As we approach 2014, the agencies charged with implementing the Affordable Care Act (“ACA”) have been busily issuing guidance. And although much of the focus has been on the “play-or-pay” requirement, sponsors of employee health plans should not ignore the other ACA requirements that are set to apply in 2014.
For instance, during just the first three months of 2013, significant ACA guidance has included the following:
- Final regulations concerning “essential health benefits,” including key clarifications as to which health plans must comply with the ACA’s limits on deductibles and out-of-pocket expenses;
- Proposed regulations concerning the ACA’s 90-day limit on eligibility waiting periods; and
- Yet another round of Frequently Asked Questions, this time addressing both the deductible and out-of-pocket limits and a number of technical questions concerning the ACA’s preventive care rules.
Essential Health Benefits
Running throughout the ACA is the concept of “essential health benefits” (“EHBs”). As explained in our December 2012 article, health insurance policies issued in the individual and small-group markets must cover all EHBs. That same article lists the ten EHBs that appear in the text of the ACA and then summarizes a set of proposed regulations describing how each state insurance regulator is to identify the precise EHBs within its state.
However, the agencies have yet to issue guidance defining EHBs in the self-insured and large-group markets. Although the ACA does not require self-insured or large employers to cover all categories of EHBs, it does prohibit all plans (other than those that retain their “grandfathered” status) from imposing any lifetime or annual limit on the EHBs they do cover. (For plan years beginning in 2013, plans may still impose an annual limit of no less than $2,000,000.)
The EHB concept is also relevant to the ACA’s limits on annual deductibles and out-of-pocket (“OOP”) expenses. Although the ACA was fairly clear in delineating these two limits, it was far from clear in describing the types of health plans that must comply with them. This question was finally answered in regulations issued in February of this year, with further clarification provided in Part XII of the FAQs (issued that same month).
Starting in 2014, non-grandfathered insurance policies issued in the individual and small-group markets will have to cap any annual deductible for EHBs at no more than $2,000 for single coverage and $4,000 for family coverage. This recent guidance makes clear that neither self-insured plans nor insured plans in the large-group market will be subject to these deductible limits.
By contrast, all non-grandfathered health insurance plans and policies will have to comply with the caps on total OOP expenses. For 2014, these caps will be set at the OOP limits applicable to qualifying high deductible health plans (“HDHPs”) ‒ the types of plans that may be paired with health savings accounts. The dollar amounts for 2014 will be announced later this year, but the 2013 HDHP limits on OOP amounts are $6,250 for individual coverage and $12,500 for family coverage.
In applying these OOP limits, it is important to note which expenses count toward the cap, and which expenses do not. According to the recent guidance, the following types of expenses count toward the OOP cap:
- Deductible amounts;
- Copayments, and
- Coinsurance amounts.
By contrast, the following types of expenses need not be counted when applying the OOP limits:
- Premium amounts;
- Out-of-network expenses (assuming those services are also available from in-network providers); and
- Expenses that are not EHBs.
The recent guidance also provides limited transition relief for 2014 – but only for plans having multiple claims payers. For instance, a plan might utilize one claims payer for major medical benefits and a different payer for prescription drug benefits. Plans that find themselves in this situation may wish to review this transition relief. Starting with the 2015 plan year, however, all non-grandfathered plans will be required to comply fully with the OOP limits.
90-Day Limit on Waiting Periods
The other ACA requirement addressed in the recent guidance is a 90-day limit on any eligibility waiting period. This requirement will also apply as of the 2014 plan year. However, unlike the limits on deductibles and OOP expenses, this cap on eligibility waiting periods will apply to both grandfathered and non-grandfathered plans.
The IRS issued earlier guidance on this topic in Notice 2012-59, as summarized in our September 2012 article. The recently proposed regulations basically confirm that earlier guidance. And just like that guidance, these regulations may be relied upon in complying with this requirement for the 2014 plan year.
Despite requests from commenters, the agencies have refused to equate three months with 90 days. Thus, coverage must begin no later than the 91st day after an employee’s date of hire (assuming the employee is hired into an eligible classification). This means that any plan wanting to make coverage effective as of the first day of a month may not require more than two full calendar months of employment.
The agencies have also reemphasized that this 90-day limit applies only to eligibility requirements that are based on the passage of time. Plans may still impose other eligibility conditions, such as a classification requirement (e.g., “salaried” or “hourly”), a minimum level of sales or commissions, or the completion of a minimum number of total hours. The agencies note, however, that any minimum number of total hours may not exceed 1,200. Moreover, any such hours requirement may be imposed on an employee only once; it may not be reimposed on an annual basis.
One question facing large employers – i.e., those that are subject to the play-or-pay requirement – is how this 90-day waiting period limitation will be treated for play-or-pay purposes. Here, the news is generally good. During any eligibility waiting period of up to 90 days, a large employer will not be subject to any play-or-pay penalty. This is true even though an eligible employee may receive subsidized, Exchange-provided coverage during that period.
Moreover, once an employee has satisfied any non-service-based eligibility requirement (such as those referenced above), a plan will generally still have 90 days in which to enroll the employee. This is because the 90-day cap on eligibility waiting periods applies only after an employee has satisfied any non-service-based eligibility conditions (such as by moving into an eligible classification).
Large employers, however, will also want to keep their eyes on the play-or-pay rules. As a result of those rules, they may not have the luxury of waiting 90 days to offer coverage to a full-time employee who moves into an eligible class. That’s because, for play-or-pay purposes, any period of employment as a full-time employee must be counted against the 90-day limit – even if the employee is in an ineligible classification of employees. As a result, a large employer may have to offer coverage to a full-time employee as soon as the employee moves into an eligible classification.
An employer plan may also continue to condition eligibility for coverage on an employee being in “full-time” status. Any large employer will want to use the ACA’s 30-hour threshold for this purpose, as a way of avoiding the play-or-pay penalty. But the regulations allow any employer to use a “look-back period” of up to 12 months to determine whether an employee who works a variable schedule actually satisfies a plan’s definition of full-time. Once that look-back period has ended, an employee whose average hours were sufficient to satisfy the plan’s full-time definition must then be offered coverage by the first day of the month immediately following his or her 13-month anniversary of employment.
As with the EHB rules, this 90-day cap on eligibility waiting periods will apply as of the first day of the plan year beginning in 2014. But what if a plan currently has an eligibility waiting period of more than 90 days and an otherwise-eligible employee has completed at least 90 days of that waiting period when the plan’s 2014 plan year begins? In that case, the plan will have to offer the employee coverage on the first day of the plan year ‒ and not 90 days later.
Certificates of Creditable Coverage
Another ACA provision taking effect with the 2014 plan year ‒ this time for all plans ‒ is a prohibition on preexisting condition limitations or exclusions. (This rule already applies to dependents under age 19.) Once this prohibition takes effect, the requirement that a plan issue a certificate of creditable coverage each time an individual loses coverage will no longer make sense. Recognizing this fact, the proposed regulations repeal the requirement that plans and insurers issue creditable coverage certificates.
Note, however, that the elimination of this requirement does not take effect until the end of 2014. This delay reflects the fact that non-calendar year plans may still impose a preexisting condition limitation until the last day of their 2013 plan year, which could conceivably land in late December of 2014. As of December 31, 2014, however, certificates of creditable coverage will be history.
As sponsors of employee health plans redesign their plans for 2014, they will want to take this recent guidance into account. They should also continue to look for additional agency guidance. Given the lead time needed to prepare employee communications and begin the enrollment process, we are already approaching crunch time for the 2014 plan year.