Planning for PPACA: Grandfathered Health Plans New Appeals Rules 2014 Employer Decisions October 27, 2011 Anne Wilde The HR & Benefits Advisor PLLC anne@thehrandbenefitsadvisor.com 208.424.8704 Ben Conley Seyfarth Shaw LLP bconley@seyfarth.com 312.460.5228 Michelle Hicks Buck Consultants michelle.hicks@buckconsultants.com 208.514.1842
Agenda / Topics to be Covered Grandfathered health plans What are they How to lose the status Claims & Appeals/External Reviews 2014 Employer Decisions Individual Mandate Employer Mandate Health Benefit Exchanges 3
Grandfathered Group Health Plans 4
What is a Grandfathered Group Health Plan? A group health plan is an employee welfare benefit plan that provides medical care to employees or their dependents directly or through insurance, reimbursement or otherwise Retiree-only plans exempt Other exemptions also apply (worker s compensation, standalone dental and vision, disability insurance, etc.) A grandfathered group health plan was in place on March 23, 2010 Every group health plan is either a grandfathered plan OR nongrandfathered plan Evaluated on a benefits package basis 5
Grandfathered Health Plans Grandfathered plans are exempt from: First dollar preventive care Insured plan nondiscrimination Patient protections Revised appeals processes Certain adult child requirement Clinical trials Transparency disclosures 6
Grandfathered Health Plans Grandfathered plans must still comply with: Adult child coverage No lifetime limits Restricted annual limits No rescissions No preexisting condition exclusions for children under 19 New W-2 reporting requirement No reimbursement for non-prescription OTC drugs 7
Grandfathered Health Plans Clarifications regarding basic requirements Notices to participants of grandfather status Update Update FAQs Part IV clarifies that notice to participants is not required for every communication to participants Required whenever a summary of benefits is provided Regulations describe changes that will cause loss of grandfather status Changes not prohibited should not impact status Any new rules from agencies will be applied prospectively FAQs Part VI clarifies that grandfather status is lost on effective date of amendment that causes loss of status, not date amendment was adopted 8 8
Update Grandfathered Health Plans Transferring employees to another plan Grandfathered status lost when transfer, if treated like plan amendment to transferor plan, would cause loss of status Unless there is a bona fide employment purpose for transfer FAQs Part VI provides examples of bona fide business reasons (nonexclusive list) Issuer is exiting market Low or declining enrollment makes continuation of benefits package impractical Package eliminated under multiemployer plan as part of CBA Catch-all: for any reason provided multiple benefit packages covering a significant number of other employees remain 9 9
Update Update Grandfathered Health Plans Entering into new contract or changing insurers Amendments to regulations in late 2010 allows GHPs to change insurers without losing grandfather status for policies effective on or after November 15, 2010 But new policy or contract cannot include any other change in regulations that cause loss of grandfather status Self-funded plan moving to insured arrangement effective on or after November 15, 2010 would fall within this rule Informal guidance suggests that changing from insured to self-funded would not itself cause loss of status 10 10
Grandfathered Health Plans What changes cause loss of grandfather status? Bucket #1: Elimination of all or substantially all benefits to diagnose or treat particular condition (no recent guidance) Example: Elimination of counseling benefit that existed in a plan on March 23, 2010 11 11
Grandfathered Health Plans Bucket #2: Any increase in percentage costsharing (e.g. an increase in co-insurance paid by covered employees) measured from March 23, 2010 FAQs Part VI, QA-2 provides that reclassifying brand-name drugs to new cost-sharing tier when generic alternative becomes available does not cause loss of grandfather status Example: A plan increases co-insurance from 20% to 25%, resulting in loss of grandfathered status. 12
Grandfathered Health Plans What changes cause loss of grandfather status? Bucket #3: Increase in fixed-amount cost-sharing (e.g. deductibles, co-payments or out-of-pocket limits) of more than 15% above medical inflation 15% is a cumulative increase measured from March 23, 2010 Medical inflation is defined by reference to the overall medical care component of the CPI for All Urban consumers published by the U.S. Dept. of Labor (OMCC) OMCC was 387.142 in March 2010 The increase in the OMCC is calculated by subtracting 387.142 from the OMCC for any month in the 12 months before the new change is to take effect and then dividing that amount by 387.142 (NOTE: NOT calculated by using the month in which the change is to take effect.) 13 13
Grandfathered Health Plans Bucket #3 (continued) Special rule for co-payments: Any increase (measured from March 23, 2010) in fixed amount co-payments above the greater of (1) $5, increased by medical inflation, or (2) 15% above medical inflation Update Update FAQs Part II clarifies that this applies even to co-payments that are for a single category of service (e.g. ER visit co-pay) Regulations clarify that co-payment may be imposed for an inpatient treatment for preventive services as a part of valuebased insurance design when there is no increase in copayment for the outpatient treatment for the same condition and there is a waiver process for patients who the outpatient services would be medically inappropriate 14
Grandfathered Health Plans Example of Co-Payment Increase: On March 23, 2010, a grandfathered health plan has a co-payment of $30 per office visit for specialists. The plan wants to increase the co-payment to $40. Analysis: Within 12-month period before the $40 co-payment takes effect, the greatest value of the OMCC is 475. The increase in the co-payment from $30 to $40 expressed as a percentage is 33.33%. Medical inflation from March 2010 is.2269 (475-387.142=87.858; 87.858/387.142=.2269) The maximum percentage increase permitted is 37.69% (22.69% + 15%) Since 33.33% is less than 37.69%, the new co-payment of $40 would not jeopardize grandfathered status 15
Update Update Grandfathered Health Plans What changes cause loss of grandfather status? Bucket #4: Decrease in employer contribution rate of more than 5 percentage points below rate on March 23, 2010 Applies to rate for any tier of similarly situated individuals Total cost of coverage is the COBRA rate; for self-insured plans, it is the total cost of coverage minus employee contributions FAQs Part II/QA-3 clarifies that if tiers are restructured (e.g., single/family to single, plus one, family), then each new tier must be evaluated against corresponding prior tier FAQs Part VI/QA-6 provides that if employer s contribution rate changes as a result of increases in costs but not increases in the formula, it is not considered a decrease for this purpose Example: Retiree formula that is fixed dollar multiplied by years of service subject to flat dollar cap Special rules for insurers and multi-employer plans 16
Grandfathered Health Plans What changes cause loss of grandfather status? Bucket #5: Certain changes to annual limits (no recent guidance) Lowering an annual limit in place on 3/23/10 For a plan with no limits on 3/23/10, adding an annual or lifetime limit For a plan with a lifetime (but no annual) limit on 3/23/10, imposing an annual limit that is lower than the lifetime limit Bucket #6: New insurance policy purchased between March 23, 2010 and November 10, 2010 17 17
Employer Trends - Grandfathered Status Government Estimate of Plans Losing Grandfathered Status Through 2013 Source: Department of Health & Human Services 18
Claims & Appeals/External Reviews 19
Claims and Appeals: Plan Compliance Year On or Dates After New Requirements for Claims and Appeals (PYA) Strict compliance rule 1/1/12 24-hour deadline for urgent care claims Culturally and linguistically appropriate notices - LIMITED Additional content requirements for denial notices No Longer Applicable 1/1/12 - Diagnosis/treatment codes and meanings 1/1/12 - Other additional disclosures [next slides] 7/1/11 Rescission is an adverse benefit determination 9/23/10 Additional criteria for full and fair review 9/23/10 Avoiding conflicts of interest 9/23/10 Concurrent care coverage pending appeal 9/23/10 External review 9/23/10 --- 20 20
Strict Compliance Rule for Claims & Strict compliance rule Appeals (PYA 1/1/12) The Interim Final Regulation established that plans must strictly adhere to all requirements of internal claims and appeals procedures Noncompliance allows claimant to go to external review or to court without exhausting plan s internal procedures Permits court to afford no deference to plan s benefit denial Amended Regulation creates a de minimus exception for errors 21 21
Urgent Care Claims & Appeals Urgent Care Claim Determination Timeline Current DOL regulations apply: as soon as necessary, given medical exigencies, but no less than 72 hours from receipt Amended Regulation requires plans to defer to the attending physician s determination as to whether a claim is urgent Time to decide urgent care appeals is not affected Remains ASAP but not later than 72 hours after receipt 22 22
Culturally & Linguistically Appropriate Notices (PYA 1/1/12) Culturally and linguistically appropriate notices Amended Interim Final Regulations require notices to be translated into non-english once request made only if the claimant lives in a county that has a non-english speaking population greater than 10% - a uniform threshold for all plans. List of counties above the threshold on www.dol.gov/ebsa Also requires verbal translation for plans providing customer service. 23 23
Denial Notice Requirements: Diagnosis Codes & Treatment Codes (PYA 1/1/12) The Amended Regulation removed the requirement that denial notices include diagnosis codes, treatment codes and their meaning automatically. However, plans must still advise participants that these codes are available upon request. Template language on plans EOBs may need to be modified. 24 24
Denial Notice Requirements: Other Additional Disclosures (PYA 7/1/11) Information sufficient to identify claim Date of service, health care provider, claim amount Reason(s) for denial Including denial code (and meaning of code) Description of any standards used in denying claim For final internal denials, a discussion of the decision Description of available internal appeals and external review procedures Including information on how to initiate an appeal Availability of (and contact information for) any office of health insurance consumer assistance or ombudsman 25 25
Claims and Appeals Rules (PYA 9/23/10) Rescission is adverse benefit determination Definition of term in DOL claims procedure regulations expanded to include rescissions of coverage Additional criteria for full and fair review Expansion of existing rights of claimants Right to review claim file Right to present evidence and testimony on appeal Must be provided any new or additional evidence and given opportunity to respond before appeal decided Avoiding conflicts of interest Claims and appeals must be decided in a way that ensures independence and impartiality of decision-makers Continued coverage pending outcome of appeal 26 26
External Reviews (PYA 9/23/10) Type of Plan What Process Applies? Who is Liable? Insured Plan Self-Insured ERISA Plan State process (if state process applies and is binding) ------------------ If no State process, federal process Federal process (unless plan voluntarily complies with an applicable state process) Insurer (not plan) ------------------- Insurer or plan (but practical reality is that insured plans are subject to insurer s processes) Plan Self-Insured Non- ERISA Plan (e.g. nonfederal govt. plan or church plan) State process (if state process applies and is binding) ------------------ If no State process, federal process Plan Plan ------------------- 27
External Reviews (PYA 9/23/10) External review applies for both GHPs and insurers State or federal external review process must be followed The Amended Regulations made a number of changes to the external procedures for fully-insured plans. No grace period for external review rules But grace period guidance indicates that regulators know of difference in scope between external review rules State standard Applies to denials based on plan s requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of covered benefit Federal standard Applies to any denial, except those based on a determination that claimant is not eligible under plan terms (e.g., full-time vs. part-time employee) 28 28
Federal Review Requirements Applies only to non-grandfathered plans; grandfathered plans subject to pre-ppaca DOL regulations. HAND-OUT The Amended Interim Final Regulations temporarily suspends the right to seek an external review for all claims other than medical claims and claims relating to rescissions of coverage. The agencies expect to lift suspension no later than 1/1/14 Example: Six Sisters Salads group health plan generally only provides 30 physical therapy visits but will provide more with an approved treatment plan. The rejection of the 31 st visit based on a failure to meet the plan s standard for medical necessity involves medical judgment and, therefore, is eligible for external review. 29 29
Who conducts the external Review? In federal process: an IRO (an independent review organization) The Amended Regulation clarifies that (a) plans are still permitted to pay a claimant following an IRO denial, but (b) if the IRO grants the claim, the plan cannot delay payment, even if the plan intends to dispute the matter in court. 30 30
Federal External Review Process for Non-Grandfathered Plans New external review available to claimant for all four types of claims HAND-OUT Multiple steps involved between the claimant, plan/tpa and IRO Plans and internal claims processes must be updated to reflect new requirements IRO decision binding, but plan may challenge decision in Federal Court 31
Contracting with IROs The Interim Final Regulations required self-funded plans to contract with at least three IROs to review external appeals. Amended Final Regulations state that safe harbor available to plans that contract with 2 IROs by 1/1/12 and 3 IROs by 7/1/12. The DOL will scrutinize plans with < 3 IROs to ensure independence in decision-making. There are specific requirements of what must be in the contract with the IRO 32 32
33 2014 Changes
Health Benefit Exchanges State-Based Health Benefit Exchanges Private and non-profit insurers Offer coverage for small employers (up to 100 employees) and individuals Coverage offered for essential health benefits Qualifying individuals can receive advanced tax credits and cost-sharing subsidies to help pay for coverage 34
Employer Mandate Employer Shared Responsibility If: Employer has 50 or more full-time equivalent employees Then: The employer is required to provide affordable minimum essential coverage to all full-time employees Or Else: The employer will be assessed a penalty 35
Employer Shared Responsibility Penalties Employer Mandate One of Two Penalties Could Apply Failure to Provide Minimum Essential Coverage Failure to Provide Affordable Coverage ( Free Rider Penalty ) 36
Employer Mandate Employer Shared Responsibility Penalties Employer Fails to Provide Minimum Essential Coverage At least one employee receives a tax credit or subsidy through a state-based exchange Penalty = $2,000 X # of Full-time Employees Subtract first 30 full-time employees when calculating the penalty 37
FIGURE 1 Employers Unlikely to Drop Medical Plans One-fifth of small employers, but few large employers, say they are likely to drop medical plans after insurance exchanges are operational in 2014 If Massachusetts three-year experience with exchanges is a guide, few employers of any size will actually do so 20% 6% 3% 10-499 employees 500 or more employees 10,000 or more employees Source: Mercer s National Survey of Employer-Sponsored Health Plans 38
Part-Time Worker Coverage FIGURE 7 Likely* actions with regard to providing coverage to all employees working 30 or more hours per week (Based on employers with 500 or more employees that do not currently offer coverage to all employees working 30 or more hours per week) Make all employees working 30+ hours/week eligible for full-time employee plan(s) 45% Change workforce strategy so that fewer employees work 30+ hours/week 32% Add a lower-cost plan for employees that work fewer than 40 hours/week 18% Make no changes and pay penalty as necessary 6% *Selected 4 or 5 on a 5-point scale, where 1= Not at all likely and 5= Very likely Source: Mercer s National Survey of Employer-Sponsored Health Plans 39
Employer Mandate Employer Shared Responsibility Penalties Free Rider Penalty Employer offers health insurance coverage, but Employer-paid portion covers less than 60% of actuarial value or Cost of coverage exceeds 9.5% of any employee s household income and Any employee receives a tax credit or subsidy through a state-based exchange Penalty = the lesser of: $2,000 X Total # of full-time employees or $3,000 X # of full-time employees receiving a credit/subsidy through an exchange 40
Employer Mandate--Update PPACA: Full-time employees are those who work, on average, 30 hours per week IRS Notice 2011-36: Full-time employees are those who work 130 hours per month PPACA: Full-time status determined on a monthly basis IRS Notice 2011-36: Full-time status calculated using look-back & stability period Look-back (measuring) period could range between 3-12 months Stability period must be at least as long as the look-back period and can be no shorter than 6 months. 41
Employer Mandate--Update Recent IRS guidance provides predictability in calculating affordable coverage General rule: Employee premium cost cannot exceed 9.5% of household income Affordability will be measured based on the cost of the employeeonly premium rather than the cost of the premium for the coverage the employee actually elects (e.g., employee + one, family coverage, etc.) For example, assume an employee has $30,000 a year in household income. The employer covers at least 60% of the actuarial value of coverage. Employees must pay a premium of $2,400 for employee-only coverage (8% of household income) and $3,000 for family coverage (10% of household income). The employer will be deemed to have offered the employee affordable coverage, even if the employee elects family coverage. 42
Employer Mandate--Update General rule: Employee premium cost cannot exceed 9.5% of household income New safe harbor: Employers will not be penalized if the employee premium is below 9.5% of W-2 income, even if employee receives a tax credit or subsidy. For example, assume an employer knows the lowest-paid full-time employee makes $30,000 in W-2 wages per year. If the employer (a) covers at least 60% of the actuarial value of coverage, and (b) sets the employee-only premium for health coverage at $2,850 (i.e., 9.5% of W-2 wages) no employee will ever become eligible for tax credits through the exchanges, and the employer will not be liable for the play or pay penalty. 43
Questions? Anne Wilde The HR & Benefits Advisor PLLC anne@thehrandbenefitsadvisor.com 208.424.8704 Ben Conley Seyfarth Shaw LLP bconley@seyfarth.com 312.460.5228 Michelle Hicks Buck Consultants michelle.hicks@buckconsultants.com 208.514.1842