In Brief

Insurers (in the case of insured plans) and self-funded plan sponsors will pay the fee once a year (sunset in 2019) based on the average number of plan participants covered under the medical plan for the policy/plan years ending on or after October 1, 2012. The initial fee ($1.00 per head) becomes payable on July 31, 2013. In the case of insured medical plans (both individual and group), the insurer is responsible for the fee. For self-funded medical plans, the plan is responsible for the fee. Ah, but the devil is in the details.

Details

On April 12, 2012, the Internal Revenue Service (IRS) issued proposed rules on the key elements of the funding.

1. What Plans are Included? Plans which provide coverage for medical care or treatment, whether insured or self-funded covering U.S. residents. These include insured group health plans and HMOs, including those sponsored by single employers, government plans, Taft Hartley plans, and multiple employer welfare arrangement (MEWAs) whether grandfathered or not grandfathered. The rules also apply to health reimbursement accounts and Internal Revenue Code (IRC) Section 125 Health Care Spending Accounts (which include medical benefits). FSAs such as those in conjunction with high deductible health plans (HDHPs) which have limited scope benefits (dental, vision) would not be subject to these rules. Unlike other parts of Health Care Reform law, this fee requirement does apply to retiree-only health plans.
2. What Plans are Exempt from the Fee Requirement? Generally speaking, benefit plans classified as “Excepted Benefits” under the Health Insurance Portability and Accountability Act (HIPAA). These include freestanding dental and vision plans, limited scope FSAs (dental and vision only benefits), Employee Assistance Plans, expatriate plans, long term care, stop-loss plans, most wellness plans, etc.
3. The Fee. For plans ending on or after October 1, 2012 (the first year), the fee is $1.00 multiplied by the average number of lives (including spouses and dependents) covered under the plan during that year. For the second year, the fee will be $2.00 multiplied by the average number of lives covered in the second year. The fees are assessed at the beginning of the calendar year and are due no later than July 31 following the end of that calendar year. Submitters must file IRS Excise Tax Form 720, providing their specific filing information and paying the fee.
4. Calculating the Fee. In June 2011, the IRS released an initial set of rules regarding this fee and put the issue of how to calculate the number of lives, open to comment. The April regulations reflect the results of the comments the IRS received.

For insurers, the rules provide four methods:

• Actual Count Method. Insurers may calculate the sum of lives covered for each day of the policy year and then divide that sum by the number of days in the year.
• Snapshot Method. Insurers may calculate the sum of the lives covered on one date in each quarter of the policy year (or an equal number of dates in each quarter) and then divide that number by the number of days on which a count was made.
• Member Months Method. Insurers may determine the average number of lives covered based on the “member months” reported on the National Association of Insurance Commissioners Supplemental Health Care Exhibit (the “Exhibit”) divided by 12.
• State Form Method. An insurer that is not required to file the Exhibit may use data in any form that is equivalent to the exhibit that is filed with the applicable state if the state form reports lives covered in the same manner as member months reported on the Exhibit.

For self-insured plans, plan sponsors may choose from three different methods. Once chosen, the plan sponsor must use only the one method for that reporting year. Here are the options:

• Actual Count Method. Plan sponsors calculate the sum of lives covered for each day of the plan year and then divide that sum by the number of days in the year.
• Snapshot Method. Plan sponsors calculate the sum of the lives covered on one or more dates in each quarter of the plan year and then divide that number by the number of dates used. Under this method, the plan sponsor can count the number of covered employees and multiply that number by 2.35 to obtain the spouse and dependents count.
• The 5500 Method. By adding the total number of employee lives on the first day of the plan year to the total number of lives on the last day of the plan year as reported n the Form 5500 and dividing by 2. The plan sponsor can multiply the resulting number by 2.35 to obtain the reportable covered spouse and dependents count.

In the event the employer has a full-on self-funded medical plan and a supplemental health reimbursement account (HRA) covering the same group, the fee will be payable on the full-on medical plan. If the employer offers a full-on medical plan to one class (e.g. management employees) and a self-funded HRA to non-management employees, then the fee would be based on the aggregate number of covered lives.

1. Responsible Payor. In the case of an insured plan, the insurer must calculate and pay the fee, regardless of whether the policy is issued to a single employer, an association (unrelated employers) or a Taft Hartley plan. For self-funded plans, the plan sponsor is responsible for the payment. For self-funded plan purposes, the plan sponsor would include:

• The employer in the case of a single-employer plan;
• The employee organization (Benefits Committee or the Trustees) in a multiple employer trust plan; or,
• The joint Board of Trustees in the case of a Taft Hartley plan.

Under some arrangements, the participating employers in a multiple employer plan may each be the responsible party. Typically, the plan’s governing documents should identify whether the multiple employer plan or the participating employer is the plan sponsor. In the case of a controlled group or related employers, the plan’s governing documents should specify the plan sponsor.

1. The Fee is an Excise Tax. Since PPACA includes the fee payment under Section 4975 of the IRC, the fee is actually a tax. As such, failure to pay the fee when due may result in IRS late payment and other tax penalties.
2. For insured plans, plan sponsors should contact their policy issuers regarding the payment of the fee.
3. Plan sponsors who supplement an insured plan with a supplemental HRA which pays medical expense not covered under the plan, should seek advice of counsel on the obligation to pay the fee on the HRA. Plan sponsors appear to be required to pay the fee on the supplemental plan.
4. Plan sponsors who offer self-funded full-on medical plans should review their workforce ebb and flow and then establish a methodology for calculating the number lives covered for the plan year ending on or after October 1, 2012.
5. Plan sponsors should contact their benefits consultants for additional direction.

Action Plan

1. For insured plans, plan sponsors should contact their policy issuers regarding the payment of the fee.
2. Plan sponsors who supplement an insured plan with a supplemental HRA which pays medical expense not covered under the plan, should seek advice of counsel on the obligation to pay the fee on the HRA. Plan sponsors appear to be required to pay the fee on the supplemental plan.
3. Plan sponsors who offer self-funded full-on medical plans should review their workforce ebb and flow and then establish a methodology for calculating the number lives covered for the plan year ending on or after October 1, 2012.
4. Plan sponsors should contact their benefits consultants for additional direction.

Copyright © 2011 Kutak Rock LLP • All Rights Reserved. Reprint with permission only. This legislative update is published as an information source for our clients and colleagues. It is general in its nature and is no substitute for legal advice or opinion in any particular case.

Although most Internal Revenue Code (IRC) Section 125 plans (Cafeteria Plans) are calendar year plans, there are some plans that are fiscal years plans (e.g. February 1 – January 31). To the delight of tax lawyers everywhere, the IRC contains traps for the unwary! In this instance, plan sponsors with fiscal plan years (all plan years other than calendar years) whose Cafeteria Plans include Health Care Spending Accounts (HCSA), must institute the $2,500 pre-tax contribution account maximum beginning with the first day of the 2012 fiscal year.

Discussion

The Law. The Patient Protection and Affordable Care Act (PPACA) Section 9005 provides that, if a benefit is provided under a Cafeteria Plan through employer contributions to a health flexible spending arrangement, it shall not be treated as a qualified benefit unless the plan provides that an employee may not elect to have salary reduction contributions in excess of $2,500… for any taxable year beginning after December 31, 2012.

The Trap. The taxable year referred to is the employee’s income tax filing year (calendar year) not the plan year of the plan. So, if an employee were to elect an amount in pre-tax contributions in excess of $2,500 (e.g. $3,000), that would result in the benefit remaining available in 2013, the plan would be disqualified.

The Result. Under the PPACA provision, the entire Cafeteria Plan would lose its tax favored status for the 2012 plan year. The penalties would be severe and born by the plan sponsor:

• Underreporting wages;
• Under withholding of income tax, FICA, and FUTA, as applicable;
• Plus interest and other penalties, as accumulated.

The Solution. Plan sponsors must amend their fiscal year plans to limit pre-tax contributions to HCSAs to $2,500. This is especially important for plan sponsors whose plan years begin on February 1, 2012.

Short Plan Year Alternative. It may also be appropriate to treat fiscal plan year plans on short plan year basis, ending December 31, 2012. The plan sponsor again would need to amend the plan accordingly prior to the beginning of the 2012 plan year.

Monitoring the Cap. Absent further IRS guidance, it is unclear whether a plan sponsor whose HCSA maximum benefit exceeds $2,500 for fiscal year 2012 could collect pre-tax contributions during the calendar year but administratively cease contributions on a pre-tax basis which are and treat then as after-tax contributions or as employer in excess of $2,500.

Other Considerations:

• The “grandfathered plan” rules do not save fiscal year Cafeteria Plans. The $2,500 maximum for pre-tax contributions will apply regardless of grandfathered status.
• The $2,500 maximum is per employee regardless of the number of eligible dependents covered under the plan.
• If a plan has a grace period which allows the employee to collect benefits for up to 2-1/2 months following the end of the plan year for claims incurred following the end of the plan year, grace periods are still permitted since the collection of pre-tax contributions occurred during the plan year in the case of calendar year plans and amended fiscal year plans.
• Some practitioners may suggest front-loading the collection of pre-tax contributions so that they are all taken prior to January 1, 2013. In other words, in the case of a July 1 plan year, an employee electing a $6,000 benefit would pay $1,000 for each of the first six months (e.g. July – December) with no pre-tax contributions in 2013. Since employees capable of making the accelerated contributions are most likely Highly Compensated Employees (HCEs), at a minimum the practice may result in the plan being discriminatory in favor of HCEs, resulting in the loss of tax favored status on benefits paid to HCEs. Plan sponsors considering this alternative should seek the advice of counsel prior to implementing such a scheme.
• Some HCSAs contain non-elective employer contributions which can neither be cashed out nor used for any other purpose. According to the PPACA limitation, plan sponsors may continue such a practice. On the other hand, if the plan permits these contributions to be taken as cash, it is likely the contributions would be treated as pre-tax contributions and must be counted toward the $2,500 maximum.
• On occasion, employees of one employer may have participated in two HCSAs (e.g. change in employment scenarios). Tax practitioners believe that the $2,500 maximum will apply to the aggregated amounts.

Action Plan

Employers with fiscal year plans should:

1. Prepare a strategy that will prevent the collection of pre-tax contributions in excess of $2,500 in 2013.
2. Establish all necessary procedures and safeguards which involve the Cafeteria Plan administrator.
3. Amend the Cafeteria Plan accordingly.
4. Provide notice to all individuals who are eligible to participate in the 2012 fiscal year plan regarding the new $2,500 pre-tax contribution maximum and the full terms of the 2012 fiscal year plan prior to the close of the plan’s election period.

 

Copyright © 2012 Kutak Rock LLP • All Rights Reserved. Reprint with permission only. This legislative update is published as an information source for our clients and colleagues. It is general in its nature and is no substitute for legal advice or opinion in any particular case.

Ever since the Affordable Care Act (HCR) became law, the HCR W-2 reporting rules have confused even the best and the brightest. At one point, there even was a rumor that employer-sponsored health care coverage would now be taxable (and it is not). The IRS Notice 2011-28 provides us with more guidance and interim relief.

A Brief History

1.        Patent Protection and Affordable Care Act. Section 9002 of the Act would have required employers to disclose the value of health coverage on W-2s for the 2011 tax year. It is and was intended as informational reporting only.

2.        Notice 2010-69. The Internal Revenue Service (IRS) published this Notice on October 12, 2010. The Notice made the 2011 tax year reporting optional, but affirmed that, with the 2012 tax year, the reporting would be mandatory. It reiterated the rule that the coverage to be reported would be coverage for which COBRA would apply.

3.        IRS Notices 2011-28 and 2011-31. And here comes relief. Although these Notices were issued with a request for comments, they provided the following new information:

• Reporting remains optional for the 2011 tax year;
• For employers filing fewer than 250 W-2 Forms for the 2011 tax year, filing would remain optional for 2012 or until further guidance;
• All employers who provide group health coverage (including public agencies and churches) other than Indian Tribal Governments or for plans maintained primarily for the military, must file the expanded W-2 Forms by January 31, 2013 (exception for those with less than 250 W-2 filings); and,
• Clarification of what constitutes health care coverage.

Discussion

1.         What Coverage Is to Be Reported.  Notice 2011-28 generally repeats the list of reportable lines of coverage; however, it is important to note that freestanding dental and vision benefits are excludable. Using the exclusions permitted under HCR, as well as the Health Insurance Portability and Accountability Act (HIPAA) excepted benefits rules, dental and vision benefits are excludable if they are provided under a separate policy, certificate, or contract of insurance, or otherwise not an integral part of a group health plan (e.g. self-funded plans). To be considered “not integral” the participant must have the right to elect or not elect the dental (or vision coverage) and if elected, must make additional premium contributions. (45 CFR §146.145(c)(3)(ii).

• Health Savings Accounts. Q&A 16 of the Notice specifically excludes employer contributions to HSAs and Archer MSAs.
• Pre-tax Contributions Under IRS Section 125 Cafeteria Plans. Although salary reduction agreements operate to convert after-tax salary to an employer contribution, the Notice states the contributions are excluded from the amount to be reported on the W-2. Employer contributions to a health FSA in excess of any salary reduction amounts are, however, reportable, as to the amount in excess of the employee –pre-tax contribution.
• Collectively Bargained Plans. Contributions made by an employer to a multi-employer (union) plan also are not reportable.
• Health Reimbursement Accounts. An employer is not required to include the cost of an HRA in determining the aggregate reportable cost.
• Other Exceptions. If a self-funded health plan is not subject to federal CBORA (i.e. church plans) then the cost of coverage is not reportable. However, the cost of coverage for any self-funded health plan which is subject to federal COBRA, must be reported. In the cases of self-funded discriminatory group health plans under IRC Section 105(h), the amounts reported as taxable to the highly compensated individual are not included in the calculation of what is reportable.

Additionally, the following are also not subject to the reporting requirement:

• Coverage only for accident, or disability income insurance, or any combination thereof;
• Coverage issued as a supplement to liability insurance;
• Liability insurance, including general liability insurance and automobile liability insurance;
• Workers’ compensation or similar insurance;
• Automobile medical payment insurance;
• Credit-only insurance;
• Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits;
• Coverage only for a specified disease or illness; and
• Hospital indemnity or other fixed indemnity insurance.

2.       How to Calculate the Aggregate Reportable Cost of Coverage. The Notice describes three methods an employer can use for determining the aggregate reportable cost of coverage:

3.      What About Terminated or Retired Employees? The Notice provides guidance on how to report the cost of coverage for individuals who terminate employment during the reportable year:

• The COBRA Applicable Premium Method. This means the cost for each individual would be the same as it would be for any similarly situated individual (e.g. single coverage, Grammercy location’s UHC health plan)
• The Premium Charged Method. Here, the employer would use the insurance company’s rate structure (e.g. 3-rate basis). Question: What about age-rated plans?
• The Modified COBRA Premium Method. An employer could use this method in the event it subsidizes the cost of COBRA (e.g. absorbs a rate increase without changing COBRA rates). If the employer makes a good faith estimate as to the actual COBRA premium (e.g. self-funded plan), then the estimate is to be included in the aggregate cost.
• Mid-year Termination. If an employee terminates mid-year (e.g. April 30) and elects COBRA, the employer has the option to include only the cost of the coverage provided during active employment or to include the COBRA coverage. The employer must use one method or the other consistently for all terminations in the year. If the former employee asks for a W-2 before the end of 2012, it does not need to include the cost of health coverage.
• Related Employers. If an employee transfers from one employer to a related employer and the employee receives one W-2 from a common paymaster, then the W-2 must show the aggregate cost even though health plans may be different.
• Employees in a Merger. If the employee continues employment with the successor employer then it will depend on whether the successor employer and the predecessor employer each issue a W-2. If the successor employer under the terms of the merger and in accordance with IRS rules aggregates total annual wages for both seller and buyer, then the W-2 should include the total aggregate cost of coverage. Otherwise each employer reports its own aggregate cost of coverage.
• Retirees and Other Former Employees. If an employer provides retiree health coverage, that employer is not required to issue a W-2 just to report the value of the coverage. If an individual retires mid-plan year, the cost of coverage while an active employee would be reportable on that year’s W-2.

Although Notice 2011-28 is fairly definitive, we expect to have further clarification for employers who file less than 250 W-2s for the 2013 tax year.

We will keep you posted on further developments.

Copyright © 2011 Kutak Rock LLP • All Rights Reserved. Reprint with permission only. This legislative update is published as an information source for our clients and colleagues. It is general in its nature and is no substitute for legal advice or opinion in any particular case.

“Responding to our Nation’s prescription drug abuse epidemic requires a sustained effort from government, the private sector, the medical community, as well as families and individuals,” said Gil Kerlikowske, Director of National Drug Control Policy. “

In an ongoing effort to keep our clients advised of upcoming events of interest, BRMS is happy to inform you of the National Prescription Drug Take Back Day taking place on Saturday, October 29, 2011, from 10:00 am – 2:00 pm. This is a great opportunity for people who have accumulated unwanted, unused prescription drugs, to safely dispose of them.

This DEA event is key to reducing prescription drug abuse and diversion and plays a significant role in purging America’s home medicine cabinets of neglected drugs. Last year nearly 4,000 state and local law enforcement agencies participated throughout the nation, collecting more than 309 tons of pills. This effort was instrumental in successfully removing potentially dangerous prescription drugs, particularly controlled substances, from our nation’s medicine cabinets.

For more information and to find a collection site near you, visit: http://1.usa.gov/TakeBackL

* 2009 National Survey on Drug Use and Health

In a Nutshell

For plan years beginning on or after August 1, 2012 (e.g. January 1, 2013 for calendar year group health plans), non-grandfathered plans must provide the following services in addition to those required by the initial Interim Rules published on July 19, 2010 (see below):

• Annual well-women visits to obtain age and developmentally appropriate preventive services, including preconception and prenatal care and other preventive services;
• All FDA-approved contraceptive methods, sterilization procedures and patient education and counseling, although group health plans sponsored by certain religious employers are exempt from this requirement (also discussed below);
• Screening for gestational diabetes in pregnant women;
• Human papillomavirus testing, beginning at age 30 and no more frequently than every 3 years thereafter;
• Annual counseling for sexually transmitted infections;
• Annual counseling and screening for human immunedeficiency virus (HIV);
• Breastfeeding support, supplies and counseling in connection with each birth; and
• Annual screening and counseling for interpersonal and domestic violence.

Religious Exemption

A key part of this Amendment is the granting of an exemption to certain “religious employers” with regard to contraceptive services. A “religious employer” is one that:

• Has the inculcation of religious values as its purpose;
• Primarily employs persons who share its religious tenets;
• Primarily serves persons who share its religious tenets; and
• Is a non-profit organization under Section 6033(a)(1) and Section 6033(a)(3)(A)(i) or (iii) of the Code.

Sections 6033(a)(3)(A)(i) and (iii) refer to churches, their integrated auxiliaries, and  conventions or associations of churches, as well as to the exclusively religious activities of any religious order.

State Laws

Most states require insured group health plans to provide coverage for specific preventive services. The PPACA rules for preventive services remain separate from those laws. Insurers of non-grandfathered group health plans must meet the state law requirements in addition to the PPACA preventive care rules to the extent that a state law is more strict. Some states also have enacted a religious employer exemption from coverage for contraceptive coverage. Insurers in those states must follow the stricter rule.

Medicare

PPACA also contains preventive care requirements applicable to those enrolled in Medicare as well as Medicare Advantage and Medicare Supplement Plans.

Overview of the Preventive Care Mandate

PPACA requires group health plans to provide a range of specific preventive services at no cost to the plan participant. The no-cost feature will apply to in-network services; however, the Rule will allow cost-sharing for out of network preventive care services. The Rule also allows a plan to offer other preventive care services not required under HCR and to have cost-sharing requirements for those other services. Finally, if a service is de-listed, plans can delete the service or charge co-pays, etc.

Mandatory Services. Plans must provide a specific set of preventive care services. Generally, these services include:

• Evidence-based preventive services: The U.S. Preventive Services Task Force, an independent panel of scientific experts, rates preventive services based on the strength of the scientific evidence documenting their benefits.  Preventive services with a “grade” of A or B, like breast and colon cancer screenings, screening for vitamin deficiencies during pregnancy, screenings for diabetes, high cholesterol and high blood pressure, and tobacco cessation counseling will be covered under these rules. 
• Routine vaccines: Health plans must cover a set of standard vaccines recommended by the Advisory Committee on Immunization Practices ranging from routine childhood immunizations to periodic tetanus shots for adults.
• Prevention for children: Health plans will cover preventive care for children recommended under the Bright Futures guidelines, developed by the Health Resources and Services Administration with the American Academy of Pediatrics.  These guidelines provide pediatricians and other health care professionals with recommendations on the services they should provide to children from birth to age 21 to keep them healthy and improve their chances of becoming healthy adults.  The types of services that will be covered include regular pediatrician visits, vision and hearing screening, developmental assessments, immunizations, and screening and counseling to address obesity and help children maintain a healthy weight. 
• Prevention for women: Health plans will cover preventive care provided to women under both the Task Force recommendations and the HSRA guidelines published on August 1, 2011 in conjunction with the Amendment.

Billing Issues: Office Visits. For network services provided during an office visit, and the provider bills separately for the office visit, then the plan may apply cost-sharing to the office visit. If the preventive service is not billed separately and the primary purpose of the office visit is the receipt of the preventive service, then the plan may not apply cost-sharing with respect to the office visit. On the other hand, if the purpose of the office visit was more than just the preventive service, then the plan may apply cost-sharing to the office visit, but not the preventive service. For purposes of capitation plans, the issuer must follow the procedure for tracking the encounter. In other words, if the plan treats the office visit and preventive service as one encounter, then there would be no cost-sharing.

We will provide more information on preventive care issues as it becomes available.

Provided By: Alfred B. Fowler, Kutak Rock LLP

Copyright © 2011 Kutak Rock LLP • All Rights Reserved. Reprint with permission only. This legislative update is published as an information source for our clients and colleagues. It is general in its nature and is no substitute for legal advice or opinion in any particular case.

• Aetna
• Anthem Blue Cross of Ca
• Anthem Blue Shield of Ca
• CIGNA
• First Health
• HealthSmart
• Interplan
• United Health Care

Beginning January 1, 2011 an individual participating in a flexible spending account (FSA), health reimbursement arrangements (HRA) or health savings account (HSA) will no longer be able to use tax-advantage money for the reimbursement of over-the-counter medications that are not prescribed by a doctor. This change does not affect insulin, even if purchased without a prescription or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.

The new standard applies only to over the counter purchases made on or after January 1, 2011. Claims submitted for over the counter medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011. This ruling still applies even if your employer has elected a grace period. All over the counter medicines and or drugs purchased after January 1, 2011 must be accompanied by a prescription from a physician for reimbursement.

Prescription Definition

According to the IRS, “a prescription means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.”

Questions?

Please contact BRMS customer support at 1-888-326-2555

About Flexible Spending Accounts (FSAs)

FSAs offer a win-win situation for both you and your employees

With tax advantages for both the employer and the employee, Section 125 of the Internal Revenue Code allows employees to fund a Health Care Flexible Spending Account — a method of developing a spending account to pay for certain out-of-pocket healthcare or dependent care costs on a pretax basis.

By sponsoring Flex Spending Accounts (FSAs), you offer a win-win situation for both you and your employees. By allowing  employees to allocate pre-tax earnings to specific savings accounts designated by the IRS, you help reduce FICA tax for both of you.

When you participate in a Flexible Spending Account (FSA), you save money both in taxes and health care costs that are not covered under your medical plan.  Plus, FSAs also enable you to use tax-free dollars for dependent care too!  How? Through the IRS Section 125 tax code, employers can allow employees to allocate pre-tax earnings to specific saving accounts that reduces FICA tax.

Learn more about FSA, HSA and HRA account services offered by BRMS

How These New Rules Will Help You

Stop insurance companies from limiting the care you need. For most plans starting on or after September 23, these rules stop insurance companies from imposing pre-existing condition exclusions on your children; prohibit insurers from rescinding or taking away your coverage based on an unintentional mistake on an application; ban insurers from setting lifetime limits on your coverage; and restrict their use of annual limits on coverage.

Remove insurance company barriers between you and your doctor. For plans starting on or after September 23, these rules ensure that you can choose the primary care doctor or pediatrician you want from your plan’s provider network, and that you can see an OB-GYN without needing a referral. Insurance companies will not be able to require you to get prior approval before seeking emergency care at a hospital outside your plan’s network. These protections apply to health plans that are not grandfathered.

Builds On Other Affordable Care Act Policies

These new protections complement other parts of the Affordable Care Act including:

Reviewing Insurers’ Premium Increases. HHS recently offered States $51 million in grant funding to strengthen review of insurance premiums. Annual premium hikes can put insurance out of reach of many working families and small employers. These grants are a down-payment that enable States to act now on reviewing, disclosing, and preventing unreasonable rate hikes. Already, a number of States, including California, New York, Maine, Pennsylvania and others are moving forward to improve their oversight and require more transparency of insurance companies’ requests to raise rates.

Getting the Most from Your Premium Dollars. Beginning in January, the Affordable Care Act requires individual and small group insurers to spend at least 80% and large group insurers to spend at least 85% of your premium dollars on direct medical care and efforts to improve the quality of care you receive – and rebate you the difference if they fall short. This will limit spending on overhead and salaries and bonuses paid to insurance company executives and provide new transparency into how your dollars are spent. Insurers will be required to publicly disclose their rates on a new national consumer website – HealthCare.gov.

Keeping Young Adults Covered. Starting September 23, children under 26 will be allowed to stay on their parent’s family policy, or be added to it. Group health plans that are grandfathered plans can limit this option to adult children that don’t have another offer of employment-based coverage. Many insurance companies and employers have agreed to implement this program early, to avoid a gap in coverage for new college graduates and other young adults.

Providing Affordable Coverage to Americans without Insurance due to Pre-existing Conditions: Starting July 1, Americans locked out of the insurance market because of a pre-existing condition can begin enrolling in the Pre-existing Condition Insurance Plan (PCIP). This program offers insurance without medical underwriting to people who have been unable to get it because of a preexisting condition. It ends in 2014, when the ban on insurers refusing to cover adults with pre-existing conditions goes into effect and individuals will have affordable choices through Exchanges – the same choices as members of Congress.

New Consumer Protections Starting As Early As This Fall

The new Patient’s Bill of Rights regulations detail a set of protections that apply to health coverage starting on or after September 23, 2010, six months after the enactment of the Affordable Care Act. They are:

No Pre-Existing Condition Exclusions for Children Under Age 19. Each year, thousands of children who were either born with or develop a costly medical condition are denied coverage by insurers. Research has shown that, compared to those with insurance, children who are uninsured are less likely to get critical preventive care including immunizations and well-baby checkups. That leaves them twice as likely to miss school and at much greater risk of hospitalization for avoidable conditions.

A Texas insurance company denied coverage for a baby born with a heart defect that required surgery. Friends and neighbors rallied around the family to raise the thousands of dollars needed to pay for the surgery and put pressure on the insurer to pay for the needed treatment. A week later the insurer backed off and covered the baby.²

The new regulations will prohibit insurance plans from denying coverage to children based on a pre-existing conditions. This ban includes both benefit limitations (e.g., an insurer or employer health plan refusing to pay for chemotherapy for a child with cancer because the child had the cancer before getting insurance) and outright coverage denials (e.g., when the insurer refuses to offer a policy to the family for the child because of the child’s pre-existing medical condition). These protections will apply to all types of insurance except for individual policies that are “grandfathered,” and will be extended to Americans of all ages starting in 2014.

No Arbitrary Rescissions of Insurance Coverage. Right now, insurance companies are able to retroactively cancel your policy when you become sick, if you or your employer made an unintentional mistake on your paperwork.

In Los Angeles, a woman undergoing chemotherapy had her coverage cancelled by an insurer who insisted her cancer existed before she bought coverage. She faced more than $129,000 in medical bills and was forced to stop chemotherapy for several months after her insurance was rescinded.³

Under the regulations, insurers and plans will be prohibited from rescinding coverage – for individuals or groups of people – except in cases involving fraud or an intentional misrepresentation of material facts. Insurers and plans seeking to rescind coverage must provide at least 30 days advance notice to give people time to appeal. There are no exceptions to this policy.

No Lifetime Limits on Coverage. Millions of Americans who suffer from costly medical conditions are in danger of having their health insurance coverage vanish when the costs of their treatment hit lifetime limits set by their insurers and plans. These limits can cause the loss of coverage at the very moment when patients need it most. Over 100 million Americans have health coverage that imposes such lifetime limits.

• A teenager was diagnosed with an aggressive form of leukemia requiring chemotherapy and a stay in the intensive care unit. He reached his family’s plan’s $1 million lifetime limit in less than a year. His parents had to turn to the public for help when the hospital informed them it needed either $600,000 in certified insurance or a $500,000 deposit to perform the bone marrow transplant he needed.⁴

The regulation released today prohibits the use of lifetime limits in all health plans and insurance policies issued or renewed on or after September 23, 2010.

Restricted Annual Dollar Limits on Coverage. Even more aggressive than lifetime limits are annual dollar limits on what an insurance company will pay for health care. Annual dollar limits are less common than lifetime limits, involving 8 percent of large employer plans, 14 percent of small employer plans, and 19 percent of individual market plans. But for people with medical costs that hit these limits, the consequences can be devastating.

• One study found that 10 percent of cancer patients reached a limit of what insurance would pay for treatment – and a quarter of families of cancer patients used up all or most of their savings on treatment.⁵

The rules will phase out the use of annual dollar limits over the next three years until 2014 when the Affordable Care Act bans them for most plans. Plans issued or renewed beginning September 23, 2010, will be allowed to set annual limits no lower than $750,000. This minimum limit will be raised to $1.25 million beginning September 23, 2011, and to $2 million beginning on September 23, 2012. These limits apply to all employer plans and all new individual market plans. For plans issued or renewed beginning January 1, 2014, all annual dollar limits on coverage of essential health benefits will be prohibited

Employers and insurers that want to delay complying with these rules will have to win permission from the Federal government by demonstrating that their current annual limits are necessary to prevent a significant loss of coverage or increase in premiums. Limited benefit insurance plans – which are often used by employers to provide benefits to part-time workers — are examples of insurers that might seek this kind of delay. These restricted annual dollar limits apply to all insurance plans except for individual market plans that are grandfathered.

Protecting Your Choice of Doctors. Being able to choose and keep your doctor is a key principle of the Affordable Care Act, and one that is highly valued by Americans. People who have a regular primary care provider are more than twice as likely to receive recommended preventive care; are less likely to be hospitalized; are more satisfied with the health care system, and have lower costs. Yet, insurance companies don’t always make it easy to see the provider you choose. One survey found that three-fourths of OB-GYNs reported that patients needed to return to their primary care physicians for permission to get follow-up care.

The new rules make clear that health plan members are free to designate any available participating primary care provider as their provider. The rules allow parents to choose any available participating pediatrician to be their children’s primary care provider. And, they prohibit insurers and employer plans from requiring a referral for obstetrical or gynecological (OB-GYN) care. All of these provisions will improve people’s access to needed preventive and routine care, which has been shown to improve the health of those treated and avoid unnecessary health care costs. These policies apply to all individual market and group health insurance plans except those that are grandfathered.

Removing Insurance Company Barriers to Emergency Department Services. Some insurers will only pay for health care provided by a limited number or network of providers – including emergency health care. Others require prior approval before receiving emergency care at hospitals outside of their networks. This could mean financial hardship if you get sick or injured when you are away from home or not near a network hospital.

The new rules make emergency services more accessible to consumers. Health plans and insurers will not be able to charge higher cost-sharing (copayments or coinsurance) for emergency services that are obtained out of a plan’s network. The rules also set requirements on how health plans should reimburse out-of-network providers. This policy applies to all individual market and group health plans except those that are grandfathered.

Benefits of Consumer Protections

The new rules will bring immediate relief to many Americans and provide peace of mind to millions more who are only one illness or accident away from medical and financial chaos.

The new ban on lifetime limits would affect group premiums by 0.5% or less and individual market premiums by 0.75% or less. The restricted annual limit policy would affect group and individual markets by roughly 0.1% or less (grandfathered individual market plans are exempt). And, the prohibition of preexisting conditions exclusions for children would affect group health plans by just a few hundredths of a percent. For new plans in the individual market, this impact would be roughly 0.5% in many states. In states with community rating, (roughly twenty states), the impact could be up to 1.0%. These costs are before taking into account benefits.

In addition, the rules will achieve greater cost savings by:

Reducing the“hidden tax” on insured Americans: By making sure insurance covers people who are most at risk, there will be less uncompensated care and the amount of cost shifting among those who have coverage today will be reduced by up to $1 billion in 2013.

Improving Americans’ health: By making sure that high-risk individuals have insurance, the rules will reduce premature deaths.⁶ Insured children are less likely to experience avoidable hospital stays than uninsured children^{7 and, when hospitalized, insured children are at less risk of dying.8}

Protecting Americans’ savings: High medical costs contribute to some degree to about half of the more than 500,000 personal bankruptcies in the U.S. in 2007.⁹ These costs borne by individuals might be assumed by insurance companies once rescissions are banned, annual limits are restricted, lifetime limits are prohibited, and most children have access to health insurance without pre-existing condition exclusions.

Enhancing workers’ productivity: Making sure that kids with health problems have coverage will reduce the number of days parents have to take off from work to care for family members. Parents will also be freed from “job lock,” which occurs when people are afraid to take a better job because they might lose coverage for themselves or their families.¹⁰

1 Limits on pre-existing conditions and annual limits will not apply to existing “grandfathered” plans offering individual coverage. For details, see the Fact Sheet and interim final regulations released on the topic on June 14.

2 Jarvis, Jan, “Under Fire, Blue Cross Blue Shield of Texas Offers to Cover Medical Expenses for Crowley Baby,” Houston Star-Telegram, (March 31, 2010).

3 Girion, Lisa “Health Net Ordered to Pay $9 million after Canceling Cancer Patient’s Policy,” Los Angeles Times (2008), available at: http://www.latimes.com/business/la-fi-insure23feb23,1,5039339.story.

4 Murphy, Tom. “Patients struggle with lifetime health insurance benefit caps,” Los Angeles Times, July 2008.

5 See “National Survey of Households Affected by Cancer.” (2006) accessed at http://www.kff.org/kaiserpolls/upload/7591.pdf

6 See, for example, Almond, Doyle, Kowalski, Williams (2010), Doyle (2005), and Currie and Gruber (1996).

7 Keane, Christopher et al. “The Impact of Children’s Health Insurance Program by Age.” Pediatrics 104:5 (1999), available at: http://pediatrics.aappublications.org/cgi/reprint/104/5/1051..

8 Bernstein, Jill et al. “How Does Insurance Coverage Improve Health Outcomes?” Mathematica Policy Research (2010), available: http://www.mathematica-mpr.com/publications/PDFs/Health/Reformhealthcare_IB1.pdf

9 David Himmelstein et al, 2009.

10 Gruber, J. and B. Madrian. “Health Insurance, Labor Supply, and Job Mobility: A Critical Review of the Literature.” (2001).

Source: SPBA

• The regulation is available at:
  www.dol.gov/ebsa/pdf/dependentcoverage.pdf
• The fact sheet is available at:
  www.dol.gov/ebsa/newsroom/fsdependentcoverage.html
• Frequently Asked Questions are available at:
  www.dol.gov/ebsa/faqs/faq-dependentcoverage.html