What’s New with Health Care Reform? More Than You Think
By Cindy LaQuatra, RHU, GBA
Whether the 2010 mid-term elections will present a signficant opportunity for future changes to federal health care reform legislation remains to be seen. In the meantime, millions of U.S. employers are preparing for the first round of compliance requirements in 2011.
While there has been no change in the law since the Patient Protection and Affordable Care Act (PPACA) was passed, much guidance and interpretation has been – and continues to be – published on the subject. Staying on top of the relevant information can be a challenge for employers, particularly when the federal regulations seemingly conflict with state regulations, such as the dependent age extension for Ohio employers. In this article, we will review some of the recent guidance and hot topic discussions to help you with your company’s compliance efforts.
Key Provisions Effective for 2010/2011
For most employer plans, the key federal provisions that must be implemented for 2011 include:
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Elimination of most annual and lifetime plan limits
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100% Preventive Care coverage for non-grandfathered plans
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Specific coverage for emergency services
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No pre-existing limits for members under the age of 19
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Extension of dependent age limit to age 26 (see State vs. Federal Dependent Age Limit Extension below)
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Elimination of over-the-counter medications as a reimbursable expense under Flexible Spending Accounts (FSAs), Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs), unless the employee obtains a prescription.
The requirement for employers to report the cost of coverage under an employer-sponsored group health plan on each employee’s W-2 form has been delayed until 2012. Reporting this information for tax year 2011 is optional. The government intends to use this information to calculate the "Cadillac health plan tax" by 2018.
For a detailed Health Care Reform implementation timeline visit the
HealthCare.gov website.
State vs. Federal Dependent Age Limit Extension
Both the federal government, through the PPACA, and the state government, through the budget passed in July of 2009, have enacted legislation allowing older age children to remain covered under their parents’ coverage. The two laws are not exactly the same.
The federal law applies to all group and individual plans, including self-funded ERISA plans, and requires plans to extend the eligibility age for dependents to age 26. The state law does not apply to self-funded ERISA plans; however, self-funded public entities such as city or county governments are subject to the state law. The state law requires that employees be allowed to pay for extending
coverage for children until age 28. There are also many differences in the details of which dependents the extension applies to and how it must offered.
Virtually all employers must comply with the federal law; those with insured plans generally must comply with both. The Ohio Department of Insurance (ODI) has issued an
FAQ addressing the differences in the laws and how they should be coordinated.
Grandfather Status: Making the Decision
Group health plans in existence on March 23, 2010 when PPACA was enacted, are eligible to retain "grandfather status" and, as a result, enjoy certain exemptions and special treatment under various provisions of the law. However, as many employers have discovered, the advantages of grandfather status must be weighed against the limitations placed on the employer's ability to make cost containment changes to the plan without jeopardizing its status.
In general, any of the following changes which reduce benefits or increase costs for participants would cause a plan to lose its grandfather status:
• The elimination of all or substantially limit benefits to diagnose or treat a particular condition;
• Any increase in a percentage cost-sharing requirement, such as an individual's coinsurance, above the amount that applied on March 23, 2010;
• An increase in a fixed-amount cost-sharing requirement that applied on March 23, 2010 other than a copayment (for example, deductible or out-of-pocket limit) by a total percentage that is more than the medical inflation percentage rate plus 15%;
• An increase in a fixed-amount copayment that applied on March 23, 2010 by more than the greater of $5 (increased for medical inflation) or the medical inflation percentage rate plus 15%;
• A decrease by an employer in its contribution rate towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the employer's contribution rate for the coverage period that included March 23, 2010; or
• The imposition of a new overall annual limit or a decrease in the amount of an existing annual limit on the dollar value of benefits.
Grandfathered plans may also lose their status if they transfer employees to another plan or plan option without a bona fide employment-based reason for the transfer. There is a transition rule to regain grandfathered status. If a change made after March 23, 2010 causes loss of grandfathered status, that change may be revoked prior to the beginning of the first plan year beginning after September 10, 2010. If timely revoked, then the plan is considered to be grandfathered.
Mini-Med Plans and the Impact of Medical Loss Ratios
Approximately two million Americans currently have limited medical benefit plans, also known as "mini-med plans." Mini-med plans have gained popularity in recent years, especially among companies that employ low-wage, seasonal and part-time workers, and contractors. Mini-meds allow these employers to offer a health plan at a low cost to both the company and employees.
Federal health care reform requirements pose several challenges for mini-med plans, threatening their future viability as an employer-sponsored benefit. The Department of Health and Human Services
(HHS) has addressed one issue (though not effectively, according to many industry leaders), by offering insurers the ability to apply for waiver of the restricted annual benefit limits – a cornerstone of mini-med plans. While many insurers have already obtained these waivers, they are now facing another hurdle – meeting the law’s medical loss ratio (MLR) requirement. Health care reform requires that insurers spend at least 85 cents out of every premium dollar on medical claims for its large-group policyholders. For small-group and individual policies, the figure is 80 cents. The remaining 15 -20 cents of each premium dollar can be used to pay expenses that do not directly benefit customers -- like payroll, advertising, overhead and profits. Because of mini-med plans’ high expense structure relative to low spending on claims, insurers will find it difficult, if not impossible, to meet the MLR standard.
On September 30, HHS released a statement acknowledging the special circumstances involved in providing coverage to certain types of workers through mini-med plans. HHS stated that it will balance a commitment to implementing the provisions of the PPACA in a way that causes the least disruption to currently available coverage while "ensuring that consumers receive the benefits the PPACA provides," and that it will exercise discretion when drafting regulations that address the application of the MLR standards to mini-med plans. The insurance industry – as well as several large employers, including McDonalds – is actively communicating with HHS to encourage a reasonable solution.
Potential Impact of Mid-Term Elections
While the new GOP majority in the House is likely to pursue a full repeal of health care reform, the Democrat majority in the Senate and promise of presidential veto, makes a full repeal highly unlikely. It is more likely that the GOP will look to repeal pieces of the law and potentially impede implementation. Repeal efforts may be focused on some of the more unpopular provisions, including new taxes and the requirement for all Americans to carry health insurance. James P. Gelfand, director of health policy at the
United States Chamber of Commerce, said recently that a top priority would be to alter or eliminate the provision that will require many employers to contribute to the cost of coverage for employees. The requirement, he said, would hurt job creation and increase the cost of hiring workers. Some labor unions may join employers in trying to roll back a new tax on high-cost, employer-sponsored health plans, scheduled to take effect in 2018.
Cindy LaQuatra, RHU, GBA is
a Senior Consultant in BRG’s Health and Wellness Division. If you have a comment about this article or questions regarding health care reform and your business, contact Cindy by phone at 216-393-1848 or by email at mailto:claquatra@benefitsrg.com.
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