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What You Need to Know About Health Care Reform Compliance

Presented by

Marcia S. Wagner, Esq. The Wagner Law Group

Kim Buckey, Principal HighRoads

Introductions – Marcia S. Wagner

Marcia S. Wagner is a specialist in pension and employee benefits law, and is the principal of The Wagner Law Group in Boston, Massachusetts, which she founded approximately 15 years ago. A summa cum laude and Phi Beta Kappa graduate of Cornell University and a graduate of Harvard Law School, she has practiced in Boston for over twenty-four years.

Ms. Wagner is recognized as an expert in a variety of employee benefits issues and executive compensation matters, including qualified and non-qualified retirement plans, “rabbi” trusts, all forms of deferred compensation, and welfare benefit arrangements.

Introductions – Kim Buckey

Kim Buckey is the Principal for the HighRoads Communications consulting practice focused on delivering high value strategic and practical solutions for clients in an efficient manner leveraging the HighRoads technology platform.

Previously, Kim served as national compliance champion and global quality leader for Watson Wyatt's communication practice. In her 30-year career Buckey has helped dozens of companies meet their compliance requirements by completing hundreds of health and welfare and retirement plan SPDs.

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From the Beginning

• Legislation– Patient Protection and Affordable Care Act– Health Care and Education Affordability

Reconciliation Act of 2010

• Main Objectives & Consequences– Increase transparency and efficiency of the health

care system– Require health care coverage for individuals– Provide premium subsidiaries for lower income

individuals– Impose new taxes, responsibilities, and penalties on

employers and others

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Mandatory Coverage for Individuals

• Effective 2014

• Most U.S. residents must have minimum “essential health benefits” or pay a penalty

• Penalty:– $95 or 1% of income in 2014– $695 or 2.5% of income in 2016

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Premium Assistance

• Small employer subsidies

• Employees eligible if income between 100% and 400% of federal poverty level

• Cost sharing subsidy for those with income below 200%

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American Health Benefit Exchanges

• Operational in 2014

• Offer Bronze, Silver, Gold, Platinum, and Catastrophic Plan coverage to individuals

• Out of pocket costs reduced for lower income individuals

• SHOP

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Insurance Market

• Guaranteed Issue• Guaranteed Renewability• High Risk Pool• Rating only by:

– Family structure– Community rating value of benefits– Age– Smoking

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Medicare and Medicaid

• Reduce certain Medicaid payments

• Independent Advisory Panel

• Close Medicare Part D doughnut hole

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Funding

• Additional taxes imposed on the insurance industry:• A 40% excise tax is imposed on “Cadillac” plans• Increase Medicare portion of FICA• A 3.8% surtax is imposed in 2013 on net investment

income• Reduction of Medicare Part D premium subsides• Elimination of the deduction for expenses attributable

to the Medicare Part D subsidy• Increase in the deduction threshold on medical

expenses from 7.5% to 10%• A 10% excise tax on indoor tanning services

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Employer Group Health Plans – Future Consideration

• Employers with more than 50 employees who do not offer minimum essential health coverage will be assessed a fee of $2,000 per employee, with an exception for the first 30 employees

• If contributions are in excess of 9.8% of income, the employer will be assessed a penalty of $3,000 for each employee who receives a premium tax credit, with an exception for the first 30 employees

• Maximum 90 day waiting period• Employers with more than 200 employees must

automatically enroll their employees in the employer-sponsored group health plan

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Employer Group Health Plans – Future Consideration (continued)• Employer must offer a “free choice” voucher• Health care flexible spending account plans will

be limited to $2,500• Notification requirements

– Uniform summary of benefits– W-2 reporting– Individual coverage report

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Grandfather Rules

• Definitions:– A group health plan that was in existence on March

23, 2010

– Identity of participants may change

– Each benefit package examined separately

• To maintain grandfather status, a plan must:– Include a statement saying plan is a grandfathered

health plan;

– Maintain records that document the terms of the plan in effect of March 23, 2010;

– Make records available;

– Provide contact information

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Grandfather Rules (continued)

• Grandfather status will be lost if the plan:– Enters into a new policy, certificate, or contact of

insurance after March 23, 2010– Eliminates substantially all benefits for a specific

illness– Increases co-insurance or cost sharing– Decreases employer contribution percentage– Imposes certain new annual limits on benefits

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Provisions Applicable to All Plans

• Coverage for adult children• Restrictions on annual and lifetime benefit limits• Elimination of pre-existing condition exclusions• Limitation of rescissions• Over-the-counter medications

Provide free preventative care services Participants may select primary care providers, including pediatric

care providers, and OB/GYNs Insured group health plans will be subject to nondiscrimination rules Emergency care services without prior authorization Internal and External Appeals Process

Provisions Applicable to Non-Grandfathered Plans

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Coverage of Adult Children

• Must make health care coverage available to children of plan participants until age 26

• May not consider:– Tax dependency– Residency– Student status– Marital status– Employment status

• May exclude adult child who is eligible for health coverage under another employer’s plan

• Cannot require additional contributions because child is adult

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Coverage of Adult Children (Continued)

• Special enrollment period– For adult children who lost, or never had, coverage– Enrollment period must be at least 30 days– Must receive written notice of enrollment opportunity

• Taxation– No imputed income even if adult child not tax dependent

until end of tax year in which child turned 27– Pre-tax contributions to cafeteria plan permitted if plan

amended– Change in Status rules include adult, non-dependent

children

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Restrictions on Annual and Lifetime Benefit Limits

• No lifetime dollar limits on essential health benefits• Must notify individuals who reached prior lifetime

limit of 30-day opportunity to re-enroll• Annual limits on essential health benefits must be

at least:– $750,000 per plan years beginning after September 22,

2010– $1.25 million for plan years beginning after September 22,

2011– $2 million for plan years beginning after September 22,

2012

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Restrictions on Annual and Lifetime Benefit Limits (Continued)

• Annual limit applies separately to each individual• Annual limit cannot be offset by non-essential

health benefits• Exceptions to annual limit:

– Health FSAs– HSAs– Mini-med or limited benefit plans

• New open enrollment period

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Pre-Existing Conditions

• Pre-existing conditions definition• Cannot impose on child under 19• Cannot impose on anyone as of 2014• Cannot exclude from coverage

RescissionRescission is a retroactive cancellation of coverageRescission only permitted for fraud or intentional

misrepresentationThirty day notice requirement

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Over-the-Counter Medications

• Effective January 1, 2011• Applies to all non-prescribed over-the-counter

medications, except insulin• Health Care FSAs, HRAs cannot reimburse. HSA

distributions taxable

Preventative Care ServicesCannot have cost sharing such as co-pays or

deductiblesPreventative Care includes:

Well baby care; mammograms; services recommended by certain government agencies; services to be included by HHS

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Choice of Health Care Provider and OB/GYN Referrals

• Must allow selection of any primary care or pediatric care provider in plan’s network

• Referral to OB/GYN not required

Non-Discrimination Rules for Insured Plans

Non-discrimination rules for insured plans will be “similar” to self-funded plan rules

IRS guidance needed

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Emergency Care Services

• Must be provided without prior authorization or regard to plan’s network

• Out-of-network and cost sharing requirements must be the same as for in-network

• Emergency Medical Conditions – expectation of serious jeopardy or impairment to bodily functions or organs

• Emergency service provider may balance bill patient

Internal and External Reviews

• Internal– Comply with DOL’s current claims requirements plus

six new requirements including:• Urgent care claims resolved within 24 hours• Plan must hire independent decision makers• Must provide “culturally and linguistically appropriate” notices

• External– Comply with state external review process for insured

plans, or– Comply with procedures in new DOL Technical

Release

Communicating About Health Care Reform

• Employees are looking for information about how health care reform will affect them and their benefits

• Opportunity for employers to enhance employee perception about their plans

• Potential for improved employee engagement– Recent studies show that employers with good benefits

communications have more satisfied and engaged employees

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There’s a Lot to Communicate

Year Topics

2010 • Auto enrollment and opt out• Dependent eligibility• Changes to annual and lifetime limits

2011 • OTC drugs no longer eligible medical expenses• W-2 reporting

2012 Benefit summaries

2013 • Changes to FSA contribution limit• Information about the Exchange and how employer plan coordinates

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Your Options

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Approach Pros Cons

Update your SPDs • May be out of compliance anyway

• Long shelf life

• May not have time before the end of the year, especially if you have many, or complex, SPDs

• Can be costly to produce

Issue SMMs • Often less costly to produce and mail

• Can be generated relatively quickly

• May get separated from SPDs

• Fulfillment may be a challenge (who gets what)

Other tools (enrollment materials, newsletters, meetings)

• Timely• May have more

visual impact

• Likely to end up in the trash

The Role of SPDs

• Legally required– Every five years if plan has changed– Every 10 years if no changes

• “User guides” for benefits– Can help participants make informed decisions about what

coverage to elect– Explain how to use the benefits

• Regulations spell out:– Content (specific to the type of plan being described)– Style (easily understood by average participant; no jargon)

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The Role of SPDs (cont’d)

• Not all plans require SPDs– Non-ERISA plans

• DC FSA

– May depend on services provided• EAP

• Severance

• Distribution is an issue– Print vs. electronic– Answer may depend on the audience– Trend is definitely away from print

• Cost

• “Green” initiatives

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What’s Next?

– Summaries of coverage• Distributed on or before March 30, 2012, and at enrollment

– 60-day advance notice of changes to benefits (effective 2012)

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You Need a Plan

• The volume, frequency and complexity of changes over the coming years demand a strategy

• Map out:– What needs to be communicated when

– When guidance is coming from HHS

– Who needs what information when

– Who needs to review and approve what information

– What decisions will need to be made about benefit strategy and design

– What is best timing/media to get messages across

– Who’s going to do the work

– How can technology help

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Why worry?

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Penalties

• $110 per day penalty for failure to provide compliant SPD

• Potential back benefits & court fees if SPD found to be lacking

• HIPAA Penalties:– $100 to $50,000 based on number and nature of

violations– Maximum penalty $1,500,000 per year– Separate violation occurs on each day of non-

compliance

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Conclusion – Action Steps for Employers

Determine if you are a grandfathered plan Assess plan with regards to new requirements Prepare in advance for:

– Required open enrollments

– Plan amendments

– New required communication materials and notices

– Revisions of summary plan descriptions and new summaries of material modifications

– Keep Alert! Government agencies will be issuing additional regulations and revising those that have already been issued

Q&A

Have a question later? Ask the Experts Marcia Wagner

Tel: (617) 357-5200 marcia@wagnerlawgroup.com

Website: www.erisa-lawyers.com

Kim Buckey

Tel: (781) 503-4000 x 3085 kbuckey@highroads.com

Blog: http://newsroom.highroads.com/

Thank you

Thank for attending today’s webinar. You will be receiving several reference materials

- Electronic distribution guideline - SPD Content Checklist- What Plans Require an SPD - Best Practices of Health Care Reform Compliance

article by the presenters