Hot Topics

• DOL Issues Model Exchange Notice

  Under Health Care Reform, employers are required to provide current employees and new hires a notice explaining Exchanges.  On May 8, 2014 the Department of Labor (DOL) issued Technical Release 2013-2 and two model notice. The Technical Release also provides an updated COBRA notice that includes a description of Exchange coverage. The Technical Release provides temporary guidance that employers may rely upon until further guidance is issued.

   

  Employers are required to provide the notice to all employees regardless of full or part time status or plan enrollment. Employers must provide the notice to current employees by October 1, 2013, and upon hire for new employees after October 1, 2013. Starting January 1, 2014 employers will have up to 14 days from the date of hire to provide the notice to new employees.  The notice must be provided by first class mail, or electronically if current DOL requirements for electronic deliver are met (namely, use of electronic media is an integral part of the employee's job or the employee actively elects to receive the notice electronically).

   

  A copy of the notice for employers who do not offer coverage is available here. A copy of the notice for employers who offer coverage to some or all employees is available here. This notice also contains an optional section for the employer to complete regarding the plan's actuarial value and the lowest cost option.  It is unclear whether the plan must complete a different section, which includes information that the employee must include on the Exchange application.

   

  Under COBRA, a group health plan must give a qualified beneficiary a notice describing COBRA election rights after the individual experiences a qualified event.  The DOL has revised the model COBRA notice to include a description of the Exchange coverage options.  The revised notice can be found here. Use of the appropriately completed model notice will be deemed good faith compliance.
• Agencies Issue New FAQ on Summary of Benefits and Coverage

  The Agencies that oversee implementation of Health Care Reform recently issued FAQ XIV relating to the Summary of Benefits and Coverage (SBC).  SBCs are meant to provide participants a high level description of benefits and coverage under the plan.  Plan sponsors and issuers were required to provide SBCs starting with the first open enrollment on and after September 23, 2012 and for new participants for the first plan year beginning on and after January 1, 2013.  

   

  In the recent guidance, the Agencies modified the SBC instructions and template to require that a plan indicate whether it provides minimum essential coverage and has at least a 60 percent actuarial value.  If it is too administratively burdensome to change the current SBC, a plan may instead include a cover letter with the SBC that contains this information (sample language was included in the FAQ). 

   

  The FAQ also clarified that in completing the annual limit section of the SBC, the plan should respond "No" to the question whether the plan has an overall annual limit.  However, if the plan imposes other limits on benefits that are not essential health benefits, those limits should be listed on the limitations and exceptions column.

   

  The changes and clarifications are for SBCs provided for coverage that begins on or after January 1, 2014, and before January 1, 2015.
• Agencies Issue New FAQs, Part XV
  Recently, the Agencies in charge of implementing Health Care Reform issued FAQ XV relating to annual limit waivers, provider non-discrimination, clinical trial coverage, and transparency reporting.
• Annual Limit Waivers
  Under Health Care Reform, plans could have restricted annual dollar limits on essential health benefits for plan years before 2014, after which such limits are prohibited. HHS waived this requirement for certain plans that could show that these limits would result in a significant decrease in access to benefits or a significant increase in premiums. The waivers expire on the first day of the plan year in 2014. The FAQs reaffirms that the waivers are only valid through the plan or policy year in effect when the plan applied for the waiver. As such, a change in the plan year will not extend the waiver. For more information on annual limits, click here.
• Provider Non-Discrimination
  
  For plan years beginning on and after January 1, 2014, Health Care Reform prohibits a non-grandfathered group health plan from discriminating against any health care provider who is acting within the scope of the provider’s license or certification under applicable state law. Health Care Reform does not require that a group health plan accept every willing provider into its network or other arrangement, and it does not prohibit a plan from varying reimbursement rates based on quality or performance measures.
  
  In the FAQs, the Agencies state that this section is “self-implementing”, and they do not expect to issue regulations in the near future. The Agencies indicated that until further guidance is issued, group health plans are required to implement this provision using a good faith, reasonable interpretation of the law. In making this good faith determination, a group health plan may use reasonable medical management techniques with respect to frequency, method, treatment or setting for an item or service, if the group health plan does not discriminate based on the provider’s license or certification and the provider is acting within its scope. For more information on provider non-discrimination, click here.
• Clinical Trials
  
  Health Care Reform provides that a non-grandfathered group health plan may not:
  

  • Deny participation for certain individuals in an approved clinical trial for cancer or another life-threatening disease or condition;
  • Deny or limit coverage of routine patient costs for items and service furnished in connection with the trial; or
  • Discriminate against the individual because of participation in the trial.
    Review next steps for employers.

  
  In the FAQs, the Agencies state that this provision also was “self-implementing,” and they do not expect to issue regulations in the near future. Until guidance is issued, group health plans are expected to implement this provision using a good faith, reasonable interpretation of the law. For more information on clinical trials, click here.
• Transparency Reporting
  
  Health Care Reform requires Qualified Health Plans within the Exchanges to submit specified information, such as claims payment policies and practices, enrollment and disenrollment data, financial disclosures, claim denials, rating practices, cost sharing for out-of-network coverage, and enrollee rights, to the Secretary of HHS, state insurance commissioners and the public. In earlier guidance, HHS indicated that Qualified Health Plans generally will not need to provide this information until 2015.
  
  These transparency requirements also apply to non-grandfathered group health plans, which must make these disclosures to the Secretary of HHS and the public. In the FAQs, the Agencies state that these disclosures will not apply to group health plans any sooner than they apply to Qualified Health Plans. For more information on transparency reporting, click here.
  
  
• Agencies Issue New FAQ on Summary of Benefits and Coverage Requirements
  The Agencies that oversee implementation of Health Care Reform recently issued FAQ XIV relating to the Summary of Benefits and Coverage (SBC). SBCs are meant to provide participants a high level description of benefits and coverage under the plan. Plan sponsors and issuers were required to provide SBCs starting with the the first open enrollment on and after September 23, 2012 and for new participants for the first plan year beginning on and after January 1, 2013.
  
  

  In the recent guidance, the Agencies modified the SBC instructions and template to require that a plan indicate whether it provides minimum essential coverage and has at least a 60 percent actuarial value. If it is too administratively burdensome to change the current SBC, a plan may instead include a cover letter with the SBC that contains this information (sample language was included in the FAQ).

  The FAQ also clarified that in completing the annual limit section of the SBC, the plan should respond "No" to the question whether the plan has an overall annual limit. However, if the plan imposes other limits on benefits that are not essential health benefits, those limits should be listed in the limitations and exceptions column.

  The changes and clarifications are for SBCs provided for coverage that begins on or after January 1, 2014, and before January 1, 2015. For more information about the Summary of Benefits and Coverage Requirements, click here.
• 90 Day Waiting Period Update

  Effective for plan years beginning on and after January 1, 2014, a plan may not impose a waiting period longer than 90 days. In August 2012, guidance was issued on this, including Notice 2012-59, which allowed plans to use eligibility criteria based on a lapse of time of no more than 90 days and explained how a measurement period could be used for variable hour employees. The agencies recently released proposed regulations relating to the 90 day waiting period. These regulations effectively adopt the earlier guidance in Notice 2012-59. The agencies note that plans may rely on either the August 2012 guidance or the proposed regulations through the end of 2014.

  The proposed regulations also contain changes to existing regulations that need to be revised because of changes to health care reform, including the prohibition on any pre-existing condition limitations for plan years beginning on and after January 1, 2014. For example, the proposed regulations amend existing regulations to remove various pre-existing condition limitation provisions, including rules relating to creditable coverage and the notice of creditable coverage. For more information about the 90-day waiting period, click here.

• Transition Rule for Group Exchange Coverage

  Health Care Reform allows individuals and small employers to obtain health care coverage through Exchanges. Small employers will obtain their group coverage through the Small Business Health Option Program (SHOP) within an Exchange. The SHOPs will assist eligible small employers in obtaining coverage. Health Care Reform allows an employer to either elect the level of coverage (e.g. silver or gold) and allow each employee to choose a Qualified Health Plan (QHP) within that level or to select a single QHP (e.g., Insurer A's silver level plan) that will be available to all of the employer's employees. Proposed regulations provide a transition rule for 2014. Specifically, state established Exchanges may require an employer to a select a single QHP in 2014, rather than allowing the employer to elect just the level and allow employees to choose their own QHPs within that level. The transition rule is optional for states operating their own Exchanges. In states where the Federal government will operate the Exchange, employers who want to offer SHOP coverage will pick a single QHP in 2014.

• Standalone HRAs Do Not Comply with the Prohibition on Annual or Lifetime Limits
  FAQs published by the Federal agencies on January 24, 2013 clarified that employer-sponsored Health Reimbursement Arrangements (HRAs) that are offered on a “stand-alone” basis (i.e., not in connection with other health coverage) must comply with the Health Care Reform prohibition on annual or lifetime dollar limits on coverage. Because, by definition, an HRA limits the amount of benefits a participant may receive based on the amount of credits the employer makes available, an HRA alone cannot comply with the requirement to offer unlimited coverage. When an HRA is integrated with other group health plan coverage, as long as the two together provide unlimited coverage, the fact that benefits under the HRA by itself are limited does not violate the law. The FAQs also provide that, if the employer offers both an HRA and health coverage but the employee fails to enroll in the employer’s coverage, the HRA will fail to comply with the law. Finally, the FAQs clarified that a stand-alone HRA used to purchase individual market coverage does not comply with the rule prohibiting annual or lifetime limits even if the purchased individual coverage does comply with the rule. From a practical standpoint, this means that stand-alone HRAs are no longer allowed for active employees. Future guidance is expected to provide that, whether or not offered on a stand-along basis, unused amounts credited before January 1, 2014 under the terms of an HRA in effect on January 1, 2013 may continue to be used by participants. Retiree-only HRAs (with fewer than two current employees) are exempt from the Health Care Reform plan design mandates so are still allowed on a stand-alone basis. Learn more about the prohibition on lifetime and annual limits.
• Application of Deductible Limits
  The preamble to final Essential Health Benefits regulations published on February 20, 2013, clarified that the deductible limits of $2,000 for individual coverage and $4,000 for family coverage will only apply to non-grandfathered small group insured plans; self-funded and large group insured plans are not subject to these deductible limits. The agencies also clarified that all non-grandfathered group health plans are required to limit a participant’s cost-sharing (e.g., deductibles, copayments, and coinsurance) to the out-of-pocket maximum that applies to HSA-compatible high deductible health plans (in 2013, $6,250 for individual coverage and $12,500 for family coverage). The agencies intend to publish future guidance on both of those plan design mandates. Learn more about the requirements for plans to cover essential health benefits, limit deductibles, and impose out-of-pocket maximums.
• Calculating Minimum Value for Purposes of the Free Rider Penalty
  Effective January 1, 2014, large employers must offer “adequate” and “affordable” health coverage to substantially all full-time employees (working 30+ hours per week) and their dependent children, or pay a Free Rider Penalty if at least one employee enrolls in Exchange coverage and qualified for a Federal premium tax credit. In order for coverage to be considered “adequate”, it must have a minimum value of at least 60%. On February 20, 2013, the agencies published a new calculator that employers can use to calculate the minimum value of their plans by inputting certain information, such as plan deductibles and coinsurance amounts. As an alternative to using the calculator, the agencies intend to publish an array of design-based safe harbors in the form of checklists that an employer can use to determine whether the plan provides minimum value. As a final note, the recent guidance allows employers to take into account employer contributions to Health Savings Accounts (HSAs) and amounts newly credited under integrated HRAs (if the HRA may only be used for cost-sharing) when calculating minimum value. Learn more about the Free Rider Penalty or utilize the minimum value calculator.
• Affordable Employer Coverage Means No Family Member Qualifies for an Exchange Tax Credit
  As described above, a large employer could owe a monthly Free Rider Penalty of 1/12 x $3,000 for each full-time employee who does not have access to “affordable” coverage, if the employee enrolls in Exchange coverage and qualifies for a federal premium tax credit. Coverage is considered affordable if the employee has to pay less than 9.5% of household income in order to participate in employee-only coverage in at least one plan option offered by the employer. Proposed Free Rider Penalty regulations published in January, 2013 confirmed that affordability is based solely on the cost of the employee’s coverage. Final regulations on the premium tax credit published by the IRS on January 30, 2013 clarified that, if the employee has access to affordable employee-only coverage, then no one in the taxpayer’s family is eligible for a tax credit to buy Exchange coverage. Generally these Federal premium tax credits are available to individuals with household income up to 400% of the Federal Poverty Level who do not have access to government provided coverage (e.g., Medicare or Medicaid) or adequate and affordable employer-sponsored coverage. The new regulations raise a number of questions about whether it would be better for the employee if the employer offers affordable or unaffordable coverage. Learn more about the Free Rider Penalty and premium tax credits.
• Reinsurance Fees
  Beginning in 2014, the Health Care Reform law establishes three separate risk adjustment mechanisms – a permanent risk adjustment program, a three-year reinsurance program and a three-year risk corridor program – all of which will provide a financial “cushion” for health insurance issuers in the individual and small group markets as they implement various health reform rules. Proposed regulations published December 7, 2012 include the information that, for 2014, plan sponsors of self-funded plans and health insurance issuers must pay a fee of as much as $63 per covered life to fund the reinsurance program. While details are still forthcoming, it appears that plan sponsors and issuers must submit covered life information to HHS by November 15, 2014, that HHS will send invoices based on this information by December 15, 2014, and that the fees must be paid within 30 days.
• Additional Medicare Tax
  Beginning January 1, 2013, the Health Care Reform law requires employers to withhold additional Medicare tax on wages paid to employees in excess of $200,000. Final regulations published December 5, 2012 confirm the process by which the additional tax should be calculated and withheld. The additional Medicare tax is 0.9% of wages over $200,000 and applies only to the employee’s share of FICA taxes – there is no matching employer share. Employers must withhold the additional Medicare tax beginning with the pay period in which an employee’s wages first exceed $200,000. Certain employees may qualify for a refund of some or all of the additional Medicare tax because a higher $250,000 threshold applies to married couples filing a joint return. Employers are not required to notify employees of the additional Medicare tax.
• Wellness Programs
  For plan years beginning in 2014, the Health Care Reform law clarifies and expands the HIPAA rules for “bona-fide” wellness programs. Proposed regulations published December 5, 2012 make the wellness program rules applicable to all employer-sponsored health plans (not just ERISA plans), and significantly increase the maximum rewards available under health-contingent programs (programs that provide a reward only if an individual satisfies a health standard). The regulations provide that rewards under health-contingent program can’t exceed 30% of the total cost of coverage, but include a special rule allowing an additional 20% reward (in other words, up to 50%) for wellness programs that provide rewards linked to tobacco use prevention.
• Comparative-Effectiveness Research Fees
  For plan years ending after September 30, 2012 and before October 1, 2019, the Health Care Reform law requires plan sponsors and health insurance issuers to pay a fee to help fund the Patient-Centered Outcomes Research Institute. Final regulations published December 6, 2012 confirm the process by which fees will be calculated and collected. Fees are based on the number of lives covered by the plan, and must be paid by July 31st following the end of each plan year. Fees are paid to the IRS by filing Form 720. The amount of fees per covered life is $1 for the first plan year, $2 for the next plan year and $2 indexed to the percentage increase in the projected per-capita amount of National Health Expenditures for each following plan year. The regulations provide that plan sponsors do not have to “double count” covered lives under two self-funded plans with the same sponsor (e.g., a self-funded PPO and a self-funded Health Reimbursement Arrangement), but the same relief does not apply if one of the arrangements is fully insured.
• New Guidance on Who Qualifies as a Full-Time Employee for the Free Rider Penalty
  Notice 2012-58 confirms the safe harbor, described in Notice 2011-36, for employers to use to determine whether an existing employee is considered a full-time employee for purposes of the Free Rider Penalty. Notice 2012-58 also states that the same safe harbor may be used for newly hired variable hour or seasonable employees. In general, full-time status is determined for each month, and an employee who averages 30+ hours of service per week is considered a full-time employee. Employers may use an optional lookback period (of between 3 and 12 calendar months) to determine whether an employee averaged 30+ hours of service per week. If an employee was considered full-time during this “measurement period”, the employee must be treated as a full-time employee for benefits purposes for a “stability period” of the same length of time (but not shorter than six months). Additional information about how to utilize the lookback safe harbor is available here.
• New Guidance on Waiting Period Limits
  Notice 2012-59 provides guidance on the requirement that limits waiting periods for plan years beginning on or after January 1, 2012. The Notice clarifies that eligibility conditions that are based solely on the lapse of time are permissible for no more than 90 days. However, if a group health plan conditions eligibility on having worked a specified number of hours during a period (or working full-time), and it cannot be determined whether a newly-hired employee is reasonably expected to regularly work that amount of time, the employer may utilize a measurement period as described in Notice 2012-58 to determine whether an employee has met the plan’s eligibility criteria. The “measurement period” (as described in connection with the Free Rider Penalty) is not considered a waiting period under the rule that limits waiting periods to 90 days. Additional information about the requirements for utilizing a measurement period is available here.
• Supreme Court Upholds The Law

  On June 28, the Supreme Court upheld the Health Care Reform law on a 5-4 vote. However, on the question of whether an expanded Medicaid requirement is constitutional, the court instructed that states may participate in the enhanced benefits offered under the law, but the federal government may not take pre-Health Care Reform law Medicaid funding away from states that do not participate in the new program.

  American Fidelity has been monitoring developments in the law from the beginning and will continue to do so. We are dedicated to helping you understand and implement Health Care Reform requirements as needed.

  Ready to learn more about the decision?

  • Read an overview here.
  • Watch a summary here.
  • Review next steps for employers.

Caution:

The information provided here is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All interpretations are subject to change as the appropriate agencies publish additional guidance. American Fidelity does not provide legal advice – as such, we suggest that employers and individuals consult with their legal counsel and/or tax advisors about how Health Care Reform may impact them.