Download Key Employer Elements in Health Care Reform

By
Larry Grudzien
Attorney at Law
1

The following describes key elements of the health
care reform legislation that affect employers for
years 2010, 2011 & 2012:

The legislation included the following bills:
 the Patient Protection and Affordable Care Act (PPACA,
HR 3590), passed March 21 by Congress (and signed into
law by President Obama March 23; and
 the Health Care and Education Reconciliation Act of 2010
(HR 4872), passed by the House on March 21, passed by
the Senate on March 25 and signed by the President on
March 30, 2010.
2

Effective in 2010:
 Tax credit for small employers offering health
coverage,
 Early Retiree Reinsurance Program,
 Dependent Coverage in Health Plans,
 Medicare Part D Donut Hole, and
 High-Risk Pools.
3

Effective for plan years beginning after September 23,
2010:
 Coverage of children to age 26,
 Life and annual dollar limits,
 Prohibits on rescissions of coverage,
 Preventive Services,
 Nondiscrimination requirements,
 Appeals Process,
 Choice of Health Care Professional,
 Emergency Services,
 Preexisting Condition limit for certain dependents, and
 Grandfathered Plans.
4

Effective January 1, 2011:
 Medical loss Ratio,
 Form W-2 disclosure of health coverage cost,
 New Simple cafeteria plans,
 Nonqualified Withdrawals from HSAs, and
 OTC Drug Reimbursements.
5

Effective during 2012:
 Uniform explanation of group health plan’s benefits
and coverage,
 Notice of Material Modifications, and
 Quality Reporting.
6

Small business tax credit:
 Provide small employers with no more than 25 employees and
average annual wages of less than $50,000 that purchase
health insurance for employees with a tax credit.
▪ For tax years 2010 through 2013, provide a tax credit of up to 35% of the
employer’s contribution toward the employee’s health insurance
premium if the employer contributes at least 50% of the total premium
cost or 50% of a benchmark premium.
▪ The full credit will be available to employers with 10 or fewer employees
and average annual wages of less than $25,000. The credit phases-out as
firm size and average wage increases.
▪ Tax-exempt small businesses meeting these requirements are eligible for
tax credits of up to 25% of the employer’s contribution toward the
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employee’s health insurance premium.

Reinsurance for early retirees:
 HHS is to establish a temporary reinsurance program to reimburse employer
health plans for a portion of their cost of providing health coverage to early
retirees (ages 55 to 64 and their dependents.
 Employer must submit an application and be approved before receiving any
reimbursement.

Participating plans to submit reimbursement claims and receive 80%
reimbursement of costs between $15,000 and $90,000 for a covered
individual.

Reimbursements can only be used to reduce plan and retiree direct costs,
and
Program capped at $5 billion.

8

Tax-free employer coverage for children who
are not otherwise tax dependents:

Tax-free treatment for adult children who have not
turned age 27 as of end of year.

This change is also intended to apply to the exclusion
for employer-provided coverage (that is, the value of
coverage) under an accident or health plan for
injuries or sickness for such a child.

This change is effective for any premiums paid or
expenses reimbursed after March 3o, 2010.
9

Medicare Part D donut hole:
 It presently covers medications up to $2,830 a year and then stops
until the beneficiary's out-of-pocket spending reaches $4,550 in
the year, when coverage picks up again.
 The process of closing the gap by providing a $250 rebate to
Medicare beneficiaries who fall into the hole in 2010.
 Then, beginning in 2011 there will be a 50% discount on
prescription drugs during the gap, and the gap will be closed
completely by 2020, with beneficiaries covering only about 25%
of the cost of drugs up until they have spent so much on
prescriptions that Medicare's catastrophic coverage kicks in, at
which point co-payments drop to 5%.
10

Temporary High Risk Pool:
 HHS has established a temporary national high risk pool program
as a stop-gap measure to make health insurance available to
uninsured individuals prior to the time that state exchanges are
established in 2014.
 29 states will run their own pools and the federal government will
run the pools for 21 states.
 To be eligible for the new Federal high risk pool program, an
individual must have a preexisting health condition, be a U.S.
Citizen, and have been uninsured for 6 months.
11

Dependent coverage for older children:
 A plan that provides dependent coverage of children must
continue to make that coverage available for an adult child
until the child turns 26 years of age.
 This requirement applies even to married children.
 Plans are not required to make coverage available for a child
of a child receiving dependent coverage (that is, for example,
for a grandchild of a participant).
 Must not access to other group coverage.
 This requirement only applies to medical plans
12

No lifetime limits:
 A plan may not apply lifetime dollar limits on what are known
as “essential health benefits.”
 Essential health benefits are the types of benefits that must
be included in health plans offered under the state insurance
clearinghouses referred to in the new law as “exchanges.
 Health and Human Services (“HHS”) will define what
constitutes an essential health benefit.
 Certain plans are excluded ( HSAs, Health FSAs and certain
HRAs).
13

No lifetime limits (continued):
 Individuals who reached a lifetime limit under a plan or health insurance
coverage prior to the issuance of these regulations and are otherwise still
eligible under the plan or health insurance coverage must be provided with a
notice that the lifetime limit no longer applies.
 If such individuals are no longer enrolled in the plan or health insurance
coverage, the employer’s plan or insurance company must provide an
enrollment (in the individual market, reinstatement) opportunity for such
individuals.
 These notices and the enrollment opportunity must be provided beginning
not later than the first day of the first plan year (in the individual market,
policy year) beginning on or after September 23, 2010.
 Anyone eligible for an enrollment opportunity must be treated as a special
enrollee.
14

No annual limits:
 A plan may not apply any annual dollar limits on essential health
benefits for plan years beginning on or after January 1, 2014.
 For plan years beginning prior to January 2014, the following
restricted annual limits will apply to essential health benefits, if
those limits would not violate other federal or state laws:
▪ For plan or policy years beginning on or after September 23,
2010 but before September 23, 2011, $750,000;
▪ For plan or policy years beginning on or after September 23,
2011 but before September 23, 2012, $1.25 million; and
▪ For plan or policy years beginning on or after September 23,
2012 but before January 1, 2014, $2 million.
15

No annual limits:
 The minimum annual limits for plan or policy years beginning
before 2014 apply on an individual-by-individual basis.
 Any overall annual dollar limit on benefits applied to families may
not operate to deny a covered individual the minimum annual
benefits for the plan year (in the individual market, policy year).
 HHS has established a program under which the requirements
relating to restricted annual limits may be waived.
▪ The application must be submitted not less than 30 days before the
beginning of the plan year 9/23/2010-9/23/2011 (special 10 day rule for plan
years beginning before 11/2/2010).
▪ First waiver only applies for 2 year s and must reapply for any subsequent
plan year prior to 1/1/2014.
16

Prohibition on rescissions of coverage:
 Group health plans and insurance companies will generally be
prohibited from rescinding coverage with respect to an
enrollee once such enrollee is covered.
 The exceptions will be for fraud or intentional
misrepresentation by the enrollee, nonpayment of premiums,
termination of the plan, or loss of eligibility.
 This standard applies to all rescissions, whether in the group
or individual insurance market, and whether for insured or
self-insured coverage.
 Coverage may not be cancelled unless a 30 day advance
notice is provided.
17

Preventative services:
 A plan must provide coverage for, and may not impose any cost-
sharing requirements with respect to, certain preventative care,.
 Plans must provide coverage for all of the following preventive
services:
 evidence-based items or services with an A or B rating recommended by the United
States Preventive Services Task Force;
 immunizations for routine use in children, adolescents, or adults recommended by the
Advisory Committee on Immunization Practices of the Centers for Disease Control and
Prevention;
 evidence-informed preventive care and screenings provided for in the comprehensive
guidelines supported by the Health Resources and Services Administration (HRSA) for
infants, children, and adolescents; and
 other evidence-informed preventive care and screenings provided for in comprehensive
guidelines supported by HRSA for women (these guidelines are being developed, which
are expected to be issued by August 1, 2011).
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
Preventative services (continued):
 The preamble to the regulations includes detailed information about
specific preventive services that must be covered.
 Information about recommendations and guidelines is also available at
http://www.healthcare.gov/center/regulations/prevention.html which will
be updated on an ongoing basis.
 What Types of Preventive Services Are Covered? A government website
provides the following examples of the types of items and services that
plans and insurers must cover under the preventive services mandate:
blood pressure, diabetes, and cholesterol tests; many cancer screenings;
counseling from health care providers on such topics as quitting smoking,
losing weight, eating better, treating depression, and reducing alcohol
use; routine vaccines for diseases such as measles, polio, or meningitis; flu
and pneumonia shots; counseling, screening, and vaccines for healthy
pregnancies; regular well-baby and well-child visits from birth to age 21.
19

Prohibition on insured plans discriminating in favor of
highly compensated individuals:
 Self-insured health plans have long been subject to
nondiscrimination rules prohibiting them from favoring highly
compensated individuals.
 Those rules are set forth in Code § 105(h).
 The consequence of a self-insured plan failing to meet those
requirements is that reimbursements are included into income
of the highly compensated individuals.
 There will be no adverse tax consequence for highly
compensated individuals, of insured plans though there may
be for the employer.
 These provisions do not apply to the grandfather rules.
20

Appeals process:
 Plans must establish internal claims appeal and external
review procedures. They must at a minimum:
 Establish an internal claims appeal process; provide notice to
enrollees "in a culturally and linguistically appropriate manner" of
the availability of internal and external appeals procedures and
the availability of the office of health insurance consumer
assistance or ombudsman to assist the enrollee with the claims
procedures (which office or ombudsman must be established by
the states);
 Allow the enrollee to review the enrollee's file and present
evidence and testimony as a part of the appeals process; and
 Allow the enrollee to continue to receive health coverage
pending the outcome of the appeals process.
21

Appeals process (continued):
 Plans must comply with six additional requirements in addition to the
existing requirements for internal appeal process:

The internal appeals process will now cover rescissions as well as adverse benefit
determinations.

Determinations in urgent care claims must now be made within 24 hours rather than the 72
hours now required.

Claimants must now be provided without charge, any new or additional information relied
upon or generated by the plan as soon as possible and far enough in advance of a
determination to allow an opportunity to respond.

Internal reviewers do not have a conflict of interest.

Culturally and linguistically appropriate notices must be provided as well as detailed
information on diagnosis, treatment, and denial codes, and the meaning of the codes, so
that claimants can understand which claim was denied and why.

For Plans that fail to strictly adhere to the requirements of the process, the claimant may
proceed to an external appeal or judicial review, even if the error was minor and the plan
substantially complied with the requirements.
22

Appeals process (continued):
 Plans must comply with either a state external review process or
the federal external review process.
 If a state has in place an external review process offering at least
as much protection as the NAIC Model Act, an insurance
company must comply with the state law.
 Plans not subject to state law (self-insured employee benefit
plans), or located in states without external review laws as
protective as the NAIC Model Act, must comply with a federal
external review process yet to be established.
23

Choice of health care professional:
 If a plan provides for designation by a participant or
beneficiary of a participating primary care provider, the plan
must permit a participant or beneficiary to designate any
participating primary care provider who is available to accept
that individual.
 The plan must provide a notice informing each participant of
the terms of the plan or health insurance coverage regarding
designation of a primary care provider.
 Such notice must be provided whenever a participant is
provided with a summary plan description or other similar
description of benefits under the plan
24

Emergency services:
 If a group health plan provides benefits for emergency services,
the plan:
 may not require preauthorization, including for emergency services
provided out-of-network;
 must provide coverage regardless of whether the provider is in- or out-ofnetwork;
 may not impose any administrative requirement or coverage limitation
that is more restrictive than would be imposed on in-network emergency
services; and
 must comply with certain cost-sharing requirements.
25

Emergency services (continued):
 The special cost-sharing requirements imposed as follows:
 any co-payment amount or co-insurance rate cannot be higher for out-ofnetwork services than for co-payment amounts and co-insurance rates
imposed on in-network services;
 benefits provided for out-of-network emergency must be provided in an
amount equal to the greatest of the following three amounts:

— the median of the amount negotiated with in-network providers for emergency
services without regard to co-payments and co-insurance (if no per-service amount is
negotiated, such as under a capitation or other similar payment, this amount is
disregarded)

— the amount the plan generally pays for out-of-network services, such as usual,
customary and reasonable amount, but without regard to in-network co-payments or coinsurance and without reduction for the plan’s usual cost-sharing generally applicable to
out-of-network services

— the amount that would be paid under Medicare Parts A and B, without regard to copayments and co-insurance.
26

Pediatric care:
 If a plan requires, or provides for, the designation of a participating
primary care provider for the child of a participant or beneficiary, the
plan must permit the designation of a physician (allopathic or
osteopathic) who specializes in pediatrics as the child’s primary care
provider, if the provider participates in the plan’s network.
 This does not, however, require a plan to waive any coverage
exclusions under the terms of the plan relating to the coverage of
pediatric care.
 A plan that requires designation of a primary care provider must
provide a notice to each plan participant that describes the plan’s
requirements regarding designation of a primary care provider and of
the participant’s or beneficiary’s right to designate, for any
participant or beneficiary that is a child, a primary care provider that
is a pediatrician.
27

Obstetrical and gynecological care:
 A plan that provides coverage for obstetric or gynecology care and requires
the designation of a participating primary care provider may not require
authorization or referral by the plan or any person (including a primary care
provider) in the case of a female participant or beneficiary who seeks
coverage for obstetrical or gynecological care provided by a participating
health care professional who specializes in obstetrics or gynecology.
 A group health plan that requires designation of a primary care provider
must provide a notice to each plan participant that describes the plan’s
requirements regarding the participant’s or beneficiary’s right to obstetrical
or gynecological care without preauthorization or referral
28

Pre-existing conditions:
 For participants (and apparently dependents) who are
under age 19, no preexisting condition exclusions can
apply.
 For everyone else the rule is effective for plan years
beginning on or after September 23, 2014.
29

Cost reporting and limit on insurers’ profits:
 Insurers (not plans) will, with respect to each plan year, be required to submit
to HHS a report concerning loss ratios and expenses, including the
percentage of total premium revenue expended on reimbursement for
clinical services, activities that improve health care quality, and non-claims
costs other than taxes, licensing, or regulatory fees.
 In addition, the new law effectively caps insurers’ profit margins on health
insurance, beginning no later than January 1, 2011.
 It does so by requiring that insurers provide rebates to participants if the
insurers’ premium revenues spent on reimbursement for clinical services and
activities that improve health care quality are less than 85% in the large group
market, or 80 % in the small group market, of the total amount of premium
revenue (excluding taxes, licensing, and regulatory fees, as well as certain
other payments).
 States may, by regulation, set a higher percentage than the 85 or 80% figures
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above.

Reporting cost of health Coverage on Form W-2:
 An employer must report on an employee’s Form W-2 the
aggregate cost of the employee’s health insurance coverage
sponsored by the employer, excluding the amount of any
salary reduction contribution to a flexible spending
arrangement.
 “Aggregate cost” is determined under “rules similar to” the
COBRA rules for applicable employer-sponsored coverage
(including employee and employer contributions), including
the special rules governing self-insured plans.
31

HSAs, Health FSAs and Health Reimbursement
Arrangements (HRAs):
 Tougher coverage/contribution limits and penalties apply:
▪ No tax-free coverage for nonprescribed items:
▪ OTC expense can be reimbursed if incurred before 1/1/2011 .
▪ Grace periods are not allowed, but run-outs are permitted.
▪ items that are not medicines or drugs, including equipment such as
crutches, supplies such as bandages, and diagnostic devices such as
blood sugar test kits are reimbursable.
▪ Higher penalty for nonqualified HSA distributions, from 10%
32
to 20%.

Simple cafeteria plans for small businesses.
 Four basic requirements must be satisfied under the simple
cafeteria plan rules:
▪ Employer size. The employer (including certain affiliated entities) must have
employed an average of 100 or fewer employees in either of the two preceding
years.
▪ Eligibility. In general, all employees with at least 1,000 hours of service during the
preceding plan year (other than certain excludable employees) must be eligible to
participate in the plan.
▪ Benefits. Each employee who is eligible to participate must be able to elect any
qualified benefit (other than cash) available under the plan (subject to any terms
and conditions that apply to all participants).
▪ Required employer contributions. Each employee who is not a key employee or
highly compensated must receive a “true” employer contribution of at least: (1) two
percent of the employee's compensation for the plan year, or (2) the lesser of six
percent of the employee's compensation for the plan year or twice the employee's
33
salary reductions.

Simple cafeteria plans for small businesses.
(continued):
 These plans enable employers to satisfy almost all of the
applicable nondiscrimination tests by plan design, including
tests that would otherwise require monitoring of benefit
utilization.
 These plans are likely to be of interest to eligible employers that
might otherwise have difficulty passing one or more of the
Code's applicable nondiscrimination tests.
 For example, small employers may have difficulty passing the
25% key employee concentration test for cafeteria plans or the
55% average benefits test for DCAPs.
34

Grants for workplace wellness programs:
▪ HHS will provide grants for up to five years to small employers that
establish wellness programs. (Funds appropriated for five years beginning in
fiscal year 2011).
▪ Provide technical assistance and other resources to evaluate employerbased wellness programs.
▪ Conduct a national worksite health policies and programs survey to assess
employer-based health policies and programs. (Conduct study within two
years following enactment).
▪ Program must be new.
35

Uniform Explanation of Coverage:
 HHS is required to develop standards for plans to use in summarizing
plan benefits and coverage for participants.
 These standards are supposed to be developed by March 23, 2011.
 The required summaries will be a short “highlights” description of
the plan.
 It must not exceed 4 pages in length and must not include print
smaller than 12-point font.
 The statute describes the information that must be covered by the
summary.
 Plans will have until March 23, 2012, to begin using these new
summaries.
36

Deadline for summaries of material
modification:
 A notice of any material modification must be given
to participants at least 60 days prior to the date the
plan modification is to become effective.
 This provision is generally effective March 23, 2012.
37

Penalty for failure to provide new summary or
SMM:
 A penalty of not more than $1,000 may apply for each
willful failure to provide the required plan summary or
advance summary of a material modification.
 Each participant who fails to receive a required summary
(or summary of material modification) is counted
separately in determining the amount of the penalty, so it
appears that a willful failure to timely provide 5
participants with a summary could result in a fine of up to
$5,000.
38

Standardized definitions:
 The new law requires HHS to promulgate regulations
providing for the development of standardized
definitions of terms used in insured plans.
 The required four-page plan summary discussed
previously must include these definitions, to enable
participants to better understand and compare
coverage.
 The terms for which standardized definitions are to be
developed include many common terms.
39

Additional Reporting Requirement: Quality of Care
 By March 23, 2012, HHS will develop requirements for plans to
report on a variety of issues.
 This reporting is to include information relating to:
▪ improving health outcomes through “quality reporting,” effective case
management, care coordination, chronic disease management, and
medication and care compliance initiatives,
▪ activities to prevent hospital readmissions (including through education
and counseling),
▪ activities to improve patient safety and reduce medical errors through
use of best clinical practices, evidence based medicine, and health
information technology, and
▪ wellness and health promotion activities.
40

Certain rules do not apply to “grandfathered plans,” or
at least do not apply to certain participants in those
plans.

A grandfathered group health plan is a group or
individual plan in which an individual was enrolled on
3/23/10.

It can also be an insured or a self-insured arrangement.
41

The following rules apply to grandfather plans:
 The rules requiring insured plans to issue a standard plan summary (the
four page “highlights” description) and use standardized definitions in that
summary,
 The rules requiring insured and self-insured plans to distribute summaries
of material modifications 60 days in advance of any material change, apply
to grandfathered plans for plan years beginning on or after March 23, 2012.
 The waiting period rules,
 The restrictions on lifetime and annual limits,
 The rules on rescission,
 The pre-existing condition prohibition, and
 The rules on covering adult children (up to age 26) as dependents,
although for plan years beginning before January 1, 2014
42

A plan sponsor or an insurance company may
make the following changes to its health plan
and keep its grandfathered status:
 voluntary increase benefits,
 conform to required legal changes,
 add new employees and dependents as participants,
 change third party administrators,
 renew an insurance policy, and
 adopt voluntarily other consumer protections in
health care reform.
43

A health plan will no longer be considered a
grandfathered health plan if a plan sponsor or
the insurance company:
 Eliminates all or substantially all benefits to
diagnose or treat a particular condition.
 Increases a percentage cost-sharing requirement
(such as coinsurance) above the level at which it was
on 3/23/10.
.
44
 Increases fixed-amount cost-sharing requirements
other than copayments, such as a $500 deductible or
a $2,500 out-of-pocket limit, by a total percentage
measured from 3/23/10 that is more than the sum of
medical inflation and 15 %.
 Increases copayments by an amount that exceeds
the greater of: a total percentage measured from
3/23/10 that is more than the sum of medical
inflation plus 15%, or $5 increased by medical
inflation, measured from 3/23/10.
45
 Decreases its contribution rate by more than five
percentage points below the contribution rate on
3/23/10.

Enters into a new policy, certificate or contract of
insurance with an insurance company.
46
 With respect to annual limits, a group health plan, or
group or individual health insurance coverage, that, on
3/23/10:
 did not impose an overall annual or lifetime limit on the dollar
value of all benefits, imposes an overall annual limit on the dollar
value of benefits;
 imposed an overall lifetime limit on the dollar value of all
benefits but no overall annual limit on the dollar value of all
benefits, adopts an overall annual limit at a dollar value that is
lower than the dollar value of the lifetime limit on 3/23/10; or
 imposed an overall annual limit on the dollar value of all
benefits, decreases the dollar value of the annual limit
(regardless of whether the plan or health insurance coverage
also imposes an overall lifetime limit on the dollar value of all
benefits).
47

Notice requirements:
 A statement must be included in any plan materials provided
to participants or beneficiaries (Summary Plan Description)
describing the benefits provided under the plan or health
insurance coverage, that the plan or health insurance
coverage believes it is a grandfathered health plan and
providing contact information for questions and complaints.

Record Retention Requirements:
 Records must be maintained documenting the terms of the
plan or health insurance coverage that were in effect on
3/23/10, and any other documents necessary to verify,
explain, or clarify its status as a grandfathered health plan.
48

Transitional rules if changes are made before
3/23/10, if effective after 3/23/10:
 Such changes are not taken into account in considering
whether the plan or health insurance coverage remains a
grandfathered health plan.

Grace period for changes made after 3/23/10, but
before the publication of the regulations:
 Changes must be revoked by effective as of the first day
of the first plan or policy year beginning on or after
9/23/10.
49

Insured plans are not subject to many insurance
reforms and coverage mandates until date on which
last collectively bargaining agreement terminates.

Grandfather status is preserved until agreement
terminates.

After agreement terminates, must compare coverage
terms after to those on 3/23/10 to determine
grandfathered status continues.

Provisions that apply to grandfathered plans will apply
to these plans before and after the termination of the
agreement.
50

Many mandates do not apply to any group health plan (and any
health insurance coverage offered in connection with such plan)
in relation to the plan's provision of the following benefits:
 coverage only for accidents (including accidental death and








dismemberment coverage);
disability income coverage;
liability insurance, including general liability and auto liability insurance
coverage issued as a supplement to liability insurance;
workers' compensation or similar coverage;
automobile medical payment insurance;
credit-only insurance;
coverage for on-site medical clinics; and
other similar coverage, which benefits for medical care are secondary or
incidental to other insurance benefits (
51

Many mandates do not apply to any group health plan
(or to any health insurance coverage offered in
connection with such plan) in relation to the plan's
provision of certain benefits, if the benefits are:
 provided under a separate policy, certificate, or contract of
insurance; or
 otherwise not an integral part of the group health plan.
52

This two-pronged exception applies only to:
 limited-scope dental benefits;
 limited-scope vision benefits;
 benefits for long-term care, nursing-home care, home care, or
community-based care;
 other similar, limited benefits specified in the regulations (but
no such regulations have been issued).
53

Certain supplemental benefits are excepted the mandates if
they are provided under a separate policy, certificate, or
contract of insurance.

The statute specifically exempts Medicare supplemental
coverage (e.g., Medigap or MedSupp insurance) and TRICARE
supplemental coverage, but then goes on to exempt “similar
supplemental coverage provided to coverage under a group
health plan.”

The exact scope of this exclusion for “similar supplemental
coverage” has been unclear.
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
Problem:
 Costs increasing in double digit s each year.
 Employer must raise deductable, co-pays and
coinsurance to lower costs.

Solution:
 Cut state and federal mandates.
 Allow insurance products to be purchased across
state lines.
 Allow alliances. cooperatives and state and local
purchasinf pools.
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
2010, 2011 &2012
 Changes may stay in place

2013 and beyond?
 Many requirements will be changed or repealed.
 What will replace them.
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
Larry Grudzien
 Phone: 708-717-9638
 Email: [email protected]
 Website: www.larrygrudzien.com
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