Benefits and Compensation Alert

Transcription

1 April 2, 2010 Authors: Mary Turk-Meena Lynne S. Wakefield Emily D. Zimmer K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit Immediate Impact of Health Care Reform Legislation on Employer-sponsored Group Health Plans On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, followed by the Health Care and Education Reconciliation Act of 2010 on March 30, 2010 (collectively, the Acts). Together, these two Acts constitute sweeping health care reform legislation with far reaching implications for individuals, insurance companies, health care and employers. This Alert focuses on those provisions of the Acts with the most immediate impact on employer-sponsored group health plans. The attached charts summarize these key provisions. Over the course of the next few weeks and months, we will be providing a series of additional alerts outlining other key aspects of the Acts from an employer perspective such as new reporting and disclosure requirements, the employer pay-orplay mandate, provisions of the Acts with effective dates later than 2011 and important guidance issued by the various governmental agencies. In the meantime, if you have any questions, please contact the individuals listed for this article, or the K&L Gates lawyer with whom you work.

2 Compensation and Benefits Alert: Immediate Impact of Health Care Reform Legislation on Employer-sponsored Group Health Plans FINANCIAL CHANGES Change Description Effective Date Action Steps Loss of Deduction for Medicare Part D Subsidy Creation of Retiree Reinsurance Program Employers tax deductions will be reduced to the extent the employer s drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program. This program provides for reimbursement by the federal government of certain employer costs in connection with employer-provided retiree health coverage. To be eligible for the program, the employer plan must: Include programs to generate cost savings for participant with chronic and high cost conditions Provide documentation of the actual cost of medical claims Submit an application for reimbursement to HHS Use recouped amounts to lower cost of plan (e.g., reduce premium costs, copayments, deductibles, coinsurance or other out-of-pocket costs Amounts recouped will be audited annually by HHS Deduction ends 1/1/2013 Full accounting impact of the loss of this federal tax deduction must be recognized on current financial statements Program begins within 90 days of enactment and ends on the earlier of exhaustion of $5 billion allocation or 12/31/2014 Coordinate with finance and auditors to determine financial impact For public companies, consider whether public announcement of impact on financial statements is necessary or appropriate Once program is established, determine whether information needed for reimbursement application is available Determine whether retiree health plan meets the criteria for eligibility for reimbursement Determine whether application should be made for reimbursement 1

3 PLAN DESIGN CHANGES Change Description Effective Date Actions Steps Coverage of Dependent Children up to Age 26 Elimination of Lifetime Limits Coverage must be provided to dependent children of covered employees until the dependent child reaches age 26. The requirement applies regardless of the dependent child s marital or student status. Coverage need not be provided to children of the dependent child. Coverage is not taxable to employee or dependent child. A plan may not impose a lifetime limit on the dollar value of essential health benefits (as defined in the Acts) For plan years beginning on or after 9/23/10 Before 1/1/14: applies to grandfathered plans only with respect to dependent children not eligible for coverage under another employer s health plan On and after 1/1/14: applies to all plans regardless of dependent child s eligibility for coverage under anther employer s health plan termination of last collective bargaining agreement in effect on For plan years beginning on or after 9/23/10 termination of last collective bargaining agreement in effect on Determine cost impact Determine whether and how to charge for coverage Identify each lifetime limit currently imposed Determine whether plan change is required Determine cost impact 2

4 PLAN DESIGN CHANGES Change Description Effective Date Actions Steps Restriction/Elimination of Annual Limits Coverage of Preventive Care Prohibition on Preexisting Condition Exclusions A plan may not impose unreasonable annual limits on the dollar value of essential health benefits (as determined by HHS) First-dollar coverage is required for certain evidence-based preventive care, well child care and immunizations (i.e., no deductible, copayment, coinsurance or other cost sharing permitted) Does not apply to grandfathered plans A plan may not impose a pre-existing condition exclusion on coverage for a child under age 19 Before 1/1/14: Restricted annual limits permitted as determined by HHS On or after 1/1/14: No dollar value limits permitted For plan years beginning on or after 9/23/10 termination of last collective bargaining agreement in effect on For plan years beginning on or after 9/23/10 termination of last collective bargaining agreement in effect on Identify each dollar limit currently imposed Determine whether plan change is required Determine cost impact Determine whether plan is grandfathered and thus exempt from this requirement If plan is not grandfathered, determine whether plan change is required Determine cost impact Determine whether plan change is required Determine impact on cost of plan 3

5 PLAN ADMINISTRATION CHANGES Change Description Effective Date Action Steps Change in Reimbursement for Certain Over-the- Counter Items Nondiscrimination Rules for Insured Plans Over-the-counter items purchased without a doctor s prescription are not eligible for reimbursement as a medical expense under flexible spending accounts, health reimbursement arrangements, health savings accounts and Archer MSAs Nondiscrimination requirements of Code Section 105(h) previously applicable only to self-insured plans are also applicable to fully-insured plans; insured plans that do not meet Section 105(h) rules are prohibited Does not apply to grandfathered plans Expenses incurred after 12/31/10 Coordinate change with medical account plan vendors For plan years beginning on or after 9/23/10 termination of last collective bargaining agreement in effect on Identify all insured arrangements Determine whether plan is grandfathered and thus exempt from this requirement If plan is not grandfathered, determine if discrimination rules can be met If changes are necessary, evaluate compliant alternatives, including expanding coverage or eliminating coverage Coordinate any changes with insurer Confirm insurer will revise affected policy and provide updated enrollment materials, SPDs and other employee communications 4

6 PLAN ADMINISTRATION CHANGES Change Description Effective Date Action Steps Revisions to Claim Appeals Process Plan appeal procedure must: Provide notices in a culturally and linguistically appropriate manner of availability of process and any applicable health insurance ombudsman created by state to assist claimant with appeal Allow claimants to review entire file and provide testimony Allow claimants to continue coverage during appeals process Establish external review process that complies with Uniform External Review Model Act (for self-insured plans, HHS is to provide regulations with similar protections) For plan years beginning on or after 9/23/10 termination of last collective bargaining agreement in effect on Determine whether plan is grandfathered and thus exempt from this requirement If plan is not grandfathered, determine the extent to which existing appeal process meets new requirements Determine how to meet coverage continuation requirement Coordinate change with claims administrators Employer May Not Encourage Disenrollment from Employer-Based Plans Does not apply to grandfathered plans Employers may not offer money or other financial consideration to encourage employees to disenroll from employerprovided coverage and enroll in state high risk pool High risk pools are to be established by 6/23/10 Review any cash or other incentives currently provided; it is unclear whether broad-based incentives will continue to be permitted if it results in enrollment in state high risk pool Consider alternatives to any cash or other incentives currently provided 5

7 PLAN ADMINISTRATION CHANGES Change Description Effective Date Action Steps Prohibitions on Rescinding Coverage Employers may not rescind coverage except in cases of fraud or intentional misrepresentation, as prohibited by the terms of the plan or coverage, and prior notice to enrollee is required to terminate coverage For plan years beginning on or after 9/23/10 termination of last collective bargaining agreement in effect on Review grounds for terminating an employee s coverage and ensure that they constitute fraud or intentional misrepresentation of a material fact Increased Excise Tax for Nonqualified Distributions from Health Savings Accounts Does not prohibit termination of plan as a whole, but unclear whether prohibits termination for nonpayment, such as by employees on an unpaid leave of absence or by retirees The excise tax on use of HSA funds for items other than qualified medical expenses is increased from 10% to 20% (including distributions for over-the-counter items not purchased under a doctor s prescription) HSA distributions after 12/31/10 Revise any applicable enrollment materials, SPDs and other employee communications 6

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