As the end of the year approaches, employers are preparing to implement new requirements for calendar-year group health plans under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (together Healthcare Reform, or HCR) on January 1, 2011. This LawFlash reviews planning opportunities and required changes, notices, and plan amendments that should be on every plan sponsor's to-do list at the end of 2010.
Planning Opportunities
Will your plan be grandfathered for 2011?
By now, an analysis of the relative advantages and disadvantages of maintaining grandfathered plan status for 2011 should be completed. In order for a coverage option to be grandfathered, it must meet these basic requirements: (1) the coverage option was in existence on March 23, 2010, (2) at least one employee was covered on that date and at least one employee continues to be covered, and (3) no impermissible changes have been made to the coverage option.
Electing to remain grandfathered for 2011 will enable plans to avoid reforms that become effective next year, such as first-dollar preventive care coverage, new nondiscrimination rules, and new internal and external claims procedures. Some employers may choose to have their plans remain grandfathered next year simply to buy more time to come into compliance with HCR. However, the grandfathering rules put serious restraints on an employer's ability to adjust benefits and respond to market conditions. In some cases, insured plans may not have the choice to remain grandfathered because the insurance products they previously used will be changed or eliminated-but note that recent guidance reverses earlier interim final rules and now allows employers to change insurers (while making no other changes) without automatically losing grandfather status.
Even plans that remain grandfathered are required to meet certain new requirements, as described below.
Can you take advantage of exemptions for retiree-only plans, limited-scope dental and vision plans, and supplemental plans
Certain types of plans that are exempt from the Health Insurance Portability and Accountability Act of 1996 (HIPAA) also are exempt from the group market reforms under HCR, which may present opportunities for employers to peel off certain benefits and thus avoid the new requirements. Separate plans will require, at a minimum, separate plan documents, summary plan descriptions, and annual filings on Form 5500.
Retiree Plans. Group health plans that have fewer than two participants who are current employees are exempt under HIPAA and also exempt from HCR. As a result, a plan sponsor may avoid the application of many HCR requirements by creating a separate retiree-only plan effective on or before January 1, 2011. Some retiree plans also cover individuals on long-term disability. Recent guidance issued by the Department of Labor (DOL) states that these plans will be treated as exempt retiree-only plans at least until further guidance is issued, which will be prospective only.
Dental and Vision Plans. Limited-scope dental and vision benefits are exempt if they (i) are offered under a separate policy, certificate, or contract of insurance, or (ii) are not an integral part of the group health plan. If dental and vision benefits are provided pursuant to a separate election and at least a nominal employee contribution is charged, the benefits will be considered not integral and will be exempt.
Executive Plans. Also exempt from HIPAA are certain "supplemental plans." HIPAA exempts Medicare supplemental insurance, TRICARE coverage for military personnel, and "similar supplemental coverage" if the benefits are provided under a separate policy, certificate, or contract of insurance. This exception could be significant for an employer that wishes to provide extra health insurance benefits to executives. The federal agencies responsible for enforcing HIPAA have issued safe harbor rules that provide that a supplemental plan will be treated as exempt only if it meets the following conditions:
If supplemental health insurance offered to executives satisfies these requirements, such coverage will not be subject to most of HCR, including the nondiscrimination rules.
Who will be eligible for dependent coverage under your plans?
HCR requires plans that offer coverage for sons, daughters, stepchildren, adopted children, and foster children to offer such coverage until age 26 without regard to support, residency, or other dependency factors. Such coverage may also be provided on a pretax basis through the employer's cafeteria plan until the end of the calendar year in which the child attains age 26. Employers who cover other children, such as grandchildren or nieces and nephews, may continue to impose additional eligibility requirements on those individuals, such as a condition that the individual be a dependent for income tax purposes. Coverage may only be provided on a pretax basis under a cafeteria plan if such other children are tax dependents. Also, employers must decide whether the same or different dependent eligibility requirements will apply for other benefits, such as dental and vision coverage.
Practice pointer: Be certain that your cafeteria plan document allows for payment of coverage for adult children on a pretax basis. If it does not, you must amend the terms of your plan by December 31, 2010. See additional details below.
Will you apply for a waiver for a "mini-med" plan?
Many employers provide part-time and seasonal employees with limited, low-cost medical coverage under what are commonly known as "mini-med" plans. These plans will no longer be permissible under HCR; however, before January 1, 2014, a plan that has annual dollar limits on essential health benefits below the restricted amounts may apply for a waiver if compliance with the new limits would result in a significant decrease in access to benefits under the plan or would significantly increase premiums for the plan. Application for a waiver must be submitted at least 30 days before the start of the plan year.
Changes Required for 2011
All nonexempt plans (including grandfathered plans) must make the following changes:
Nongrandfathered plans also must comply with these additional requirements:
New Disclosure Requirements
Under ERISA, a summary plan description (SPD) explaining the benefits provided under an employee benefit plan must be distributed to plan participants. Changes to health benefits made as a result of HCR should be described in revised SPDs or summaries of material modifications within the usual time frames prescribed under ERISA. HCR establishes a new requirement that health benefits be described in a "culturally and linguistically appropriate manner." We anticipate future guidance on this provision that will determine its impact on employee communications.
New notices are required under HCR, as follows:
Required Cafeteria Plan Amendments
Employers that wish to provide pretax health and welfare benefits to their employees must maintain a cafeteria plan under Section 125 of the Internal Revenue Code. A cafeteria plan must be in writing and must be adopted on or before the date it is to become effective. Cafeteria plan amendments generally must be adopted prospectively, except where the IRS issues specific guidance permitting retroactive amendment for certain provisions.
The following cafeteria plan amendments are required as a result of HCR:
CHIPRA Special Enrollment Rights and Notice
Employers are reminded that an annual notice is required under the Children's Health Insurance Program Reauthorization Act (CHIPRA). Effective April 1, 2009, a 60-day special enrollment opportunity is required to be offered when an employee or eligible dependent (1) is covered under a Medicaid plan or state children's health insurance program (CHIP) and loses eligibility under that plan, or (2) becomes eligible for premium assistance under a CHIP or Medicaid plan that can be used toward the cost of an employer plan. For calendar-year plans, the initial CHIPRA notice must be provided by January 1, 2011 to all employees who reside in the 40 states that offer premium assistance. The CHIPRA notice must be a separate, prominent document written in a manner that ensures that an employee who may be eligible for premium assistance could reasonably be expected to appreciate its significance. The DOL has provided a model notice and recently updated the model. Cafeteria plans that were not previously amended to reflect the CHIPRA special enrollment periods should be amended now.
For More Information
If you need assistance with, or additional information about, group health aspects of Healthcare Reform, please contact one of the attorneys listed below.
Chicago
Brian D. Hector
Dallas
John A. Kober
New York
Craig A. Bitman
Gary S. Rothstein
Palo Alto
Zaitun Poonja
Pittsburgh
Lisa H. Barton
John G. Ferreira
R. Randall Tracht
Philadelphia
Robert L. Abramowitz
Amy Pocino Kelly
Robert J. Lichtenstein
Mims Maynard Zabriskie
David B. Zelikoff
Washington, D.C.
Althea R. Day
Mary B. "Handy" Hevener
Gregory L. Needles