The fees don t apply to plan or policy years ending after September 30, For calendar year plans, fees will be due for the plan years. For three years beginning in 2014, health insurance issuers and third party administrators on behalf of non-grandfathered group health plans will be required pay reinsurance fees to state-established Exchange reinsurance entities. The purpose of the fee is to help stabilize premiums for coverage in the individual market during the first three years of Exchange operation. Fees are expected to be passed on to plan sponsors. 1/1/2011 Brand name prescription drug manufacturers must pay an annual fee based on their prescription drug sales. Costs are likely to be passed on to plan sponsors in the form of increased brand name prescription drug costs. 1/1/2012 Medical device manufacturers, producers, or importers must pay an excise tax equal to 2.3% of the sale price on the sale of certain medical devices. Costs are likely to be passed on to plan sponsors in the form of increased medical device costs. 1/1/2014 Insurance companies must pay an annual fee based on the amount of premiums they receive. Costs are likely to be passed on to plan sponsors in the form of increased premiums. 1/1/2011 The Health Care Reform law establishes Medical Loss Ratio (MLR) targets for health insurance coverage offered in the individual, small group, and large group markets. If a health insurer does not achieve the target MLR, it must provide rebates to enrollees in that market. Employers that receive a rebate must allocate to employees a sum that is proportionate to their individual premium contributions. ESB

9 Employer deduction for Medicare retiree drug subsidy eliminated Taxable years beginning after 12/31/2012 Employers that provide prescription drug coverage to Medicare-eligible retirees that is at least as valuable as the Medicare Part D benefit are eligible for a subsidy of 28% of allowable prescription drug claims. In effect, this subsidy has been tax-free for employers. However, beginning with the 2013 tax year, an employer's allowable deduction for retiree prescription drug expenses must be reduced by the amount of the tax-free subsidy payment received. This provision had an accounting impact in 2010 when the Health Care Reform law was enacted Classen Center Oklahoma City, OK (800) ESB