President Obama signed the Patient Protection and Affordable Care Act on March 23, 2010 triggering changes to health care coverage that our country hasn't experienced since the enactment of Medicare over 40 years ago. Some of the provisions of the Act go into effect immediately or within six months. The purpose of this communication is to provide some immediate information and define some of the terminology used in the Act. There are a large number of areas which still require clarification from the authors of this legislation and it is expected that these areas will be addressed during the next several months.
Coverage for Dependents to Age 26
Many health plans covered dependent children to age 19, or age 25 if they were attending school on a full-time basis. Many states (Illinois included) had already increased the dependent age requirement. The new federal law requires health plans and insurers to offer coverage up to age 26 and doesn't require full-time student status. In fact, under the law, dependents do not have to be financially dependent upon their parents, they do not have to be living with their parents, and recent guidance from the Department of Health and Human Services allows coverage for a married dependent but not their spouse or children. However, dependents with coverage available from their employer can be excluded.
This provision is effective September 23, 2010 but many insurers and self-insured plans are already providing this coverage with encouragement from Health and Human Services. HHS has established rules that notice must be provided to parents regarding this rule and a 30 day enrollment period must take place on or after September 23rd for newly eligible dependents. The costs of coverage can be no greater than that of similar individuals and the value of the benefit is not taxable to parents.
Grandfathered Health Insurance Plans
The Act defines a Grandfathered plan as group health plans, self-insured plans, and individual health insurance coverage in force before March 23, 2010 and currently exempts these plans from many of the provisions of the Act.
Employer plans can add new employees and their dependents without fear of loosing exempt status. It's not currently clear when grandfathered plans will have to comply with the Act. While grandfathered plans are currently exempt from many of the Acts provisions, plans will have to comply with the following provisions beginning with the next plan year that falls on or after September 23, 2010.
- No preexisting condition limitations for children to age 19
- No lifetime maximum benefit restrictions
- No unreasonable annual benefit limitations (to be defined by HHS)
- No retroactive policy cancellations (except due to fraud or misrepresentation)
- Coverage for adult dependent children to age 26
- Uniform explanation of coverage (to be defined by HHS within 12 months of 3/23/10)
- Notice of material modifications
- Other changes effective in 2014
It is important to note that at this time the Act does not provide clear guidance regarding how long exempt status will last and how a plan can loose its exempt grandfathered status. Earlier versions of bills that were not passed did not allow for any changes to health plans or cost increases to employees.
Early Retirees
The Act establishes a reinsurance program for early retirees between the ages of 55 and 64 who are not eligible for Medicare. Congress appropriated $5 billion as temporary financial help for employer plans to provide coverage to certain retirees. The plan becomes effective June 23, 2010 and ends on January 1, 2014. Payments will be made to employer sponsored retiree medical plans that apply for the program, document claims and implement programs to generate savings for patients with chronic and high cost conditions. The program will pay approximately 80% of the costs to plan sponsors, less negotiated price concessions, within a cost corridor of $15,000 and $90,000. Eligible expenses include medical, surgical, hospital and prescription drug costs.
Applications for the program will be available in June and will be similar to the application for Medicare Part D drug subsidies. Reimbursements are not treated as gross income to employers and proceeds must be used to reduce costs for enrollees in the form of lower premium contributions, co-payments and deductibles.
Flexible Spending Account ChangesStarting January 1, 2011 participants in these programs will no longer be able to use their accounts for over-the-counter products which were added in 2003. Beginning in 2013, participants will be limited to contributing $2,500 annually to these types of programs. Currently the only annual contribution limits were imposed by plan sponsors.
Reporting Cost of Employer Sponsored Care on Form W-2
Beginning in 2011, employers will be required to report the aggregate cost of employer sponsored health insurance programs on W-2s. Although most employees are required to receive their W-2s by February 1, 2012, terminated employees by law can request their W-2s well before 2/1/12.
Employers will need to report the value of medical plans, prescription drug plans, on site clinics that provide more than di minimus care, Medicare supplemental plans, and employee assistance plans. Stand alone dental and vision plans are currently excluded from report requirements.
Additional guidance from the government is expected soon, but it is expected that valuing the cost of the benefit will be similar to the cost of COBRA for most of the programs.
Notice of Material Modification
Employers will be required to communicate changes to medical plans at least 60 days in advance under the new legislation. This poses problems for employers who may have to make last minute changes to their programs. In the past, a Summary of Material Modifications was required within one year of making program changes. It is expected that the government will have to make changes to this rule in the future.
Conclusion
Health care reform legislation has made providing employer sponsored benefits more complex than ever. This newsletter touches only on the topics of immediate concern to your organization. It is imperative to plan now for the enactment of the other parts of the legislation yearly through 2019 and expected regulations now being formulated by several federal agencies. It is also important to protect the grandfathered status of your health plan in order to minimize the short-term affect upon your organization. JHG Benefits can work with you and serve as a valuable resource through this process.
