It has been eight months since the historic Patient Protection and Affordable Care Act ("PPACA") was passed by the United States Congress and signed into law by President Barack Obama. PPACA revises and expands the manner in which health care plans are provided by employers and how health insurance issuers may offer group health plans to employers. Spanning nearly 1,000 pages, the new law is more than a bit overwhelming to consider. Worse still, employers were not given much time to learn the law's requirements, as many of its provisions go into effect for plan years commencing on or after September 23, 2010 (e.g., January 1, 2011, for calendar year plans) and require employers with group health plans (including self-insured plans) to make decisions and take certain actions for plan years commencing after that date.
To cover all of what is required of an employer might take as many pages as the new law itself and would not necessarily offer insight for those faced with the challenge of making critical decisions about group health plans. This article distills this massive beast down to the essential components of the legislation and offers practical guidance regarding what employers must do now to comply with the early mandates of the new law – that is: (1) decide whether to "grandfather" their current group health plan; and (2) send out certain notices to plan participants.
STEP NO. 1: DECIDE WHETHER TO GRANDFATHER YOUR HEALTH PLAN
A threshold matter all employers must consider is whether or not to "grandfather" their current health plan. A "grandfathered" plan is defined simply as a group health plan in which an individual was enrolled on March 23, 2010. Grandfathered plans do not need to comply with certain requirements under PPACA. These are discussed in more detail below. The law pays more attention to how a plan loses its grandfathered status. Employers wishing to maintain grandfathered status of their plans must maintain documents that reflect plan terms and conditions as of March 23, 2010.
In considering whether to grandfather a health plan, most employers will need to consider the financial impact of maintaining that status. This requires weighing the limits PPACA places on grandfathered plans, including limits on increasing participant costs, against the costs of the additional requirements for non-grandfathered plans under PPACA. Employers may need to retain a plan actuary to ascertain the financial impact of these alternatives.
Requirements for All Health Plans
Both grandfathered and non-grandfathered group health plans must meet the following requirements for plan years beginning on or after September 23, 2010:
(1) Lifetime and Annual Limits. Group health plans may not impose lifetime limits on "essential health benefits." Essential health benefits are:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Laboratory services
- Maternity and newborn care
- Mental health and substance abuse disorders, including behavioral health treatments
- Pediatric services, including oral and vision care
- Prescription drugs
- Preventive, wellness and chronic disease management services and
- Rehabilitative and habilitative services and devices
The Secretary of Health and Human Services is empowered to add additional benefits to PPACA's list of essential health benefits.
Concerning annual limits, for plan years beginning January 1, 2014, plans cannot impose annual limits on the dollar value of essential health benefits. For group health plan years beginning before January 1, 2014, plans may phase out annual limits on essential health benefits as follows:
- $750,000 for plan years beginning on or after September 23, 2010, but before September 23, 2011;
- $1.25 million for plan years beginning on or after September 23, 2011, but before September 23, 2012; and
- $2 million for plan years beginning on or after September 23, 2012, but before January 1, 2014.
(2) Coverage of Dependents up to Age 26. Group health plans that permit employees to enroll dependents must provide coverage for employees' dependent children until they reach age 26. Coverage may not be restricted for dependents under age 26 because the dependent:
- Is married or unmarried
- Has or does not have children of his/her own
- Lives with or does not live with the covered employee
- Is financially dependent or independent of the covered employee
- Is a student attending school full time or part-time, or is not attending school
- Is employed or unemployed or
- Is eligible or not eligible for other health care coverage. (For grandfathered plans, until January 1, 2014, employers that permit employees to enroll their dependents can deny or restrict plan coverage for employees' dependents under age 26 if the dependent is eligible to enroll in a health plan offered by the dependent's employer.)
Employers must permit employees' dependents who are under age 26, and otherwise eligible, to enroll, and dependents who lost coverage before reaching age 26 to re-enroll, in plans.
(3) Pre-existing Condition Exclusion Prohibition. Plans may not impose pre-existing condition exclusions for plan participants under age 19 and, for group health plan years effective January 1, 2014, the plans may not impose pre-existing condition exclusions for any plan participants, regardless of age.
(4) Waiting Periods. Plans may not impose waiting periods longer than 90 days. "Waiting periods" are the length of time required to pass before health benefit coverage becomes effective.
(5) Termination of Coverage. Plans cannot cancel, rescind, refuse to renew, or terminate plan coverage retroactively, except if a plan participant engages in fraud or intentional misrepresentation.
(6) Over-The-Counter Drug Reimbursements. Effective January 1, 2011, employer-provided health plans, including flexible spending accounts, health reimbursement arrangements and health savings accounts, no longer may reimburse for over-the-counter medications.
Requirements for Non-Grandfathered Health Plans (i.e., grandfathered health plans do not need to comply with the following requirements):
Non-Grandfathered health plans have a number of important requirements that are not required of grandfathered plans. These are:
(1) Preventive Health Care Services. Plans must provide coverage for certain preventive services, including: (1) certain items or services that are rated "A" or "B" by the U.S. Preventive Services Task Force1; (2) certain immunizations; and (3) preventive care and screening for infants, children, adolescents and women.
(2) Choice of Health Care Professional. When the plan operates within a network of health care professionals, participants must be permitted to choose any participating health care professional who is a: (1) primary care provider; (2) pediatrician; or (3) specialist in obstetrics or gynecology.
(3) Non-Discrimination. Plans may not provide more favorable treatment for highly compensated employees with respect to plan participation and benefits than that which is provided to other employees. As a practical matter, this prohibition impacts benefits often provided to highly compensated employees, including those provided in both employment and severance agreements (e.g., payment of COBRA by the employer for a period of time following termination of employment).
(4) Appeals. Plans must administer a benefit claims and appeals process for adverse benefit determinations which include either a State or Federal external review process.
(5) Emergency Services. Plans must cover emergency services without prior authorization and whether or not the service is provided in-network or out-of-network.
How to Maintain the Grandfather Status of Your Health Plan
While the definition of a grandfathered health plan seems simple — a group health plan in which an individual was enrolled on March 23, 2010 — the interim regulations set out various ways a plan can lose its grandfathered status. Any of the following six events will cause a grandfathered health plan to lose that status:
(1) Elimination of Benefits. Elimination of all or substantially all benefits to diagnose or treat a particular condition.
(2) Increase in Percentage of Cost-Sharing. Any increase in the percentage cost-sharing requirement from that in place as of March 23, 2010.
(3) Increase in Fixed-Amount Cost-Sharing, Other than Copayment. Any increase in a fixed-amount cost-sharing requirement other than a copayment (e.g., deductible or out-of-pocket limit), determined as of the effective date of the increase, if the total percentage increase in the cost-sharing requirement measured from March 23, 2010 exceeds a "maximum percentage increase." "Maximum percentage increase" is defined by the interim regulations as medical inflation, expressed as a percentage, plus 15%.
(4) Increase in Fixed-Amount Copayment. Any increase in a fixed-amount copayment, determined as of the effective date of the increase, if the total increase in the copayment measured from March 23, 2010, exceeds the greater of (1) an amount equal to $5 increased by medical inflation (e.g. $5 x rate of medical inflation, plus $5) or (2) the maximum percentage increase, determined by expressing the total increase in the copayment as a percentage.
(5) Decrease in Contribution Rate by Employer. For a contribution rate based on cost of coverage, a decrease in the employer's contribution rate (based on cost of coverage towards the cost of any tier of coverage for any class of similarly situated individuals) by more than 5% below the contribution rate for the coverage period that includes March 23, 2010.
For a contribution rate based on a formula, a decrease in the employer's contribution rate based on a formula towards the cost of any tier of coverage for any class of similarly situated individuals by more than 5% below the contribution rate for the coverage period that includes March 23, 2010.
(6) Changes in Annual Limits. A health plan that, on March 23, 2010, did not impose an overall annual or lifetime limit on the dollar value of all benefits ceases to be a grandfathered health plan if the plan imposes an overall annual limit on the dollar value of benefits.
A health plan that, on March 23, 2010, imposed an overall lifetime limit but no overall annual limit ceases to be a grandfathered health plan if the plan adopts an overall annual limit at a dollar value that is lower than the dollar value of the lifetime limit on March 23, 2010.
A health plan that, on March 23, 2010, imposed an overall annual limit ceases to be a grandfathered health plan if the plan decreases the dollar value of the annual limit, regardless of whether the plan also imposed an overall lifetime limit on March 23, 2010.
STEP NO. 2: SEND OUT NOTICES REQUIRED BY THE NEW LAW
Once the decision is made on whether to grandfather a current health plan, the next requirement PPACA places on employers and health insurance carriers is the issuance of certain notices to all participants in the health plan. These notices include:
(1) Grandfathered Plan Notice. To maintain status as a grandfathered health plan, a notice must be sent to all participants in any plan materials that describe the benefits provided under the plan, that the plan believes it is a grandfathered health plan, and providing contact information for questions and complaints.
(2) Dependent Coverage to Age 26 Notice. A plan must give a dependent under age 26 the opportunity to enroll for at least 30 days following an official notice of the opportunity to enroll. The enrollment opportunity and a notice must be provided no later than the first day of the first plan year beginning on or after September 23, 2010. The notice may be included with other enrollment materials, provided that the notice is prominent. Enrollment must be effective as of the first day of the first plan year beginning on or after September 23, 2010.
(3) Lifetime Limit and Enrollment Opportunity Notice. All participants must be notified that the lifetime limit on the dollar value of all benefits no longer applies and that an individual, if covered, is once again eligible for benefits under the plan. The notice and enrollment opportunity must be provided beginning no later than the first day of the first plan year beginning on or after September 23, 2010. The notice may be provided to an employee on behalf of the employee's dependent and may be included with other enrollment materials, provided the statement is prominent.
(4) Patient Protection Notice. A notice is required to participants that they have a right to: (1) choose a primary care provider or a pediatrician when a plan requires designation of a primary care physician or (2) obtain obstetrical or gynecological care without prior authorization. The notice must be provided whenever the plan provides a participant with a summary plan description or other similar description of benefits. This notice must be provided no later than the first day of the first plan year beginning on or after September 23, 2010, but is not required for grandfathered plans.
SUMMARY
While the new healthcare laws may seem overwhelming in their volume and verbiage, the current requirements for employers can be broken down into making the decision as to grandfathering a health plan and sending out the required notices. That should get employers to the next plan year, or at least the next round of regulations modifying the laws.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
