health care reform checklist - hra, fsa, … health care reform checklist i. introduction on march...
TRANSCRIPT
LEGAL01/13156006v1
2010/2011 HEALTH CARE REFORM CHECKLIST
LEGAL01/13156006v1
TABLE OF CONTENTS
I. Introduction ........................................................................................................... 1
II. Checklist................................................................................................................. 1
A. Expansion of “Dependent” definition in Code Section 105(b) .............. 1
B. Health Insurance Reforms ....................................................................... 2
C. Over the Counter Drugs ........................................................................... 7
D. Small Employer Tax Credit ..................................................................... 8
APPENDIX A .................................................................................................................... 9
APPENDIX B .................................................................................................................. 13
APPENDIX C .................................................................................................................. 16
APPENDIX D .................................................................................................................. 19
LEGAL01/13156006v1
2010/2011 HEALTH CARE REFORM CHECKLIST
I. Introduction
On March 23, 2010, Congress enacted the Patient Protection and Affordable Care Act
(PPACA). Just one week later, Congress enacted the Health Care and Education
Reconciliation Bill (Reconciliation Bill). PPACA and the Reconciliation Bill constitute
―Health Care Reform‖. Health Care Reform is comprehensive with a significant number
of moving parts, which makes compliance with the new rules unusually burdensome.
Many of the provisions in Health Care Reform have already become effective or will
become effective or have an impact on group health plans in 2011. The following
checklist is intended to help plan sponsors take the steps necessary to satisfy their
compliance obligations under Health Care Reform.
NOTE: The following is only intended to address the most significant issues arising
under Health Care Reform for 2010 and 2011. It is not intended to be nor should it be
construed as a substitute for a comprehensive plan of action designed in consultation
with qualified legal counsel and/or consultants. However, if you have questions, you can
contact your OCA representative.
II. Checklist
A. Expansion of “Dependent” definition in Code Section 105(b)—Effective March 30,
2010 (without regard to the plan year of the plan)
Effective March 30, 2010, Code Section 105(b) was amended to include any ―children,‖
as defined by Code Section 152(f)(1), who will not turn age 27 during the calendar year
in the definition of dependent for purposes of receiving tax free employer provided health
care coverage. Code Section 152(f)(1) defines children as any of the following:
Natural child
Adopted Child
Child placed for adoption with you
―Eligible Foster Child‖
This expansion of the Code Section 105(b) definition of dependent did NOT require any
plan changes; however, this rule change may have a material impact on health FSAs or
HRAs, which commonly define dependent by reference to one of two Internal Revenue
Code sections—Code Section 105(b) (the definition of ―dependent‖ solely for purposes
of tax free employer provided accident or health insurance) or Code Section 152 (the
definition of ―dependent‖ for purposes of exemptions permitted on your personal income
tax return). Review your Health FSA’s/HRA’s definition of ―dependent‖ and determine
which of the two following categories apply to your Health FSA/HRA:
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If your Health FSA/HRA defines ―dependent‖ by reference to Code Section 105(b),
your plan was automatically amended by operation of law on March 30, 2010. The
net result is that participants with ―children‖ as defined by Code Section 152(f)(1) are
able to submit medical care expenses incurred by such children after March 30, 2010
for reimbursement under the plan.
If your health FSA/HRA defines dependent by reference to Code Section 152, your
terms of eligibility will be much more narrow than a plan that defines dependent by
reference to Code Section 105(b). If you wish to allow participants to take advantage
of the broader definition of Code Section 105(b), you must amend your Health
FSA/HRA according to the plan’s terms. NOTE: If you amended your plan by
December 31, 2010, the amendment can be retroactive to March 30, 2010.
Otherwise, the change must be prospective only.
B. Health Insurance Reforms—Plan Years beginning on or after September 23, 2010
Sections 1001 and 1201 of the PPACA added a number of new provisions to Title 27 of
the Public Health Service Act (―PHSA‖). These new provisions, referred to as ―health
insurance reforms‖, were also added by reference to new ERISA Section 715 and new
IRC Section 9815. In each statute, the health insurance reforms have been added to the
―HIPAA Subparts‖, which also include the HIPAA portability and HIPAA
nondiscrimination rules. Some of the health insurance reforms became effective for plan
years beginning on or after September 23, 2010. Others become effective for plan years
beginning on or after January 1, 2014. See Appendix A to this checklist for a complete
list of the health insurance reforms and the date on which they become effective. If the
plan qualifies as a ―grandfathered plan‖, the plan is exempt from some, but not all of the
health insurance reforms. Follow the steps below to determine the action steps necessary
to ensure compliance with the health insurance reforms effective for plan years beginning
on or after September 23, 2010.
Identify ―Group Health Plans‖ subject to the Health Insurance Reforms. See Flow
Chart attached as Appendix B.
Determine Grandfathered Status of each group health plan benefit option.
Grandfathered health plans are subject to some, but not all of the health insurance
reforms. See Appendix C for more detail.
If a grandfathered plan, then notice of grandfather plan status must be provided in any
plan materials that describe the benefits (e.g. SPD, benefit summaries)
All group health plans subject to the health insurance reforms-including
grandfathered plans: The following checklist applies to all group health plans subject
to the health insurance reforms, including grandfathered health plans.:
1. Prohibition against lifetime and annual dollar limits imposed on the dollar
value of “essential benefits” (Sec. 2711)-- check the box only to the extent all
items below have been completed
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Remove any aggregate lifetime limits imposed on the dollar value of
―essential benefits‖ offered under the plan. See Appendix D for a
complete list of the ―essential benefit‖ categories.
Remove any lifetime limits imposed on the dollar value of any specific
―essential benefits‖.
Allow any otherwise eligible employees who previously lost coverage
under the Plan as a result of the Plan’s lifetime limits to enroll in the plan.
The enrollment period must begin no later than the first day of the plan
year beginning on or after September 23, 2010 (although it may begin
earlier) and extend no less than 30 days. If elected, coverage must begin
no later than the first day of the plan year beginning on or after September
23, 2010.
Ensure that any aggregate annual limits imposed on the dollar value of
benefits are no less than the ―restricted‖ annual dollar limits identified in
the regulations.
Ensure that any annual limits imposed on the dollar value of ―essential
benefits‖ are no less than the ―restricted‖ annual dollar limits identified in
the regulations.
Practice Pointer: The prohibition/restriction applies only to the lifetime or annual dollar
value of essential benefits provided by the plan. The rules do not prohibit
limitations/restrictions on the number of visits/treatments or the per visit/treatment
benefit. Caution: If the plan imposes both a service/treatment limit and a per visit
benefit limit, you inadvertently create an annual limit that may not comply with the
restricted annual limit rules.
2. Prohibition on preexisting condition exclusions on enrollees under age 19
(Sec. 2704)-- check the box only to the extent all items below have been
completed
Identify and remove pre-existing condition exclusions/limitations on
enrollees under age 19. NOTE: This rule applies equally to both eligible
employees and dependents.
3. Rescissions (Sec. 2712)-- check the box only to the extent all items below
have been completed
Revise internal policies and procedures (including dependent audit
procedures) to limit retroactive terminations to cases of fraud or
intentional misrepresentation. Also, the Rescission rule requires plans to
provide at least 30 days advance notice of a retroactive termination. See
also discussion of Rescissions in the appeals section below. NOTE:
retroactive termination of coverage due to failure to pay premiums is
permitted and is NOT subject to the rescission rules.
Implement a fraud and intentional misrepresentation policy based on
federal common law
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Revise enrollment forms to include warranty and representation that
individuals enrolled by employee/participant satisfy eligibility criteria
Revise plan documents (including SPD) to include warranty and
representation that any submissions of claims, or claims reasonably known
by the participant will be submitted by the provider (e.g. in-network
claim), are for eligible individuals only.
Practice Pointer: According to FAQs issued by the DOL, if a plan does not cover ex-
spouses (subject to the COBRA continuation coverage provisions) and the plan is not
notified of a divorce and the full COBRA premium is not paid by the employee or ex-
spouse for coverage, the agencies do not consider a plan’s termination of coverage
retroactive to the divorce to be a rescission of coverage. Arguably this would apply to
other change in status events that trigger notice by an employee/dependent and a
corresponding COBRA right (e.g. dependent ceasing to be a dependent). Also, the FAQs
indicate that a retroactive termination of coverage following a termination of employment
is not a rescission of coverage to the extent no premiums were withheld following
termination of employment.
4. Coverage of “children” up to age 26 (Sec. 2714)-- check the box only to
the extent all items below have been completed.
Ensure that coverage for any of the following ―children‖ (as defined in
Code Section 152(f)(1)) that you otherwise cover under the plan extends
to age 26 without limitation or restriction (including but not limited to
financial dependency, student status, residency)
Natural child
Adopted Child
Child placed for adoption with you
―Eligible Foster Child‖
Practice Pointer: You do not have to cover Code Section 152(f)(1) children. However,
if you do, terms of eligibility and coverage for such children are subject to the Section
2714 rules.
Ensure that premiums imposed on coverage for such ―children‖ do not
vary based on age.
Ensure that all benefits provided solely to covered ―children‖ do not vary
based on age other than age 26.
Ensure that an otherwise eligible ―child‖ under age 26 who was previously
unable to enroll or lost coverage as a result of the plan’s age limits or other
restrictions is permitted to enroll. The enrollment period must begin no
later than the first day of the plan year beginning on or after September 23,
2010 (although it may begin earlier) and extend no less than 30 days. If
elected, coverage must begin no later than the first day of the plan year
beginning on or after September 23, 2010.
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Practice Pointer: The expansion of the definition of dependent under Code Section
105(b) (discussed above) operates to ensure that the coverage provided to such children
under the health insurance reforms is tax free. However, some state income tax laws do
not correlate with the federal Internal Revenue Code, which may result in imputed
income for such children at the state level. You should consult with a qualified tax
advisor if you have employees in states with state income tax laws.
NOTE: Two provisions otherwise applicable to all group health plans subject to the
health insurance reforms either do not yet apply or only apply to the health insurance
issuer, if any, who has issued a group health insurance policy to the plan sponsor in
accordance with state law:
Uniform explanation of coverage (Sec. 2715). Requires the federal
government to develop standards for use by group health plans and health
insurance issuers in compiling and providing an accurate summary of benefits
and explanation of coverage for applicants, policyholders or certificate
holders, and enrollees. The explanation of coverage must describe any cost
sharing,exceptions, reductions, and limitations on coverage. Although
technically effective for plan years beginning on or after September 23, 2010,
the application of this rule is delayed until after regulations are issued (See Q-
4 at http://www.dol.gov/ebsa/faqs/faq-aca5.html)
Minimum medical loss ratios (Sec. 2718). Requires health insurance issuers
offering group health insurance coverage to submit annual reports to the
Federal government on the percentages of premiums that the coverage spends
on reimbursement for clinical services and activities that improve health care
quality, and to provide rebates to enrollees if this spending does not meet
minimum standards for a given plan year. This is applicable only to the health
insurance issuer who has issued to the plan sponsor a group health insurance
policy; it is not applicable to the plan sponsor of the group health plan. See
the following link for information issued by HHS on the medical loss ratio
rules, including but not limited to the regulations:
http://www.hhs.gov/ociio/regulations/medical_loss_ratio.html
IF YOU ARE A GRANDFATHERED PLAN—STOP!!!! GO DIRECTLY TO C
BELOW.
If your plan is NOT a grandfathered plan---the following checklist applies to only
to group health plans that are not grandfather plans:
E. Coverage of ―recommended preventive care‖ services/treatments with no
cost sharing (Sec. 2713)—check the box only to the extent all items below
have been completed.
Ensure that all in-network ―recommended preventive services‖ are
covered 100% by the plan (i.e. no cost sharing). See the following a link
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for a list of the recommended preventive services:
http://www.healthcare.gov/center/regulations/prevention/recommendation
s.html. NOTE: if not a ―recommended preventive service‖, it does not
have to be covered or if covered by the plan, it does not have be covered at
100% by the plan.
5. Revised internal claims review and appeal procedures and new external
claims review process (Sec. 2719)- check the box only to the extent all items
below have been completed.
Ensure internal clams review and appeals procedures are modified as
follows:
Revise timeline for urgent care decisions from 72 hours to 24 hours
[Note: Delayed until July 1, 2011]
Revise claims review and appeals process to include Rescissions (i.e.
Rescissions must be treated as an adverse benefit determination).
Revise claims review and appeals process to account for new or
additional evidence (e.g. notice must be provided sufficiently in
adance of date the final adverse determination is due so that the
claimant can review and respond before due date)
Revise claims review and appeal process to account for new or
additional rationale (e.g. notice must be provided sufficiently in
adance of date the final adverse determination is due so that the
claimant can review and respond before due date)
Revise notices of adverse benefit determinations to comply with new
content and language rules. [Delayed until July 1, 2011]
Review agreements with third party claims reviewers (e.g. claims
administrators) to ensure no conflicts of interest (as defined by
regulations)
Establish appropriate external review process in accordance with guidance
(including direct or indirect (e.g. through claims administrator)
engagement of independent review organizations).
6. Patient Protections (Sec. 2719A)--check the box only to the extent all items
below have been completed
Ensure no referral required for coverage from participating
obstetrical/gyneological care specialist
If primary care provider must be designated, ensure plan allows
participants to designate any participating primary care provider
Ensure SPD provides notice of rights regarding obstetrical/gyneological
and primary care providers.
If benefits are provided with respect to services in an emergency
department of a hospital, then ensure that the plan complies with the
following:
Coverage is provided without need for prior authorization
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Without regard to whether provider is ―in-network‖ or ―out of
network‖
If out of network, the coverage is subject to the same administrative
limitations/requirements as in-network
If out of network, the coverage is provided to the same cost share
requirements as in-network coverage. NOTE: The plan’s payment
must be ―reasonable‖; therefore, the plan’s payment for out of network
claims must be caculated according to the standards set forth in the
regulations.
NOTE: The effective date of following three provisions appears to be delayed until after
regulations or subsequent guidance is issued:
Nondiscrimination rules for fully-insured plans (Sec. 2719): Prohibits fully-
insured group health plans from discriminating in favor of highly
compensated individuals with respect to eligibility and benefits, in accordance
with rules similar to those set forth in Code Section 105(h). The IRS recently
issued Notice 2010-63, which delays application of these rules until after
regulations are issued.
Transparency requirements (Sec. 2715A): Requires group health plans and
health insurance issuers to disclose to the Federal government and the State
insurance commissioner, and to make available to the public, certain plan
specific information such as claims payment policies and practices and
enrollee rights. Requires such plans and issuers to provide information to
enrollees on the amount of cost-sharing for a specific item or service. This
requirement is arguably delayed until after guidance is issued by the agencies.
Quality of care reporting (Sec. 2718): Requires the Federal government to
develop guidelines for use by health insurance issuers to report information on
initiatives and programs that improve health outcomes.
C. Over the Counter Drugs-Effective January 1, 2011 (without regard to the plan year
of the plan)
Expenses for over the counter (OTC) drugs or medicines incurred on or after January 1,
2011 are not considered ―medical care‖ unless the individual has obtained a prescription
that complies with applicable state law. There are special rules set forth in IRS Notice
2010-59 and Notice 2011-5 to the extent the plan utilizes a debit card.
Communicate new OTC rules to participants prior to January 1, 2011.
Plan documents/SPDs should be amended to reflect the new rules. Although the IRS
typically doesn’t allow retroactive cafeteria plan or Health FSA amendments, Notice
2010-59 indicates that you have until June 30, 2011 to amend the plan effective as of
January 1, 2011.
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D. Small Employer Tax Credit-For tax years beginning on or after December 31, 2009 (i.e.
applicable to your tax return filed in 2011 for the 2010 tax year)
―Small employers‖ may take a tax credit (in lieu of the tax deduction) for its share of premiums
paid its employees’ qualifying health plan coverage. To be an eligible small employer: (1) the
employer must have fewer than 25 fulltime equivalent employees (FTEs) for the taxable
year; (2) the average annual wages of its employees for the year must be less than
$50,000 per FTE; and (3) the employer must maintain a ―qualifying arrangement.‖ In
general, a qualifying arrangement is an arrangement under which the employer pays
premiums for each employee enrolled in health insurance coverage offered by the
employer in an amount equal to a uniform percentage (not less than 50 percent) of the
premium cost of the coverage.
See the following for more information regarding the small employer tax credit:
IRS Revenue Ruling 2010-13
Notice 2010-44 at http://www.irs.gov/pub/irs-drop/n-10-44.pdf
Notice 2010-82 at http://www.irs.gov/pub/irs-drop/n-10-82.pdf
Form 8941 at http://www.irs.gov/pub/irs-pdf/f8941.pdf
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APPENDIX A
HEALTH INSURANCE REFORMS
The following table provides (in chronological order) the effective date of the application
of Patient Protection and Affordable Care Act (PPACA) provisions to grandfathered
health plans.
Insurance Reform
(PHSA §) Description
Applicable to
Grandfathered
Plans?
Plan years beginning on or after September 23, 2010
Prohibition on lifetime/annual limits
§ 2711(a)
Prohibits group health plans and health
insurance issuers offering group or individual
health insurance coverage from establishing
lifetime limits and annual limits on the dollar
value of benefits.
limits (as defined in regulations)
Yes
Prohibition on preexisting condition
exclusion of enrollees under age 19
§ 2704
Group health plans and health insurance issuers
offering group or individual coverage may not
impose a preexisting condition exclusion or
discriminate based on health status
Yes
Prohibition on rescissions
§ 2712
Group health plans and health insurance issuers
may not rescind health coverage after coverage
begins except in the case of fraud or intentional
misrepresentation
Yes
Coverage of adult children
§ 2714
Group health plans and health insurance issuers
offering group or individual health insurance
coverage that provide dependent coverage must
continue to make such coverage available to
children until age 26
Yes
Uniform explanation of coverage
§ 2715
Requires the Federal government to develop
standards for use by group health plans and
health insurance issuers in compiling and
providing an accurate summary of benefits and
explanation of coverage for applicants,
policyholders or certificate holders, and
enrollees. The explanation of coverage must
describe any cost sharing, exceptions,
reductions, and limitations on coverage, and
give examples to illustrate common benefits
scenarios
Yes
Bringing down the cost of health
coverage (minimum medical loss ratio)
§ 2718
Applicable only to fully insured plans
Requires health insurance issuers offering group
or individual health insurance coverage to
submit annual reports to the Federal government
on the percentages of premiums that the
coverage spends on reimbursement for clinical
services and activities that improve health care
quality, and to provide rebates to enrollees if this
spending does not meet minimum standards for a
given plan year
Yes (provision applies to
insured plans only)
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Insurance Reform
(PHSA §) Description
Applicable to
Grandfathered
Plans?
Coverage of preventive care (without
cost sharing)
§ 2713
Group health plans and health insurance issuers
offering group or individual health insurance
coverage must cover certain preventive services,
immunizations, and screenings, without any cost
sharing
No
Provision of additional information
(transparency requirements)
§2715A
Requires group health plans and health
insurance issuers offering group or individual
health insurance coverage to disclose, to the
Federal government and the State insurance
commissioner, certain enrollee information such
as claims payment policies and practices and
enrollee rights. Requires such plans and issuers
to provide information to enrollees on the
amount of cost-sharing for a specific item or
service
No
Nondiscrimination rules for insured
plans
§2716
Applicable only to fully insured plans.
Prohibits fully-insured group health plans from
discriminating in favor of highly compensated
individuals with respect to eligibility and
benefits
No
Certain reporting requirements (statutory
heading is ―Ensuring Quality of Care‖)
§2717
Requires the Federal government to develop
guidelines for use by health insurance issuers to
report information on initiatives and programs
that improve health outcomes. Prohibits a
wellness program from requiring the disclosure
or collection of any information relating to the
presence or storage of a lawfully possessed
firearm or ammunition in the residence or the
lawful use, possession or storage of a firearm or
ammunition by an individual
No
Claims appeal procedures
§ 2719
Group health plans and health insurance issuers
offering group or individual health insurance
coverage must provide an effective internal
appeals process of coverage determinations and
claims and comply with any applicable State
external review process. If the State has not
established an external review process that
meets minimum standards or the plan is
selfinsured, the plan or issuer shall implement an
external review process that meets standards
established by the Federal government
No
Patient protections (choice of primary
care provider and emergency services
without prior authorization)
§2719A
Group health plans and health insurance issuers
offering group or individual health insurance
coverage must permit an individual to select a
participating primary care provider, or
pediatrician in the case of a child. Provides
direct access to obstetrical or gynecological care
without a referral. Prohibits prior authorization
or increased cost sharing for out-of-
networkemergency services
No
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Insurance Reform
(PHSA §) Description
Applicable to
Grandfathered
Plans?
Plan years beginning on or after January 1, 2014
Prohibition on preexisting condition
exclusion on ALL enrollees
§ 2704
Group health plans and health insurance issuers
offering group or individual coverage may not
impose a preexisting condition exclusion or
discriminate based on health status.
Yes
Limitation on waiting periods
§2708
Prohibits any waiting periods that exceed 90
days for group health plans and group health
insurance coverage
Yes
Guaranteed renewability of coverage
(applicable to health insurance issuers)
§2703
Applicable only to fully insured plans
Requires guaranteed renewability of coverage
regardless of health status, utilization of health
services, or any other related factor. Coverage
can only be cancelled under specific,
enumerated circumstances.
No
Fair health insurance premiums (limits
factors that can be used to determine
premiums)
§2701
Applicable only to fully insured plans
Health insurance issuers may not charge
discriminatory premium rates. The rate may vary
only by whether such plan or coverage covers an
individual or family, rating area, actuarial value,
age, and tobacco use.
No
Guaranteed availability of coverage
(applicable to health insurance issuers)
§2702
Applicable only to fully insured plans
Health insurance issuers in both the individual
and group markets must accept every employer
and individual in the State that applies for
coverage, but are permitted to limit enrollment
to annual open and special enrollment periods
for those with qualifying lifetime events.
No
Nondiscrimination based on health status
§2705
Retains the HIPAA nondiscrimination
provisions for group health plans and group
health insurance issuers. Specifically, plans and
group health insurance issuers may not set
eligibility rules based on factors such as health
status and evidence of insurability – including
acts of domestic violence or disability. Provides
limits on the ability of plans and issuers to vary
premiums and contributions based on health
status. The Affordable Care Act adds new
provisions regarding wellness programs.
No (grandfathered plans
remain subject to the rules
in effect before health
care reform)
Prohibition on discrimination against
providers
§2706
Prohibits discrimination by group health plans
and health insurance issuers against health care
providers acting within the scope of their
professional license and applicable State laws.
No
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Insurance Reform
(PHSA §) Description
Applicable to
Grandfathered
Plans?
Comprehensive health insurance
coverage (requirement to provide
essential benefits and OOP and
deductible cost sharing provisions)
§2707
Requires health insurance issuers in the small
group and individual markets (and large group
markets in State exchanges) to include coverage
which incorporates defined essential benefits,
provides a specified actuarial value, and requires
all group health plans to comply with limitations
on allowable cost sharing.
NOTE: UPS’ will not have to provide
essential benefits, even if it loses grandfather
plan status.
No
Participation in clinical trials
§2709*
Prohibits health insurance issuers from dropping
coverage because an individual (who requires
treatment for cancer or another life-threatening
condition) chooses to participate in a clinical
trial. Issuers also may not deny coverage for
routine care that they would otherwise provide
because an individual is enrolled in a clinical
trial.
No
* Due to drafting errors, there are two sections 2709 of the PHSA after PPACA. The section referred to in
the table is a new section. The other section 2709 (relating to disclosure of information) is renumbered
from prior law PHSA section 2713. Grandfathered plans remain subject to the pre-PPACA requirements
that are still in effect.
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APPENDIX B
GROUP HEALTH PLANS SUBJECT TO HEALTH INSURANCE REFORMS
The HIPAA subparts, and the health insurance reforms, apply to all ―group health plans‖
(including plans subject to collectively bargained agreements) other than those
arrangements that are limited to ―excepted benefits‖ or otherwise meet the ―small plan‖
exception (described in more detail below). The application analysis is rather simple:
A. Is the plan a ―group health plan‖? If NO, STOP! It is not subject to the HIRs. If
YES, go to B.
B. Is the plan an ―excepted benefit‖? If YES, STOP!!! It is not subject to the HIRs
even though it is a group health plan. If NO, go to C.
C. Is the plan a ―small plan‖? If YES, STOP! It is not subject to the HIRs, even
though it is a group health plan. If NO, the plan is generally subject to the HIRs.
Are grandfathered plans subject to HIRs? Yes, a ―grandfather plan‖ is subject to some,
but not all, of the HIRs. See Appendix A for a list of health insurance reforms applicable
to grandfather health plans.
A ―group health plan‖ is broadly defined in ERISA (e.g. private plan sponsors) or the
PHSA (e.g. non-federal governmental plan) as:
[A]n employee welfare benefit plan [as defined by ERISA/Public Health
Service Act] to the extent that the plan provides medical care (including
items and services paid for as medical care) to employees or their
dependents (as defined under the terms of the plan) directly or through
insurance, reimbursement, or otherwise.
NOTE: The relevant definition of group health plan in the Code, Code Section 5000, is
broader than the definition of group health plan in ERISA and the Code and may include
individually issued policies for which the employees receive a lower rate because of their
employment with the employer.
The definition of ―group health plan‖ generally includes major medical, dental, vision,
behavioral health, a Health Reimbursement Arrangement (HRA), and even an employee
assistance program. NOTE: Some benefits that are otherwise group health plans, such as
dental and vision benefits, might qualify as ―excepted benefits‖ under certain
circumstances.
Excepted benefits are benefits that fall into one of several enumerated categories of
benefits. See below for a brief overview of the HIPAA excepted benefit categories.
The small plan exception applies to any plan that does not have at least 2 current
employees participating in the plan on the first day of the plan year. Thus, stand alone
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retiree health plans (i.e. plans that are separate from an active health plan based on the
documentation and/or the plan’s operating procedures) are not subject to the health
insurance reforms.
Are plans for part-time or hourly employees subject to the HIRs? Yes, under the
existing statutory framework, plans that cover part-time and hourly employees are subject
to the HIRs unless the plan provides excepted benefits.
What are Excepted Benefits?
Group health plans that provide ―excepted benefits‖ are exempt from HIPAA's portability
requirements. There are essentially five subcategories of excepted benefits excluded from
HIPAA's portability rules. Those categories are as follows:
1. Benefits that are excluded under all circumstances:
Accident or disability income insurance;
Liability insurance, including general liability and auto liability insurance;
Workers' compensation;
Automobile medical payment insurance;
Credit only insurance;
Coverage for on-site medical clinics.
2. The following benefits are exempt when offered through a separate policy or,
alternatively, if they do not otherwise constitute an integral part of the plan. For this
purpose a benefit is not an integral part of the plan if the participant has the right to elect
the coverage separately from medical and, if the participant elects to receive the
coverage, the participant is charged a separate premium or contribution.
―Limited scope‖ dental or vision benefits. ―Limited scope dental coverage‖ is
defined as coverage substantially all of which consists of treatment of the mouth.
Likewise, limited scope vision coverage is defined as coverage substantially all of
which is treatment for the eyes.
Long-term care
Nursing home care
Home health care
Community-based care
Practice Pointer: Dental or vision benefits offered under the same plan as medical
benefits may still be ―limited scope‖ as long as the coverage is voluntary, and the dental
and/or vision benefits can be elected separately and a separate contribution is required.
3. Limited scope specified disease and hospital (or other fixed) indemnity coverage is
exempt from HIPAA provided that:
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Such coverage is provided under a separate policy, certificate or contract of
insurance;
No coordination exists between the provision of such benefits and any exclusion
under any plan maintained by that employer;
Benefits are paid for an event regardless of whether benefits are provided under
any group health plan maintained by the same plan sponsor.
Practice Pointer: The final regulations clarify that hospital indemnity insurance will
qualify as an excepted benefit only if it provides a fixed amount of benefits per day (or
other period) for each day the individual is in the hospital, regardless of the amount of
expenses. If the policy provides benefits other than a fixed amount per day for
hospitalization, the plan fails to qualify as an excepted benefit. For example, if the plan
provides benefits only for a fixed percentage of hospital expenses up to a fixed maximum
(e.g., 75 percent up to $100 per day), the plan is not an excepted hospital indemnity plan.
4. The following types of benefits if offered under a separate policy or contract:
Medicare supplemental policy;
TRICARE supplemental policy;
Coverage providing ―similar‖ supplemental coverage to a group health plan.
o The final regulations clarify that the exception for ―similar supplemental
coverage‖ is limited to coverage that is specifically designed to fill gaps in
the primary health coverage such as coinsurance or deductibles (e.g., such
as a Medi-Gap or CHAMPUS/TRICARE supplement plan). Coverage that
is supplemental only because of the plan's coordination provisions is not
―similar supplemental coverage.‖
5. Health Flexible Spending Arrangements (as defined in Code Section 106(c)) offered to
a class of participants to the extent that the following requirements are satisfied:
Other group health coverage other than excepted benefits is made available to the
class of participants and
The arrangement is structured so that benefits payable to any participant in the
class will not exceed two times the participant’s salary reduction or, if greater, the
participant’s salary reduction plus $500.
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APPENDIX C
IMPERMISSIBLE CHANGES
GRANDFATHER PLAN RULES
Maintenance of Grandfather Status
The regulations severely limit the changes that may be made without losing grandfather
status. Any one of the following changes will result in the loss of grandfathered status.
NOTE: The Rules apply separately to each benefit package under a plan-- A change to
one benefit package that results in loss of grandfather status to that package (e.g., a
change in insurance carriers) does not affect other benefit packages.
Changes in insurance contracts/policies: Except with respect to grandfathered
collectively bargained plans, a change in insurance carrier ends grandfather status for
that benefit package option to the extent there is a change in benefits that would
otherwise constitute one of the disqualifying changes described herein.
Changes in the scope of benefits. The elimination of benefits to diagnose or treat a
particular condition, even if the condition affects relatively few individuals under the
plan, results in loss of grandfather status. The elimination of benefits for any
necessary element to diagnose or treat a particular condition also results in loss of
grandfather status. For example, if a plan covers a particular mental health condition,
the treatment for which includes prescription drugs and counseling, then elimination
of counseling would result in loss of grandfather status.
Increases in percentage cost sharing requirements: ANY increase in percentage
cost sharing amounts (such as increasing a 20 percent coinsurance requirement to 30
percent) results in loss of grandfather status.
Increases in fixed amount cost sharing: For fixed amount cost sharing other than
co-payments (e.g., deductibles) the maximum permitted increase in the fixed amount
(since March 23, 2010) without loss of grandfathered status is Medical Inflation
(from March 23, 2010), expressed as a percentage, plus 15 percentage points. For co-
payments, the maximum permitted increase (since March 23, 2010) without loss of
grandfather status is the greater of (a) the maximum percentage increase as described
in the preceding sentence (Medical Inflation plus 15 percentage points), and (b) $5
increased by Medical Inflation. ―Medical Inflation‖ is a defined term and means the
increase since March 2010 in the overall medical care component of the CPI for all
Urban Consumers. That increase is computed according to a formula set forth in the
regulations.
Changes in employer contributions to premiums: A decrease in the employer
contribution rate of more than 5 percentage points below the rate on March 23, 2010
for any tier of coverage for similarly situated individuals results in loss of the
grandfather status. NOTE: For a self insured plan, the contribution rate is the
employer’s share of the cost compared to the total cost of coverage, expressed as a
percentage. For plans that contribute pursuant to a formula, such as hours worked, the
contribution rate is the formula.
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Example: If the COBRA cost of single coverage under a benefit package option offered
under a Plan on March 23, 2010 is $5000 and the employees contribute $1000, your
contribution rate for March 23, 2010 is 80%. Assume that the COBRA cost in 2014 for
single coverage is still $5000 but the employee's share is now $1250 instead of 1000
(meaning, you contribute 3750 instead of 4000). Your contribution rate on January 1,
2014 in this example is 75%. You do not lose grandfather plan status because the
contribution rate, expressed as a percentage, did not decrease by more than 5%
percentage points from the contribution rate in effect on March 23, 2010 (80%) even
though your actual contribution, expressed as a dollar amount, decreased by 6.2% from
the dollar amount on March 23, 2010.
Changes in annual limits: The addition of an overall annual limit on the dollar value
of benefits to a grandfathered plan that did not impose an overall annual or lifetime
dollar limit on March 23, 2010, result in loss of grandfather status. If a grandfathered
plan that had only a lifetime dollar limit on March 23, 2010 is modified to add an
annual dollar limit on benefits, grandfather status is lost unless the annual limit is not
less that the lifetime limit. If a grandfather plan lowers an annual dollar limit on
benefits below the limit in effect on March 23, 2010, grandfather status is lost.
According to the preamble, changes other than those described in the regulations as
resulting in loss of grandfather status do not affect the grandfather. Changes to
voluntarily comply with PPACA and changes in third party administrators do not result
in loss of grandfather status.
Adding New Employees and Family Members
Generally, a plan remains grandfathered if family members of an individual enrolled on
March 23, 2010 and/or new employees (including newly hired and newly eligible
employees) and their families are enrolled after March 23, 2010. However, there are
there are two anti-abuse rules with which you should be aware.
Transferring employees to a new plan or option: The rules limit an employer’s ability
to transfer employees between grandfathered plans. A plan or option to which
employees are transferred will lose grandfather plan status if the following two
conditions are satisfied:
o Comparing the terms of the transferee plan with those of the transferor
plan (as in effect on March 23, 2010) and treating the transferee plan as if
it were an amendment of the transferor plan would cause a loss of
grandfather status under the rules; and
o There was no bona fide employment-based reason to transfer the
employees into the transferee plan. For this purpose, changing the terms or
cost of coverage is not a bona fide employment-based reason.
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Mergers and acquisitions: mergers and acquisitions done primarily to cover
individuals under a grandfather plan (i.e. there is not a bona fide business reason for
the merger) will cause a plan to lose grandfather status.
Transition Rules
The regulations also include transition rules for plans and issuers that made changes after
March 23, 2010.
Permitted Changes: Under these rules, changes made as a result of the following
situations will not result in the loss of grandfathered plan status and are considered
part of the plan terms on March 23, 2010, even though they are not effective until
after March 23, 2010:
o Changes made pursuant to a legally binding contract in effect on March 23,
2010
o Changes pursuant to a filing with a State insurance department before March
23, 2010, or
o Changes pursuant to written plan amendments adopted before March 23,
2010.
Grace Period: Changes made after March 23, 2010 and before the date the
regulations are publicly available that would otherwise affect grandfather status may
be revoked or modified in order to preserve the grandfather. Any such revocation or
modification must be effective as of the first day of the first plan year beginning on or
after September 23, 2010. This transition rule applies to changes that are effective
before the date the regulations are publicly available, or changes that are effective on
or after such date pursuant to a legally binding contract, a State insurance filing, or a
written plan amendment in effect on such date.
Good Faith Compliance: Before the date the regulations are publicly available, a
reasonable good faith interpretation of the statute that results in plan and policy terms
that ―only modestly‖ exceed the parameters for changes that result in loss of
grandfathered status set forth in the regulations will be taken into account for
enforcement purposes.
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APPENDIX D
ESSENTIAL BENEFIT CATEGORIES
Health Care Reform identifies the following categories of benefits are considered essential
benefits (See PPACA Sec. 1302(b)).
NOTE: The definition of ―essential benefits‖ plays a major role in the benefits offered by insurers
who participate in the state based exchanges effective January 1, 2014. The agencies have not
issued any guidance as to which specific benefits fall into each of the essential benefit categories
and we do not expect guidance to be issued in the near future. In the interim, the agencies have
indicated that they will take into account a good faith interpretation of the term ―essential
benefits‖.
1. Ambulatory Patient Services
2. Emergency Services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Labaratory services
9. Preventive and wellness services and chronic disease management
10. Pediatric services, including oral and vision care