Much has been written about the Health Care Reform Act and how it will affect employers over the next eight years. But how does it affect employers this year - in 2010?
For most employers, the answer is that very little will change this year. This bulletin will discuss six ways, however, that the Act may affect you, the employer, in 2010:
1) For most employers, the health plan mandates will not become effective until 2011, but actions an employer takes in 2010 can forfeit the grandfather protection that was given to health plans in existence on March 23, 2010; 2) small businesses are eligible for a tax credit for a portion of the health insurance premiums they pay for employees during 2010; 3) employers that provide retiree health coverage for persons age 55 through 64 may be eligible for reimbursement of a significant portion of the claims the retiree plan pays for this group in 2010; 4) employers must provide break time and a space for nursing mothers to express milk; 5) caution is urged if employers negotiate a collective bargaining agreement that will extend into 2014; and 6) employers providing retiree prescription drug benefits may wish to consult with their actuaries to determine whether their FAS 106 liabilities need to be increased to reflect new tax treatment of Medicare Part D subsidy payments.
1) Health Plan Requirements for Fully Insured and Self-Insured Health Plans
How Do I Determine When The Health Plan Requirements of the Act First Apply To My Health Plan?
In order to determine when the health plan requirements of the Act apply to your health plan, you must determine the “Plan Year” of your health plan. The Plan Year is the time period for which employees make health coverage elections during your annual open enrollment. The Plan Year generally begins on the first day of a month. Sometimes the Plan Year is the calendar year, and sometimes the Plan Year begins mid-year, such as on May 1 or June 1. Your Plan Year is not necessarily the same as the policy year of any underlying insurance policy.
Several of the Act’s health plan mandates apply to the first Plan Year beginning after September 23, 2010. So, if you use the calendar year as your Plan Year, the Act’s health plan mandates will apply to your health plan effective January 1, 2011. If your Plan Year begins on May 1, the Act’s health plan mandates will apply to your health plan on May 1, 2011.
The only employers who will be affected by the health plan mandates in 2010 are those with a Plan Year which begins on October 1, November 1 or December 1.
Can I Keep My Current Health Plan?
The Act provides that, with a few exceptions discussed below, the health plan mandates do not apply to “coverage in which an individual was enrolled” on March 23, 2010. Thus, most existing health plans are “grandfathered” and do not need to meet most of the requirements of the Act.
If My Health Plan Is Grandfathered, What Requirements Must My Health Plan Meet In The First Plan Year After September 23, 2010?
The following provisions apply to all health plans, including grandfathered health plans. Note, that several of these provisions become more restrictive in future years. The limits described below are just those that apply during the first year.
- Lifetime Limits. The plan cannot impose a lifetime limit on the dollar amount of claims that it will pay for a participant (for example, a $1 million or $2 million lifetime limit per person). It may, however, impose a lifetime limit on specific non-essential benefits.
- Restricted Annual limits. The plan can impose an annual limit on specific non-essential benefits, but, as to “essential benefits,” it can only impose a “restricted” annual limit. We don’t know yet what a “restricted” annual limit is. In defining the term “restricted,” the Secretary of HHS is directed to “ensure that access to needed services is made available with a minimal impact on premiums.” We do know that “essential benefits” include: emergency services, hospitalization, ambulatory patient services, maternity and newborn care, mental health and substance abuse services, prescription drugs, rehabilitative services, laboratory services, preventive and wellness services, chronic disease management and pediatric services – including oral and vision care for children.
- Dependent Coverage to Age 26. If a plan provides dependent coverage, it must cover dependents until they turn 26, unless the dependents have other employer-provided health coverage. The Secretary will define “dependent.” Medical reimbursements for these adult children are excluded from the income of the employee to the extent the coverage is provided to a son, daughter, stepson, stepdaughter, foster child or adopted child of the employee. It is expected that the Act will be amended so that the coverage itself will also be excluded from income.
- Limitation on Pre-Existing Condition Exclusions. A plan cannot impose a pre-existing condition exclusion on children under age 19.
- Rescission of Coverage. A plan cannot rescind coverage of an enrollee unless the enrollee commits fraud or an intentional misrepresentation of material fact, and the plan terms prohibit such conduct. If your plan does not provide for rescission in the event of fraud or intentional misrepresentation, you should add this provision to your plan.
What Actions Will Forfeit Grandfather Protection For My Health Plan?
There is very little guidance on this as yet. What we do know from the language of the statute is that the following actions will not forfeit grandfather status:
- Adding coverage for additional family members if the employee was enrolled in the plan on March 23, 2010 and the terms of the plan on March 23, 2010 provided for enrollment of additional family members; and
- Enrollment of new employees and their families in a group health plan
Until there is further clarity, employers should be very, very cautious about amending their health plans so that they do not unintentionally waive the plan’s grandfather protection.
If My Health Plan Loses Grandfather Status, What Additional Requirements Must My Plan Meet During the First Plan Year After September 23, 2010?
- Nondiscrimination Requirements. A fully insured plan must comply with eligibility and benefit nondiscrimination rules that previously applied only to self-insured health plans. If these nondiscrimination rules are violated, highly compensated individuals are taxed on all or some portion of their health benefits. As to benefit discrimination, these rules generally require that any benefit provided to a highly compensated individual must be provided to all non-highly compensated individuals.
- Preventive Care. A plan must provide 100% coverage for certain preventive services for adults, infants, children and adolescents, certain immunizations, and certain screenings for women.
- Emergency Services. If a plan provides emergency services, it cannot require prior authorization of the emergency services, and it must pay all emergency services at the in-network level of benefits.
- Claims and Appeals Procedures. The US Department of Health and Human Services may require additional internal and external review procedures for insured and self-insured plans, including testimony during appeals and continued coverage while an appeal is pending.
- Primary Care Providers and Pediatricians. If a participant is required to designate a primary care provider, the participant must be permitted to designate any primary care provider who is “available” to accept the individual. It is not clear what “available” means, or whether it is limited to in-network providers. If the participant is a child, the plan must permit the employee to designate an in-network pediatrician as the primary care provider for the child.
- Patient Access to Obstetrical and Gynecological Care. If a participant is required to designate a primary care provider, the plan cannot require female participants seeking obstetrical or gynecological care to precertify services or be referred for services by an obstetrician or gynecologist.
2) Small Business Tax Credit For Health Premiums
In order to encourage small employers to provide health insurance, small employers will receive a credit for a portion of the health insurance premiums they pay for employees during 2010.
- Eligibility. “Small employers” that pay at least half of the cost of coverage of a single person in their health plan are eligible for this credit against their income taxes. A business is a “small employer” if it has no more than the equivalent of 25 full time employees, and it pays an average wage below $50,000. The employer must include all related businesses in this calculation.
- Amount of the Credit for Small Businesses. 35% of the premiums the employer pays during 2010. The premiums paid by the employer are capped at the average premium in the small group market in the state (or an area in the state). This cap will be published by the IRS and posted on its website, perhaps by the end of April. The credit is claimed on the employer’s annual income tax return.
- Amount of Credit for Tax-Exempt Employers. 25% of the premiums, and the credit is capped at the employees’ and employer’s share of Medicare taxes plus any income taxes paid.
- Phase-Out. The maximum credit goes to employers with the equivalent of 10 or fewer full time employees and average wages of $25,000 or less. The credit is phased out between those levels and 25 full time employees and average wages of $50,000.
- The deduction for health insurance premiums paid by the employer is reduced by the amount of the credit.
- Seasonal workers are not counted in determining eligibility unless they work more than 120 days during the tax year.
- No credit is given for premiums paid for partners, sole proprietors, 2% shareholders of an S corporation, 5% owners, and family members and household members of this group. In addition, the hours and wages of these individuals don’t count toward the small employer eligibility calculation.
3) Early Retiree Claim Reimbursements
Instead of lowering the age of eligibility for Medicare, the Act provides an incentive to employers to provide health coverage to persons who retire after age 55, but before they are eligible for Medicare at age 65. The government will reimburse the retiree health plan 80% of certain claims the plan pays for early retirees.
- This reimbursement program must be in operation not later than June 21, 2010.
- A health plan is eligible for reimbursement if:
- the plan provides retiree health insurance to persons who retire at age 55 or later and are not eligible for Medicare, and
- the plan meets certain requirements regarding management of chronic and high cost health conditions, and
- Health and Human Services certifies that the plan is eligible for the program.
- Amount of Reimbursement. The government will reimburse the plan for 80% of the portion of a retiree claim that exceeds $15,000, but is not greater than $90,000. Example: On a $60,000 claim, the plan will be reimbursed $36,000 ([$60,000 - $15,000] x 80%).
- $5 billion is appropriated to “carry out” the program. The Secretary of HHS may stop taking applications for participation in the program based on the availability of the $5 billion. The program is temporary and terminates at the end of 2013.
- The reimbursements must be used to reduce employer or participant premium costs, or copayments, deductibles, coinsurance or other out-of-pocket costs of plan participants.
- The reimbursement is not taxable income to the employer.
- Collectively bargained multi-employer health plans may apply for certification.
4) Provisions Regarding Nursing Mothers
The Act allows nursing mothers to take a break every time they need to express breast milk and requires employers to provide a location, other than a bathroom, where nursing mothers may express milk. Nursing mothers have up to one year after their child's birth to take such breaks.
Employers of fewer than 50 employees are exempt from these requirements if they can prove that compliance would "impose an undue hardship by causing the employer significant difficulty or expense."
5) Caution Regarding Entering Into Collective Bargaining Agreements That Extend Into 2014
The Act will radically change the universe for employers, health care plans, employees and insureds beginning January 1, 2014. Congress left many of the details of how this universe will change up to federal regulations which have yet to be written and which are unlikely to be written for years.
These regulations may change an employer's health care costs beginning in 2014. But it is impossible to know today whether and how this will happen.
Employers are urged to be cautious about entering into collective bargaining agreements that extend into 2014 until they have more information about how their employee costs will be affected.
6) Medicare Part D Subsidy
The Act also changed the tax treatment of Medicare Part D subsidies beginning in 2013 for employers providing retiree prescription drug benefits. This tax change may affect today an employer's FAS 106 liability for providing post-retirement benefits. Employers affected by this change may wish to consult with their actuaries to determine whether their FAS 106 liabilities need to be increased to reflect this new tax treatment.