Benefits In Brief

Large employers (those issuing more than 250 W-2s for 2011) must report the value of their employees’ health coverage on the W-2s they issue for 2012 (in January of 2013).  Given the complexities of this process, the time to start preparing is now.  As explained in this article, the IRS has just issued another round of guidance on this reporting requirement.  This is likely to be the last guidance available before the requirement takes effect.

The tide of regulations interpreting the 2010 Patient Protection and Affordable Care Act (“PPACA”) began to ebb in 2011, and portions of the law have even been repealed or put on hold.  Nonetheless, health plan sponsors will still face new compliance burdens in 2012.  This article briefly addresses these aspects of the PPACA.

The Affordable Care Act (“ACA”) requires each employer group health plan to provide a 4-page summary of its benefits to all individuals who are eligible for coverage. This requirement takes effect on March 23, 2012 (two years after the enactment of the ACA). The three agencies charged with implementing many of the ACA’s requirements have just issued proposed regulations, along with templates of proposed formats, under which a plan may furnish this new “summary of benefits and coverage” (“SBC”).

A cornerstone of last year’s Affordable Care Act (“ACA”) was the establishment of state-based “American Health Benefit Exchanges.”  These Exchanges are to serve as health insurance clearinghouses, allowing health care consumers to connect with insurers.  Each Exchange must also maintain a “Small Business Health Options Program” (or “SHOP”), through which small employers may obtain health insurance for their employees.  In mid-July, the Department of Health and Human Services (“HHS”) proposed two sets of regulations concerning these new Exchanges.

The Affordable Care Act (“ACA”) requires group health plans (other than plans that are “grandfathered”) to cover a list of preventive health services.  Earlier this month, the three agencies charged with administering the ACA issued additional rules describing women’s preventive services that must also be covered.  Like the services listed in earlier agency guidance, these women’s preventive services must be covered on a first-dollar basis, with no cost-sharing requirement, by “non-grandfathered” group health plans.  This article briefly summarizes the new rules.

2011 has been a big year for grandfathered and non-grandfathered group health plans alike.  A number of significant changes mandated by the Affordable Care Act (“ACA”) took effect for both types of plans.  Now, 2014 looms as the next big milestone in health care reform.  But losing track of the grandfathering rules is a trap for the unwary.  While there are no major health care reform changes taking effect in 2012, sponsors of grandfathered plans should revisit the rules governing grandfathered status to ensure that they do not inadvertently lose that status in 2012.

As explained in our August 2010 article, “interim final regulations” issued under the Affordable Care Act (“ACA”) require that group health plans (other than those that are “grandfathered”) comply with a number of internal claims and appeals procedures that go beyond those previously required under ERISA. The ACA also requires group health plans to offer a new state or federal external review process to review denied claims.

On April 1, 2011, the Centers for Medicare and Medicaid Services ("CMS") issued revised Medicare Part D creditable and non-creditable coverage notices to reflect an amendment made to the Social Security Act by the Affordable Care Act ("ACA"). The amendment accelerated the Medicare Part D annual enrollment period — from November 15 through December 31, to October 15 through December 7. This change is effective for 2012 Part D enrollments, occurring in the fall of 2011.

In our February 2011 article, we provided a “status report” on health care reform nearly a year after enactment of the Affordable Care Act (“ACA”). Much more has happened since that article was written — in all three branches of the federal government.

As explained in our August 2010 article, “interim final regulations” issued under the Affordable Care Act (“ACA”) will require group health plans (other than those that are “grandfathered”) to comply with a number of internal claims and appeals procedures that go beyond those previously required under ERISA. Although these new requirements are generally effective for plan years beginning on or after September 23, 2010, the Department of Labor (“DOL") granted a limited extension of this compliance deadline in late 2010. Then in March of this year, the compliance deadline was further extended for certain of these requirements.

As we reported in our February 2011 article, both political parties have long agreed on the need to repeal the expanded Form 1099 reporting requirements enacted as part of last year’s Affordable Care Act (“ACA”). On April 14, President Obama finally signed legislation retroactively repealing these requirements. This repeal was delayed by a disagreement as to how to offset the cost of the repeal. The final legislation achieves this offset by requiring larger repayments of excess “federal assistance credits” received by individuals who purchase health coverage through one of the ACA’s state-wide “Exchanges.”

The Affordable Care Act requires that employees’ W-2s provide useful and comparable consumer information on the cost of their employer-sponsored health coverage. On March 29, 2011, the IRS issued Notice 2011-28, providing interim guidance on this new reporting requirement.

It’s been nearly a year since the passage of the two bills known as “health care reform.” Although significant elements of this reform are already in effect, both the 2010 general elections and vigorous legal challenges have caused some to wonder whether the “meat” of the reform – slated for 2014 – will ever be implemented. Unfortunately, this question may not be answered for many months, or even years.

One of the most common questions we receive from employers sponsoring group health plans is, “Can we offer different health benefits to different employees?” Related questions include, “Can we make our hourly employees pay a greater percentage of the cost of the plan than our higher-paid salaried employees?” or “Can we limit health benefits solely to managers and executive level employees?” And for the last 20 years, the answer has been, “Yes, so long as your plan is fully-insured.”

By now, most people involved in the administration of group health plans are familiar with the requirement that plans offering dependent coverage make that coverage available to adult children until they attain age 26. This new requirement applies to both insured and self-insured plans (regardless of the plan’s status as a “grandfathered” plan), and is effective for plans years beginning on or after September 23, 2010 (January 1, 2011, for calendar-year plans). Many of us, however, are not as familiar with the corresponding change to the Tax Code that allows these benefits to be provided on a tax-free basis.

Inevitably, anything as massive as health care reform will have unanticipated consequences. One of those appears to be a renewed demand for welfare benefit trust funds. This demand arises in a specific context: self-insured, stand-alone retiree health plans. To understand this recent phenomenon, some history is in order.

On December 22, 2010, the Internal Revenue Service announced (in Notice 2011-1) that insured group health plans will not be required to comply with the nondiscrimination requirements under health care reform until some time after the IRS issues regulatory guidance on those requirements.

The passage of comprehensive health care reform legislation under the Affordable Care Act (“ACA”) made 2010 a monumental year for group health plans. As a result, plan sponsors are faced with a dizzying array of action items for 2011.

Amid the year-end rush to comply with the reform provisions of the Affordable Care Act (“ACA”) for group health plans, it is easy to overlook the ACA’s effects on other health plan arrangements. As discussed in our May 2010 article, cafeteria plans, health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and health care reimbursement arrangements (“HRAs”) are subject to several of the same requirements that apply to group health plans.

On October 12, 2010, the IRS released Notice 2010-69, which provides interim relief from the Affordable Care Act ("ACA") requirement that the cost of coverage under employer-sponsored group health plans be reported on Forms W-2 provided to employees. According to the Notice, such W-2 reporting will now be optional for 2011, but will be required for 2012. This interim relief is designed to give employers additional time to adjust their payroll systems and update procedures to comply with the new reporting requirement.

Responding to questions and comments from health plan sponsors and insurers, the agencies charged with enforcing the Affordable Care Act (the “Act”) have answered several frequently asked questions concerning the Act’s implementation. The bulk of these FAQs involve the Act’s more stringent claims and appeals procedures for non-grandfathered health plans. Collectively, these FAQs provide welcome — though still limited — relief to plan sponsors who are scrambling to comply with these new claims and appeals requirements within the next few months.

When the agencies responsible for administering the new claims and appeals procedures mandated under the Affordable Care Act issued their first round of guidance on this subject (as summarized in our August 2010 article), they noted that additional guidance on the Act’s new external review procedures would be coming out soon.

With annual enrollment season fast approaching, now is the time to consider new 2011 disclosure obligations.  In particular, with the enactment of the Affordable Care Act (the “Act”), several new notices must be provided to plan participants.  Many plan sponsors may want to consider including these new notices in the 2011 open enrollment materials that they send to employees.  These notices include:

The health care reform provisions of the Affordable Care Act (the “Act”) will require significant changes in the procedures followed by most employer health plans when processing claims for benefits, as well as appeals from denials of those claims.  The only plans that need not comply with these new claims and appeals procedures are those that are “grandfathered” under pre-Act law (in accordance with the guidance addressed in our June 2010 article).  All non-grandfathered plans must comply with these expanded claims and appeals procedures as of the first plan year beginning on or after September 23, 2010.

Among the many changes made by the Affordable Care Act (“ACA”) is a requirement that group health plans (other than plans that are “grandfathered” under the rules described in our June 2010 article) provide benefits for a comprehensive list of preventive health services.  Moreover, these benefits must be provided on a first-dollar basis (i.e., subject to no deductible or co-payment) and with no other cost-sharing requirement (such as coinsurance).  This requirement applies as of the first plan year beginning on or after September 23, 2010.

As explained in our May 2010 article, the Affordable Care Act imposed a number of benefit mandates on employer health plans, most of which will take effect with the first plan year beginning after September 23, 2010. However, certain plans that were in existence on March 23, 2010 (the Act’s enactment date) enjoy limited “grandfather” protection. Some of the benefit mandates do not apply at all to these grandfathered plans, while others apply only at a later date. Unfortunately, the Act did little to define the scope of this grandfather protection. The three agencies charged with administering the Act have now issued interim final regulations providing useful guidance on this topic

In the weeks and months leading up to the enactment of the Affordable Care Act, one of the oft-repeated “campaign promises” made by promoters of the legislation was, “If you like your current health care coverage, you can keep it.” In keeping with the spirit of that promise, the Act includes provisions that exempt so-called “grandfathered” plans from some, but not all, of the benefit mandates in the Act. Unfortunately, the Act leaves many questions unanswered with respect to the application of these grandfather rules.

While the focus of the Affordable Care Act is clearly on the nation’s health insurance system the Act does include several rifle-shot changes to the Tax Code’s cafeteria plan rules.

Congressional passage of comprehensive health care reform legislation means that employers and other health plan sponsors can no longer take a wait-and-see approach to this subject. Like it or not, change is coming. And while many key provisions do not take effect until 2014, a surprising number of changes will apply to employer-based health coverage well before then. We are therefore devoting this entire issue of our quarterly newsletter to a discussion of several significant short-term changes.

Recognizing that the key provisions of the Affordable Care Act do not take effect until 2014, Congress included a number of short-term incentives for the expansion of health coverage during the intervening period.

Under the Affordable Care Act, group health plans providing coverage to dependent children will soon be required to make coverage available to a covered employee’s adult child until the child’s 26th birthday, even if the child is no longer a full-time student and even if the child can no longer be claimed as the employee’s “dependent” on the employee’s federal income tax return. This requirement to extend group health plan coverage until an adult child’s 26th birthday applies to both insured and self-insured plans (regardless of the plan’s status as a “grandfathered” plan), and is effective for plan years beginning after September 23, 2010 (i.e., January 1, 2011, for calendar-year plans).

Prior to enactment of the Affordable Care Act, employee health benefits provided through an insurance contract (i.e., fully insured benefits) were not subject to any income-based nondiscrimination requirements under the Tax Code. Thus, an employer could provide more generous health insurance benefits to executives or other highly compensated individuals through the purchase of individual or group insurance policies. As a reesult of the Act, that will soon change.

In addition to transforming the rules governing the benefits that health plans must offer, the Affordable Care Act substantially alters the way that plan sponsors and health insurers must describe and report those benefits. From new claim appeal procedures, to standardized benefit summaries, to additional governmental reporting, the Act will almost certainly increase administrative costs and complexities for employers. And like many other aspects of the Act, determining precisely how — and even when — to comply with some of the new reporting and disclosure obligations will be difficult. Although regulations will likely answer some of these questions, plan sponsors should start revising many of their procedures immediately.

In last month’s issue of Benefits in Brief, we examined the ERISA preemption issues raised by state health care reform. This month, we continue our survey of state health care reform by examining the universal coverage programs of three New England states – Massachusetts, Vermont, and Maine. Each state’s legislation takes a distinct approach, with quite different implications for employers.

Health care reform is shaping up to be a hot topic in the 2008 Presidential election. Several states, however, have decided to move ahead with their own reform programs rather than wait for a federal solution. Three of those states – Massachusetts, Vermont, and Maine – have passed legislation intended to yield near universal coverage for their residents. Other states have passed, or are considering, legislation which would force some employers (especially large, “big box” retailers like Wal-Mart) to make larger contributions to their health plans. Both types of legislation face an uncertain future in light of ERISA’s federal regulatory scheme for health plans.