Economic turbulence and healthcare reform are converging to make the year 2010 an unprecedented time for companies sponsoring employee benefit plans. With more than 60% of Americans covered by employer sponsored health plans, this is big news to businesses.
Centurian Group Benefits is dedicated to going beyond informing employers of legislative developments — we are committed to providing our clients with the tools and guidance to effectively navigate these changes.
News as of July 1, 2010
60-Day Advance Notice of Plan Changes
Under a provision in the new federal health reform law, a plan sponsor must provide persons covered by the plan with notice of modifications at least 60 days prior to the date the change becomes effective. There has been some confusion regarding the effective date of this provision. While the new law provides specific deadlines for many similar rules, this provision lacks an explicit effective date. Knowing the exact date is not crucial at this time, however, as discussed below. It is important to note that the first renewals affected by the new rule and requiring a 60-day advance notice of changes will be October 1, 2011 renewals. Even that advance disclosure obligation is more than 12 months away. Plans with later plan years will have even longer to comply, until later in 2011 through the fall of 2012.
Determining, Establishing And Maintaining Grandfathered Status Under Federal Health Reform
Federal health reform allows certain plans in existence on March 23, 2010 to remain unaffected by a limited number of health care provisions. On June 17, 2010, three federal agencies jointly issued interim final regulations on grandfathered plans and provide specific guidance on:
- Maintaining grandfathered status through disclosure obligations
- Required record keeping
- Transition provisions allowing grandfathering for plans that may have made disqualifying changes
The regulations generally are effective immediately.
Preventive Services – Coverage At 100%
Section 2713 of the PPACA (the new health care reform law) requires coverage of certain preventive health services with no cost sharing. In other words, these screenings, tests, immunizations, and other services must be covered at 100%, with no application of deductibles and co-payments or co-insurance. The new rule becomes effective for a group health plan on its first plan year on or after October 1, 2010. (A calendar year plan would be subject to the new rule on January 1, 2011, for example.)
The required coverages are the minimum a plan must provide. A plan can provide coverage for other types of preventive care (subject to other reform provisions, such as the 40% excise/Cadillac tax on group health plans with a high value, which applies in 2018).
Early Retiree Reinsurance Program
The Department of Health & Human Services (HHS) has issued guidance on the early retiree reinsurance program, part of the new health reform law. The program will reimburse participating plan sponsors a portion ofthe costs of providing health insurance to early retirees. A plan sponsor must be ready to apply for this programas soon as HHS releases the application form. The program is funded with $5 billion; when funding is exhausted,the program will end.
Plans must be certified as acceptable. Plan sponsor applications for the program must besubmitted and approved prior to requesting reimbursements. Applications will be processed in the order in which received. Care and due diligence in completing the application are important; a complete and acceptableapplication should be filed the first time. Any incomplete application will be denied, with no opportunity to amendor fix application defects. That applicant must resubmit a new application and return to the back of the line.
Early Retiree Expenses & Program Overview“Early retirees” are individuals age 55 or older who are not eligible for Medicare and who are not active employeesof an employer maintaining or currently contributing to an employment-based health plan. (Medicare rules on“active employment status” will apply and may disallow reimbursement for persons on disability leave, forexample.) The program will reimburse expenses of retirees’ spouses, dependents, and survivors regardless oftheir ages, eligibility for Medicare or other coverage, or dependent status for income tax purposes. The programwill operate similarly to the current Retiree Drug Subsidy program.
Dependent Coverage Extended To Age 26
Under federal health reform, an employee’s child can remain enrolled as a dependent until he or she reaches age 26. The new rule contains a number of sub-rules and nuances, as explained below. Federal tax changes allow tax-favored treatment of coverage costs until the child reaches age 27 (rather than age 26). New interim final regulations published May 10, 2010 require a 30-day election period following a special notice requirement. Practical implications and actions steps provided below will guide a group health plan sponsor’s reaction to this change in the law.
The new rule only applies to a plan otherwise offering dependent child coverage. A plan that only provides employee-only, or employee and spouse only, coverage will not need to comply with the new rule.
Effective Date
The change is effective for a plan as of its first plan year on or after October 1, 2010. The effective date will correspond to a new plan year, which is also the date employees generally are allowed to re-enroll. (See below for the practical effect on the enrollment process just prior to the plan’s effective date.) The change for a plan with an October, November, or December plan year will be effective as of the first day of that month in 2010. Plans with plan years starting with January through September must comply with this change effective as of the first day of that month in 2011.
Grandfather Plan Provisions
Grandfathered Plans: A rule in health reform on “grandfathered health plans” would make some provisions of the new law inapplicable to existing plans in place as of the date of enactment. Grandfathered coverage can be renewed, and family members and new employees are allowed to enroll without destroying grandfathered status, for example.
Caution. It is not clear what makes a plan lose grandfathered status. If a plan is fully-insured, cooperation by the insurance carrier will be crucial, to prevent changes to the plan that may result in a loss of the status if a plan sponsor attempts to rely on grandfathering to avoid a certain, limited number of new compliance burdens.
Collective Bargaining and Grandfathered Plans. A special rule applies if health insurance coverage is maintained due to one (or more) collective bargaining agreements between employee representatives and one (or more) employers. If the agreement was ratifi ed before the date of enactment (March 23, 2010), then portions of two subtitles of the new law do not apply to that plan. (The law allows plan amendments, without destroying grandfathered status, if changes are made solely to conform the plan to the law’s new rules.) Note: One interpretation is that only insured collectively bargained plans are entitled to grandfathering; we need additional guidance on this apparent drafting error.