By Larry Grudzien

Attorney at Law1

The following describes key elements of the health care reform legislation that affect employers for years 2010, 2011 & 2012:

The legislation included the following bills:

the Patient Protection and Affordable Care Act (PPACA, HR 3590), passed March 21 by Congress (and signed into law by President Obama March 23; and

the Health Care and Education Reconciliation Act of 2010 (HR 4872), passed by the House on March 21, passed by the Senate on March 25 and signed by the President on March 30, 2010.

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Effective in 2010: Tax credit for small employers offering

health coverage,

Early Retiree Reinsurance Program,

Dependent Coverage in Health Plans,

Medicare Part D Donut Hole, and

High-Risk Pools.

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Effective for plan years beginning after September 23, 2010: Coverage of children to age 26, Life and annual dollar limits, Prohibits on rescissions of coverage, Preventive Services, Nondiscrimination requirements, Appeals Process, Choice of Health Care Professional, Emergency Services, Preexisting Condition limit for certain dependents, and Grandfathered Plans.

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Effective January 1, 2011: Medical loss Ratio,

Form W-2 disclosure of health coverage cost,

New Simple cafeteria plans,

Nonqualified Withdrawals from HSAs, and

OTC Drug Reimbursements.

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Effective during 2012:

Uniform explanation of group health plan’s benefits and coverage,

Notice of Material Modifications, and

Quality Reporting.

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Small business tax credit: Provide small employers with no more than 25 employees

and average annual wages of less than $50,000 that purchase health insurance for employees with a tax credit.

▪ For tax years 2010 through 2013, provide a tax credit of up to 35% of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50% of the total premium cost or 50% of a benchmark premium.

▪ The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases.

▪ Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 25% of the employer’s contribution toward the employee’s health insurance premium.

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Reinsurance for early retirees: HHS is to establish a temporary reinsurance program to

reimburse employer health plans for a portion of their cost of providing health coverage to early retirees (ages 55 to 64 and their dependents.

Employer must submit an application and be approved before receiving any reimbursement.

Participating plans to submit reimbursement claims and receive 80% reimbursement of costs between $15,000 and $90,000 for a covered individual.

Reimbursements can only be used to reduce plan and retiree direct costs, and

Program capped at $5 billion.8

Tax-free employer coverage for children who are not otherwise tax dependents:

Tax-free treatment for adult children who have not turned age 27 as of end of year.

This change is also intended to apply to the exclusion for employer-provided coverage (that is, the value of coverage) under an accident or health plan for injuries or sickness for such a child.

This change is effective for any premiums paid or expenses reimbursed after March 3o, 2010.

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Medicare Part D donut hole: It presently covers medications up to $2,830 a year and

then stops until the beneficiary's out-of-pocket spending reaches $4,550 in the year, when coverage picks up again.

The process of closing the gap by providing a $250 rebate to Medicare beneficiaries who fall into the hole in 2010.

Then, beginning in 2011 there will be a 50% discount on prescription drugs during the gap, and the gap will be closed completely by 2020, with beneficiaries covering only about 25% of the cost of drugs up until they have spent so much on prescriptions that Medicare's catastrophic coverage kicks in, at which point co-payments drop to 5%.

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Temporary High Risk Pool:

HHS has established a temporary national high risk pool program as a stop-gap measure to make health insurance available to uninsured individuals prior to the time that state exchanges are established in 2014.

29 states will run their own pools and the federal government will run the pools for 21 states.

To be eligible for the new Federal high risk pool program, an individual must have a preexisting health condition, be a U.S. Citizen, and have been uninsured for 6 months. 11

Dependent coverage for older children: A plan that provides dependent coverage of children

must continue to make that coverage available for an adult child until the child turns 26 years of age.

This requirement applies even to married children.

Plans are not required to make coverage available for a child of a child receiving dependent coverage (that is, for example, for a grandchild of a participant).

Must not access to other group coverage.

This requirement only applies to medical plans

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No lifetime limits:

A plan may not apply lifetime dollar limits on what are known as “essential health benefits.”

Essential health benefits are the types of benefits that must be included in health plans offered under the state insurance clearinghouses referred to in the new law as “exchanges.

Health and Human Services (“HHS”) will define what constitutes an essential health benefit.

Certain plans are excluded ( HSAs, Health FSAs and certain HRAs).

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No lifetime limits (continued):

Individuals who reached a lifetime limit under a plan or health insurance coverage prior to the issuance of these regulations and are otherwise still eligible under the plan or health insurance coverage must be provided with a notice that the lifetime limit no longer applies.

If such individuals are no longer enrolled in the plan or health insurance coverage, the employer’s plan or insurance company must provide an enrollment (in the individual market, reinstatement) opportunity for such individuals.

These notices and the enrollment opportunity must be provided beginning not later than the first day of the first plan year (in the individual market, policy year) beginning on or after September 23, 2010.

Anyone eligible for an enrollment opportunity must be treated as a special enrollee. 14

No annual limits: A plan may not apply any annual dollar limits on essential

health benefits for plan years beginning on or after January 1, 2014.

For plan years beginning prior to January 2014, the following restricted annual limits will apply to essential health benefits, if those limits would not violate other federal or state laws:▪ For plan or policy years beginning on or after September 23,

2010 but before September 23, 2011, $750,000;

▪ For plan or policy years beginning on or after September 23, 2011 but before September 23, 2012, $1.25 million; and

 

▪ For plan or policy years beginning on or after September 23, 2012 but before January 1, 2014, $2 million.

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No annual limits:

The minimum annual limits for plan or policy years beginning before 2014 apply on an individual-by-individual basis.

Any overall annual dollar limit on benefits applied to families may not operate to deny a covered individual the minimum annual benefits for the plan year (in the individual market, policy year).

HHS has established a program under which the requirements relating to restricted annual limits may be waived.▪ The application must be submitted not less than 30 days before the

beginning of the plan year 9/23/2010-9/23/2011 (special 10 day rule for plan years beginning before 11/2/2010).

▪ First waiver only applies for 2 year s and must reapply for any subsequent plan year prior to 1/1/2014. 16

Prohibition on rescissions of coverage:

Group health plans and insurance companies will generally be prohibited from rescinding coverage with respect to an enrollee once such enrollee is covered.

The exceptions will be for fraud or intentional misrepresentation by the enrollee, nonpayment of premiums, termination of the plan, or loss of eligibility.

This standard applies to all rescissions, whether in the group or individual insurance market, and whether for insured or self-insured coverage.

Coverage may not be cancelled unless a 30 day advance notice is provided. 17

Preventative services: A plan must provide coverage for, and may not impose any

cost-sharing requirements with respect to, certain preventative care,.

Plans must provide coverage for all of the following preventive services: evidence-based items or services with an A or B rating recommended by

the United States Preventive Services Task Force;

immunizations for routine use in children, adolescents, or adults recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention;

evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA) for infants, children, and adolescents; and

other evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by HRSA for women (these guidelines are being developed, which are expected to be issued by August 1, 2011).

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Preventative services (continued): The preamble to the regulations includes detailed information

about specific preventive services that must be covered. Information about recommendations and guidelines is also

available at http://www.healthcare.gov/center/regulations/prevention.html which will be updated on an ongoing basis.

What Types of Preventive Services Are Covered? A government website provides the following examples of the types of items and services that plans and insurers must cover under the preventive services mandate: blood pressure, diabetes, and cholesterol tests; many cancer screenings; counseling from health care providers on such topics as quitting smoking, losing weight, eating better, treating depression, and reducing alcohol use; routine vaccines for diseases such as measles, polio, or meningitis; flu and pneumonia shots; counseling, screening, and vaccines for healthy pregnancies; regular well-baby and well-child visits from birth to age 21.

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Prohibition on insured plans discriminating in favor of highly compensated individuals: Self-insured health plans have long been subject to

nondiscrimination rules prohibiting them from favoring highly compensated individuals.

Those rules are set forth in Code § 105(h).

The consequence of a self-insured plan failing to meet those requirements is that reimbursements are included into income of the highly compensated individuals.

There will be no adverse tax consequence for highly compensated individuals, of insured plans though there may be for the employer.

These provisions do not apply to the grandfather rules.20

Appeals process: Plans must establish internal claims appeal and

external review procedures. They must at a minimum: Establish an internal claims appeal process; provide

notice to enrollees "in a culturally and linguistically appropriate manner" of the availability of internal and external appeals procedures and the availability of the office of health insurance consumer assistance or ombudsman to assist the enrollee with the claims procedures (which office or ombudsman must be established by the states);

Allow the enrollee to review the enrollee's file and present evidence and testimony as a part of the appeals process; and

Allow the enrollee to continue to receive health coverage pending the outcome of the appeals process.

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Appeals process (continued): Plans must comply with six additional requirements in

addition to the existing requirements for internal appeal process: The internal appeals process will now cover rescissions as well as adverse

benefit determinations.

Determinations in urgent care claims must now be made within 24 hours rather than the 72 hours now required.

Claimants must now be provided without charge, any new or additional information relied upon or generated by the plan as soon as possible and far enough in advance of a determination to allow an opportunity to respond.

Internal reviewers do not have a conflict of interest.

Culturally and linguistically appropriate notices must be provided as well as detailed information on diagnosis, treatment, and denial codes, and the meaning of the codes, so that claimants can understand which claim was denied and why.

For Plans that fail to strictly adhere to the requirements of the process, the claimant may proceed to an external appeal or judicial review, even if the error was minor and the plan substantially complied with the requirements.

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Appeals process (continued): Plans must comply with either a state external review

process or the federal external review process.

If a state has in place an external review process offering at least as much protection as the NAIC Model Act, an insurance company must comply with the state law.

Plans not subject to state law (self-insured employee benefit plans), or located in states without external review laws as protective as the NAIC Model Act, must comply with a federal external review process yet to be established. 23

Choice of health care professional:

If a plan provides for designation by a participant or beneficiary of a participating primary care provider, the plan must permit a participant or beneficiary to designate any participating primary care provider who is available to accept that individual.

The plan must provide a notice informing each participant of the terms of the plan or health insurance coverage regarding designation of a primary care provider.

Such notice must be provided whenever a participant is provided with a summary plan description or other similar description of benefits under the plan 24

Emergency services: If a group health plan provides benefits for

emergency services, the plan: may not require preauthorization, including for emergency

services provided out-of-network;

must provide coverage regardless of whether the provider is in- or out-of-network;

may not impose any administrative requirement or coverage limitation that is more restrictive than would be imposed on in-network emergency services; and

must comply with certain cost-sharing requirements.

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Emergency services (continued): The special cost-sharing requirements imposed as

follows: any co-payment amount or co-insurance rate cannot be

higher for out-of-network services than for co-payment amounts and co-insurance rates imposed on in-network services;

benefits provided for out-of-network emergency must be provided in an amount equal to the greatest of the following three amounts:

— the median of the amount negotiated with in-network providers for emergency services without regard to co-payments and co-insurance (if no per-service amount is negotiated, such as under a capitation or other similar payment, this amount is disregarded)

— the amount the plan generally pays for out-of-network services, such as usual, customary and reasonable amount, but without regard to in-network co-payments or co-insurance and without reduction for the plan’s usual cost-sharing generally applicable to out-of-network services

— the amount that would be paid under Medicare Parts A and B, without regard to co-payments and co-insurance.

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Pediatric care: If a plan requires, or provides for, the designation of a

participating primary care provider for the child of a participant or beneficiary, the plan must permit the designation of a physician (allopathic or osteopathic) who specializes in pediatrics as the child’s primary care provider, if the provider participates in the plan’s network.

This does not, however, require a plan to waive any coverage exclusions under the terms of the plan relating to the coverage of pediatric care.

A plan that requires designation of a primary care provider must provide a notice to each plan participant that describes the plan’s requirements regarding designation of a primary care provider and of the participant’s or beneficiary’s right to designate, for any participant or beneficiary that is a child, a primary care provider that is a pediatrician.

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Obstetrical and gynecological care: A plan that provides coverage for obstetric or gynecology care

and requires the designation of a participating primary care provider may not require authorization or referral by the plan or any person (including a primary care provider) in the case of a female participant or beneficiary who seeks coverage for obstetrical or gynecological care provided by a participating health care professional who specializes in obstetrics or gynecology.

A group health plan that requires designation of a primary care provider must provide a notice to each plan participant that describes the plan’s requirements regarding the participant’s or beneficiary’s right to obstetrical or gynecological care without preauthorization or referral

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Pre-existing conditions:

For participants (and apparently dependents) who are under age 19, no preexisting condition exclusions can apply.

For everyone else the rule is effective for plan years beginning on or after September 23, 2014.

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Cost reporting and limit on insurers’ profits: Insurers (not plans) will, with respect to each plan year, be required to

submit to HHS a report concerning loss ratios and expenses, including the percentage of total premium revenue expended on reimbursement for clinical services, activities that improve health care quality, and non-claims costs other than taxes, licensing, or regulatory fees.

In addition, the new law effectively caps insurers’ profit margins on health insurance, beginning no later than January 1, 2011.

It does so by requiring that insurers provide rebates to participants if the insurers’ premium revenues spent on reimbursement for clinical services and activities that improve health care quality are less than 85% in the large group market, or 80 % in the small group market, of the total amount of premium revenue (excluding taxes, licensing, and regulatory fees, as well as certain other payments).

States may, by regulation, set a higher percentage than the 85 or 80% figures above.

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Reporting cost of health Coverage on Form W-2:

An employer must report on an employee’s Form W-2 the aggregate cost of the employee’s health insurance coverage sponsored by the employer, excluding the amount of any salary reduction contribution to a flexible spending arrangement.

“Aggregate cost” is determined under “rules similar to” the COBRA rules for applicable employer-sponsored coverage (including employee and employer contributions), including the special rules governing self-insured plans. 31

HSAs, Health FSAs and Health Reimbursement Arrangements (HRAs):

Tougher coverage/contribution limits and penalties apply:

▪ No tax-free coverage for nonprescribed items:

▪ OTC expense can be reimbursed if incurred before 1/1/2011 .

▪ Grace periods are not allowed, but run-outs are permitted.

▪ items that are not medicines or drugs, including equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits are reimbursable.

▪ Higher penalty for nonqualified HSA distributions, from 10% to 20%. 32

Simple cafeteria plans for small businesses. Four basic requirements must be satisfied under the

simple cafeteria plan rules:▪ Employer size. The employer (including certain affiliated entities) must

have employed an average of 100 or fewer employees in either of the two preceding years.

▪ Eligibility. In general, all employees with at least 1,000 hours of service during the preceding plan year (other than certain excludable employees) must be eligible to participate in the plan.

▪ Benefits. Each employee who is eligible to participate must be able to elect any qualified benefit (other than cash) available under the plan (subject to any terms and conditions that apply to all participants).

▪ Required employer contributions. Each employee who is not a key employee or highly compensated must receive a “true” employer contribution of at least: (1) two percent of the employee's compensation for the plan year, or (2) the lesser of six percent of the employee's compensation for the plan year or twice the employee's salary reductions. 33

Simple cafeteria plans for small businesses. (continued): These plans enable employers to satisfy almost all of

the applicable nondiscrimination tests by plan design, including tests that would otherwise require monitoring of benefit utilization.

These plans are likely to be of interest to eligible employers that might otherwise have difficulty passing one or more of the Code's applicable nondiscrimination tests.

For example, small employers may have difficulty passing the 25% key employee concentration test for cafeteria plans or the 55% average benefits test for DCAPs.

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Grants for workplace wellness programs:

▪ HHS will provide grants for up to five years to small employers that establish wellness programs. (Funds appropriated for five years beginning in fiscal year 2011).

▪ Provide technical assistance and other resources to evaluate employer-based wellness programs.

▪ Conduct a national worksite health policies and programs survey to assess employer-based health policies and programs. (Conduct study within two years following enactment).

▪ Program must be new.35

Uniform Explanation of Coverage:

HHS is required to develop standards for plans to use in summarizing plan benefits and coverage for participants.

These standards are supposed to be developed by March 23, 2011.

The required summaries will be a short “highlights” description of the plan.

It must not exceed 4 pages in length and must not include print smaller than 12-point font.

The statute describes the information that must be covered by the summary.

Plans will have until March 23, 2012, to begin using these new summaries.

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Deadline for summaries of material modification: A notice of any material modification must

be given to participants at least 60 days prior to the date the plan modification is to become effective.

This provision is generally effective March 23, 2012.

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Penalty for failure to provide new summary or SMM:

A penalty of not more than $1,000 may apply for each willful failure to provide the required plan summary or advance summary of a material modification.

Each participant who fails to receive a required summary (or summary of material modification) is counted separately in determining the amount of the penalty, so it appears that a willful failure to timely provide 5 participants with a summary could result in a fine of up to $5,000. 38

Standardized definitions: The new law requires HHS to promulgate

regulations providing for the development of standardized definitions of terms used in insured plans.

The required four-page plan summary discussed previously must include these definitions, to enable participants to better understand and compare coverage.

The terms for which standardized definitions are to be developed include many common terms.

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Additional Reporting Requirement: Quality of Care By March 23, 2012, HHS will develop requirements for

plans to report on a variety of issues.

This reporting is to include information relating to:▪ improving health outcomes through “quality reporting,”

effective case management, care coordination, chronic disease management, and medication and care compliance initiatives,

▪ activities to prevent hospital readmissions (including through education and counseling),

▪ activities to improve patient safety and reduce medical errors through use of best clinical practices, evidence based medicine, and health information technology, and

▪ wellness and health promotion activities.40

Certain rules do not apply to “grandfathered plans,” or at least do not apply to certain participants in those plans.

A grandfathered group health plan is a group or individual plan in which an individual was enrolled on 3/23/10.

It can also be an insured or a self-insured arrangement.

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The following rules apply to grandfather plans: The rules requiring insured plans to issue a standard plan summary

(the four page “highlights” description) and use standardized definitions in that summary,

The rules requiring insured and self-insured plans to distribute summaries of material modifications 60 days in advance of any material change, apply to grandfathered plans for plan years beginning on or after March 23, 2012.

The waiting period rules,

The restrictions on lifetime and annual limits,

The rules on rescission,

The pre-existing condition prohibition, and

The rules on covering adult children (up to age 26) as dependents, although for plan years beginning before January 1, 2014

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A plan sponsor or an insurance company may make the following changes to its health plan and keep its grandfathered status: voluntary increase benefits, conform to required legal changes, add new employees and dependents as

participants, change third party administrators, renew an insurance policy, and adopt voluntarily other consumer protections in

health care reform.43

A health plan will no longer be considered a grandfathered health plan if a plan sponsor or the insurance company: Eliminates all or substantially all benefits

to diagnose or treat a particular condition.

Increases a percentage cost-sharing requirement (such as coinsurance) above the level at which it was on 3/23/10.

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Increases fixed-amount cost-sharing requirements other than copayments, such as a $500 deductible or a $2,500 out-of-pocket limit, by a total percentage measured from 3/23/10 that is more than the sum of medical inflation and 15 %.

Increases copayments by an amount that exceeds the greater of: a total percentage measured from 3/23/10 that is more than the sum of medical inflation plus 15%, or $5 increased by medical inflation, measured from 3/23/10. 45

Decreases its contribution rate by more than five percentage points below the contribution rate on 3/23/10.

Enters into a new policy, certificate or contract of insurance with an insurance company.

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With respect to annual limits, a group health plan, or group or individual health insurance coverage, that, on 3/23/10:

did not impose an overall annual or lifetime limit on the dollar value of all benefits, imposes an overall annual limit on the dollar value of benefits;

imposed an overall lifetime limit on the dollar value of all benefits but no overall annual limit on the dollar value of all benefits, adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on 3/23/10; or

imposed an overall annual limit on the dollar value of all benefits, decreases the dollar value of the annual limit (regardless of whether the plan or health insurance coverage also imposes an overall lifetime limit on the dollar value of all benefits). 47

Notice requirements: A statement must be included in any plan materials

provided to participants or beneficiaries (Summary Plan Description) describing the benefits provided under the plan or health insurance coverage, that the plan or health insurance coverage believes it is a grandfathered health plan and providing contact information for questions and complaints.

Record Retention Requirements: Records must be maintained documenting the terms of

the plan or health insurance coverage that were in effect on 3/23/10, and any other documents necessary to verify, explain, or clarify its status as a grandfathered health plan. 48

Transitional rules if changes are made before 3/23/10, if effective after 3/23/10:

Such changes are not taken into account in considering whether the plan or health insurance coverage remains a grandfathered health plan.

Grace period for changes made after 3/23/10, but before the publication of the regulations:

Changes must be revoked by effective as of the first day of the first plan or policy year beginning on or after 9/23/10. 49

Insured plans are not subject to many insurance reforms and coverage mandates until date on which last collectively bargaining agreement terminates.

Grandfather status is preserved until agreement terminates.

After agreement terminates, must compare coverage terms after to those on 3/23/10 to determine grandfathered status continues.

Provisions that apply to grandfathered plans will apply to these plans before and after the termination of the agreement. 50

Many mandates do not apply to any group health plan (and any health insurance coverage offered in connection with such plan) in relation to the plan's provision of the following benefits: coverage only for accidents (including accidental death and

dismemberment coverage); disability income coverage; liability insurance, including general liability and auto liability insurance coverage issued as a supplement to liability insurance; workers' compensation or similar coverage; automobile medical payment insurance; credit-only insurance; coverage for on-site medical clinics; and other similar coverage, which benefits for medical care are secondary or

incidental to other insurance benefits (

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Many mandates do not apply to any group health plan (or to any health insurance coverage offered in connection with such plan) in relation to the plan's provision of certain benefits, if the benefits are:

provided under a separate policy, certificate, or contract of insurance; or

otherwise not an integral part of the group health plan.

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This two-pronged exception applies only to:

limited-scope dental benefits;

limited-scope vision benefits;

benefits for long-term care, nursing-home care, home care, or community-based care;

other similar, limited benefits specified in the regulations (but no such regulations have been issued).

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Certain supplemental benefits are excepted the mandates if they are provided under a separate policy, certificate, or contract of insurance.

The statute specifically exempts Medicare supplemental coverage (e.g., Medigap or MedSupp insurance) and TRICARE supplemental coverage, but then goes on to exempt “similar supplemental coverage provided to coverage under a group health plan.”

The exact scope of this exclusion for “similar

supplemental coverage” has been unclear. 54

Problem: Costs increasing in double digit s each year. Employer must raise deductable, co-pays and

coinsurance to lower costs.Solution:

Cut state and federal mandates. Allow insurance products to be purchased

across state lines. Allow alliances. cooperatives and state and

local purchasinf pools.55

2010, 2011 &2012

Changes may stay in place

2013 and beyond?

Many requirements will be changed or repealed.

What will replace them.56

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Larry Grudzien

Phone: 708-717-9638

Email: larry@larrygrudzien.com

Website: www.larrygrudzien.com

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