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Health Care Reform Update: Employer-Sponsored Health Plans

Health Care Reform Update: Employer-Sponsored Health Plans. Lisa Van Fleet June 15, 2010 211 N. Broadway, Suite 3600 St. Louis, MO 63102. The Skeleton of Health Reform. Mandated Coverage for Individuals Expanded Coverage Market Coverage Limitations Restricted Grandfathered Plans

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Health Care Reform Update: Employer-Sponsored Health Plans

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  1. Health Care Reform Update:Employer-Sponsored Health Plans Lisa Van Fleet June 15, 2010 211 N. Broadway, Suite 3600 St. Louis, MO 63102

  2. The Skeleton of Health Reform • Mandated Coverage for Individuals • Expanded Coverage Market • Coverage Limitations Restricted • Grandfathered Plans • Effective Dates for Collectively Bargained Plans • Employers Play or Pay • State Exchanges • High Risk Pools • Revenue Raisers

  3. Our Focus Today… • Fleshing Out the Skeleton • Guidance issued affecting employer plans • Including grandfathered plan regulations released yesterday • Grey Matter • Is it worth it to maintain grandfathered status? Bryan Cave’s comprehensive overview of Health Care Reform’s impact on employer plans is available for download through the St. Louis Area Business Health Coalition website

  4. Regulations Issued To Date Important To Employer Plans • Hot off the press P Grandfathered plan regulations • Dependent coverage • Taxation of dependent coverage (IRS Notice) • Early retiree re-insurance program • Small business tax credit (not covered today)

  5. Grandfathered Plans • Grandfathered plans are generally exempt from: • Limits on annual cost-sharing requirements for self-only and family coverage • Limits on annual deductibles ($2,000 for an individual or $4,000 for a family) • Covering routine costs of participation in certain clinical trials • Play or Pay rules • Code Section 105(h) nondiscrimination • Preventive Health Mandates (no cost) • Patient Protections (individual choice of primary care provider and pediatrician, no preauthorization for emergency or OB-GYN) • Appeals and external review procedures

  6. Grandfathered Plans • Provisions applicable regardless of grandfathered status: • Required coverage of children until age 26 • for grandfathered plans in plan years before 2014, coverage is required only if child is not eligible for employer plan • Prohibition on Lifetime and Annual Limits • Prohibition on pre-existing condition exclusions, rescission, and excessive waiting periods • New summary of benefits and coverage • Increased taxes on non-qualifying distributions from HSAs and Archer MSAs • W-2 and health coverage reporting • New FSA limits • Prohibition on over the counter drug reimbursements • Cadillac Plan Tax

  7. Grandfathered (GF) Plan Regulations The Big Question: How does a plan maintain grandfathered status? Enter regulations… • Drafted by DOL, Treasury and HHS • Released in final form yesterday (6/14/10) • Will be posted to Federal Register Thursday (6/17/10) • Vital information about • maintaining grandfathered status, • retiree-only and stand-alone excepted benefit plans • CBA plans

  8. GF Plan Regs • Notice Requirement: To maintain GF status, plan must include statement re GF status in participants’ plan materials • Regulations provide model language: “…Being a grandfathered health plan means that your plan may not include certain consumer protections of the Affordable Care Act...” • Plan documents must be open for inspection

  9. GF Plan Regs • Separate Benefit Package Determination • GF rules apply separately to each benefit package under a GHP • GF status of insured benefit considered separately from GF status of self-funded benefit • One plan can have GF package and non-GF package

  10. GF Plan Regs: Loss of GF Status • Regs Provide Exclusive List of Impermissible Changes • Preamble expressly provides that any change other than those listed in the applicable regulations WILL NOT cause a plan to lose GF status • New Enrollees: Enrolling family members, new hires, newly enrolled employees and their families after 3/23/10 does not impact GF status

  11. GF Plan Regs: Events that Trigger Loss of GF Status • Insured Plans: Entering into a new policy or insurance contract after 3/23/10 (not a renewal) • Reduction of Benefits: Elimination of all or substantially all benefits to diagnose or treat a particular condition • Cost-Sharing Increase: Any increase in a percentage cost-sharing requirement • e.g., coinsurance increases from 20 to 30%

  12. GF Plan Regs: Events that Trigger Loss of GF Status • Other Cost-Sharing Increase: For fixed-amount cost-sharing other than copayments (e.g., deductibles, out-of-pocket max), any increase since 3/23/10 greater than the maximum percentage increase (medical inflation + 15% pts) • Co-payment Increase: For fixed-amount copayments, any increase since 3/23/10 that exceeds greater of • (A) maximum percentage increase or • (B) $5 increased by medical inflation • Decreased Contribution Rate: Employer or employer organization decreases contribution rate toward cost of any tier of coverage for any class of individuals by more than 5% pts below rate on 3/23/10

  13. GF Plan Regs: Events that Trigger Loss of GF Status • Certain Changes to Annual or Lifetime Limits on Dollar Value of Benefits • Plan that on 3/23/10 • did not impose overall annual or lifetime limit on dollar value of benefits, imposes an overall annual limit • imposed an overall lifetime limit on dollar value of benefits but no overall annual limit on dollar value of benefits, imposes an overall annual limit lower than the lifetime limit in effect on 3/23/10 • imposed an overall annual limit of dollar value of benefits, decreases the dollar value of the annual limit

  14. GF Plan Regs: Losing GF Status Definitions: • Maximum Percentage Increase = Medical Inflation + 15% • Medical Inflation = increase since March 2010 in overall medical care component of CPI-U published by DOL using the base of 100 • Overall Medical Care Component = (Index amount of any month in the 12 months before the new change is to take effect LESS 387.142) DIVIDED BY 387.142 • Contribution Rate = contributions made by employer over the total cost of coverage, expressed as a percentage; or contributions based on a formula • Total Cost of Coverage = determined in same manner as applicable COBRA premium

  15. GF Plan Regs: Maintaining GF Status What does NOT causes a loss of GF status? Anything else, including: • Changes to premiums • Changes required to comply with federal or state laws • Voluntary changes to comply with PPACA • Changing third-party administrators

  16. GF Plan Regs: Transitional Rules Transitional Rules Under Regs: • If plan made changes after 3/23/10 due to a legally binding contract entered into prior to 3/23/10, due to a filing before 3/23/10 with a State insurance department, or with written amendments adopted prior to 3/23/10: • Changes are considered part of plan terms on 3/23/10 even though they weren’t effective then • Changes are not taken into account when determining GF status • If plan made changes after 3/23/10 but before issuance of these regs (presumably forthcoming publication date), changes will not destroy GF status if: • Changes are revoked or modified effective first day of first plan year on or after 9/23/10 and the terms on that date, as modified, don’t cause plan to lose GF status

  17. GF Plan Regs: Transitional Rules Transitional “Rule” Under Preamble ONLY (not in reg): • “Good faith” compliance period offered by Departments for plans that made changes between 3/23/10 and date regulations made public: • If changes only modestly exceed the changes described in the regulations (that destroy GF status), changes will be disregarded for enforcement purposes • Not clear what “modestly exceed” means • Presumably date regulations are made public is 6/14/10 and not date of publication in Federal Register (6/17/10)

  18. GF Regulations: Anti-Abuse Provisions Plan loses GF status if: • Principal purpose of business restructuring is to cover newly hired or enrolled persons in GF plan; OR • The following circumstances are present: • employees previously covered by a GF plan are transferred to another GF plan; • treatment of transferee plan as amendment to transferor plan would cause transferor plan to lose GF status; and • no bona fide employment reason for transfer

  19. GF Plan Regs: Retiree-Only and Stand-Alone Excepted Benefit Plans Per preamble, mandates found in Public Health Service Act §§ 2701 – 2728 do not apply to retiree-only and stand-alone excepted benefit plans (exceptions of ERISA §732 for “small plans” and HIPAA-excepted benefits are preserved) • Accordingly, these plans do not have to extend dependent coverage, provide uniform explanation of coverage, cover preventive health coverage on a first-dollar basis, or comply with many other mandates • Good news for employers concerned about PHSA § 2711, Prohibition on Lifetime and Annual Limits

  20. GF Plan Regs: Collectively-Bargained Plans Regulations clarify when collectively-bargained plans must comply with mandates • Insured plan maintained pursuant to one or more CBAs ratified before 3/23/10 is automatically grandfathered until at least the date on which the last CBA terminates • Whether the plan maintains GF status after that time is a separate analysis made under the general rules about maintaining status provided elsewhere in the regs * Compare terms in effect on 3/23/10 with terms on date of determination • There is no other “delayed effective date” relief (i.e., insured CBA plan is subject to all mandates applicable to GF plans within same compliance period) • Self-funded plan maintained pursuant to one or more CBAs receives no special treatment (no automatic GF status through date of CBA termination) • Whether a self-funded CB plan in effect 3/23/10 maintains GF status is decided under the general rules provided elsewhere in the regs

  21. Is it worth it to try and maintain a GF plan? • Preamble to regulations acknowledges that determining the value of retaining GF status is a plan-by-plan determination • Balance long-term value in avoiding certain costly mandates vs. short-term need to control costs or achieve other business objectives • For example, will cost of complying with certain mandates be worse than economic effect of maintaining similar level of employer premium contributions? • Departments estimate 18% of large employer plans will choose to lose GF status in 2011; 45% by the end of 2013

  22. GF Status: Worth It • No stated expiration date of grandfathered status under regs…could be GF’d in perpetuity • May be possible to bring costs under control and still maintain GF status by modestly increasing fixed-amount cost-sharing requirements • If company’s compensation model depends on generous insured health benefits for highly paid execs (b/c not subject to Code Section 105(h)), may be worth it • Can always choose to relinquish GF status in the future, but a plan can never get it back once it’s gone • Can do a “trial period” and adjust later if necessary

  23. GF Status: Not Worth It • GF Plans are still subject to expensive mandate for most plans: prohibition on lifetime and annual limits • Under regs, participant cost-sharing can only be increased gradually  less flexibility during economic crunch • Under regs, plan documents are an “open book” subject to participant inspection if plan claims GF status • Possible negative employee-relations (perceived fewer “consumer protections” available)

  24. Extension of Dependent Child Coverage Effective plan years after September 23, 2010 Plans need not cover dependents but if they do… • Must cover children until age 26 • Whether child is married, a student and/or a tax dependent is irrelevant • Whether child resides with participant is irrelevant • Doesn’t matter whether child was previously enrolled in plan • Plans cannot vary premiums based upon age, student status, residence, tax dependent status, unless child is over the age of 26 • Plans might consider moving from a family coverage rate to a per covered individual rate to avoid absorbing the cost of enrolling older dependents • Plans need not cover dependents of adult children • For insured plans, state mandates may require additional coverage • Grandfathered Plans Must Comply • For years before 2014, need not cover adult child who is eligible for other employer coverage; not specified whether that “other employer coverage” must be through child’s employer or any employer

  25. Extension of Dependent Child Coverage • Enrollment opportunity for those who have aged out or otherwise become ineligible must be given, with written notice; opportunity must last at least 30 days • Plans can use open enrollment provided timing OK • New enrollee must be treated as a special enrollee under HIPAA, meaning the enrollee must be offered the same benefit packages, and if the parent is eligible but not enrolled, parent must be given opportunity to enroll as well • Tax exclusion is extended to children who have not attained age 27 before the end of the taxable year and is effective 3/30/10 • Exclusion even if child is not employee’s dependent under Code Section 152(a) • Exclusion applies whether extension of coverage required or voluntary

  26. Extension of Dependent Child Coverage • Cafeteria Plan document (including Health FSA) may be amended retroactively no later than 12/31/10 to permit expanded coverage • Regulations will be amended to provide that if a non-dependent child becomes eligible for coverage, this is permissible change in status that will enable election changes mid-year • Amendment must be effective retroactive to first date in 2010 when employees are allowed to make pre-tax contributions to cover children under age 27

  27. Early Retiree Re-Insurance Effective no later than June 21, 2010 until January 1, 2014 • $5 billion federal subsidy • Reimburses employment-based plans for a portion of health costs of early retirees and their dependents • Early retiree: 55 or older and not Medicare-eligible • Pays 80% of eligible claims between $15,000 and $90,000 • Plans may only use reimbursements to reduce premiums, co-payments, and out-of-pocket costs of participants • Self-funded and insured plans can apply • Eligibility • Plans must submit application to HHS for certification • Plans must implement procedures to generate cost-savings for chronic/high-cost participants

  28. Early Retiree Re-Insurance • Plans must submit application to HHS for certification • Draft application posted on website of Office of Consumer Information and Insurance Oversight (OCIIO), a division of HHS • Official application to be released at any time through web site • OCIIO now has a FAQ page on its website: only anticipated change to official application is the address where it should be sent • Although applications will be processed on a first come, first served basis, there is no “set date” by which HHS must stop considering applications; however, EBRI estimates the program will run out of money before all qualified applications are approved • ERIC (industry group) has urged HHS to re-think “first come, first served” process to avoid awarding all subsidies to the biggest plans/applicants at the beginning of the program • Application process estimated to cost $250,000 per plan (per ERIC)

  29. Upcoming regulations? • The DOL published its regulatory agenda 4/26/2010 • Regarding PPACA regs: “Next Action Undetermined” • Many other mandates for group health plans are effective in 2011, but issuance of regs not generally mandated by PPACA for these provisions

  30. Questions Lisa Van Fleet Bryan Cave LLP (314) 259-2326 lavanfleet@bryancave.com

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