How To Get A Health Care Plan In The United States

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1 Employer Update May-June 2010 In This Issue n 1 Implications of Health Care Legislation for Employers n 4 Health Care Reform: Upcoming Coverage Changes for Employer- Sponsored Plans Implications of Health Care Legislation for Employers By Jeffrey S. Klein, Nicholas J. Pappas and Emily Friedman On March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act ), which amended the Patient Protection and Affordable Care Act signed into law on March 23, 2010 ( PPACA ) (collectively, the Affordable Care Act ). The changes mandated by the comprehensive Affordable Care Act will have significant and costly implications for employers as well as their employee benefit programs. In this article, we summarize the salient changes in the law resulting from the Affordable Care Act that likely will be of most significance to employers. This article will not address tax or coverage issues such as pre-existing conditions or coverage for children up to age 26 that go into effect this year, but rather will focus on other provisions that will affect employment law-related issues. Employer Requirements Automatic Enrollment The Affordable Care Act amends the Fair Labor Standards Act ( FLSA ) to require employers that (i) are subject to the FLSA having more than 200 full-time employees and (ii) offer enrollment in an employer-sponsored health plan ( Employer Plan ), to enroll every new full-time employee in one of those plans (subject to applicable legal waiting periods). Employers also must continue to offer enrollment to current employees in their Employer Plans. Finally, employers must provide employees with the opportunity to opt out of employer-sponsored coverage. The Affordable Care Act does not specify an effective date for this requirement. Rather, the law provides only that automatic enrollment shall take place in accordance with regulations promulgated by the Secretary [of Labor]. PPACA To date, the Secretary of Labor has not promulgated such regulations. Requirement to Inform Employees The Affordable Care Act also amends the FLSA to require that, beginning March 1, 2013, employers subject to the FLSA must provide all newly hired employees with written notice that the employee can obtain coverage through new organizations created by each state called an exchange. See PPACA 1512, as amended by PPACA 10108(i)(2). The law requires each state to establish a governmental agency or nonprofit entity, known as an American Health Benefit Exchange or Exchange, to make available and facilitate the purchase of qualified health plans by eligible individuals and small employers by January 1, See PPACA If the Employer Plan s share of total costs for delivery of health care benefits is less than 60 percent, the notice also must inform the employee 1

2 that (i) he or she might be eligible for a premium tax credit and a costsharing reduction (for low-income individuals) if the employee purchases a health care plan through an Exchange, and (ii) the employee might lose employer contributions if the employee purchases a plan through the Exchange (if employer does not offer a free-choice voucher, discussed below). Employers must provide the same notice to current employees no later than March 1, See PPACA 1512, as amended by PPACA 10108(i)(2). Employer Mandate/Penalties Beginning on January 1, 2014, the Affordable Care Act requires applicable large employers to provide minimum essential coverage to employees or be assessed a penalty. Minimum essential coverage is the minimum coverage an employer must provide to avoid penalty. This coverage must provide for essential health benefits, which include (but are not limited to) ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventative and wellness services and chronic disease management, and pediatric services, including oral and vision care. See PPACA 1302(b). An applicable large employer subject to the mandate is an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year. PPACA 1513(a). The definition exempts employers who employ more than 50 full-time employees if (i) the employer s workforce exceeds 50 full-time employees for only 120 days or less during a year, and (ii) the employees in excess of those 50 employed during the 120-day period were seasonal workers. See id. 1 For purposes of determining an applicable large employer, an employer must aggregate employees who are not full-time employees to full-time employee equivalents by dividing their total monthly hours by 120. See PPACA 1513(a), as amended by the Reconciliation Act 1003(c). In addition, all employees of a controlled group are to be treated as employed by a single employer. See PPACA 1513(a) (citing 26 U.S.C. 414 (b), (c), (m) and (o)). The changes mandated by the comprehensive Affordable Care Act will have significant and costly implications for employers as well as their employee benefit programs. The law imposes two separate penalties on applicable large employers that fail to provide the requisite coverage discussed above one on employers that do not offer minimum essential coverage and the other on employers that offer minimum essential coverage that is not affordable. An applicable large employer that does not offer minimum essential coverage to its full-time employees will be penalized if one or more of those full-time employees elects to purchase coverage on an Exchange and receives a premium tax credit to do so for at least one month. See PPACA 1513(a). A full-time employee is an employee who is employed, on average, at least 30 hours per week. See PPACA 1513(a), as amended by PPACA 10106(f)(1). The penalty for failure to offer coverage is a fee of $2,000 per year ($ per month) for each full-time employee who opts to receive government assistance. See PPACA 1513(a), as amended by the Reconciliation Act 1003(b). The number of full-time employees will be reduced by 30 employees for purposes of calculating the assessable penalty. See PPACA 1513(a), as amended by the Reconciliation Act 1003(a). For example, an employer who employs 60 full-time employees but does not offer coverage will pay a penalty equal to 30 times the applicable penalty amount. The law imposes a different penalty on an applicable large employer that offers minimum essential coverage to full-time employees for any given month if one or more of those full-time employees instead elects to receive tax credits or costsharing reductions to purchase coverage on an Exchange for that month. An employer will be penalized 1/12 of $3,000 ($250 per month) for each employee who elects coverage through the Exchange. See PPACA 1513(a), as amended by the Reconciliation Act 1003(b). This penalty is subject to a cap of 1/12 of $2,000 ($ per month) multiplied by the total number of full-time employees. See PPACA 1513(a), as amended by the Reconciliation Act 1003(a). The 30-employee reduction also applies to calculation of this cap. 2 Free-Choice Vouchers Effective January 1, 2014, any employer that offers and pays any portion of minimum essential coverage to qualified employees must provide those employees with a free-choice voucher if such employees opt out of an Employer Plan in favor of an Exchange. A qualified employee is an employee with an income of less than 400 percent of the poverty level, whose required contribution under the Employer s Plan is greater than eight percent of the employee s household income for the taxable year. The amount of the voucher must be 2

3 equal to the monthly portion of the employer s contribution cost for that employee under the Employer s Plan. See PPACA 10108(a) (d). Employers who provide vouchers will not be subject to penalties for failure to provide essential coverage. See PPACA 10108(i). Non-Discrimination/Retaliation The Affordable Care Act amends the FLSA to prohibit employers from discharg[ing] or in any manner discriminat[ing] against any employee with respect to his or her compensation, terms, conditions, or other privileges of employment because the employee has received a tax credit or cost-sharing reduction, or because the employee has provided to the employer or government information relating to any violation of the law, or has testified about, or refused to participate in, any potential violation of the law. PPACA An employee who believes he or she has suffered discrimination and/ or retaliation may file a complaint with the DOL in accordance with the Consumer Product Safety Improvement Act of See id. (citing to procedures, burdens of proof, and remedies set forth in 15 U.S.C. 2087(b)). The Affordable Care Act does not specify an effective date for this provision. The law also amends the Public Health Services Act ( PHSA ) to prohibit discrimination by a plan sponsor of a fully insured group health plan in favor of highly compensated individuals (as defined by Section 105(h)(5) of the Internal Revenue Code) with respect to eligibility to participate in or benefits provided under a plan. See PPACA 1001(5), as amended by 10101(d). Previously, such non-discrimination rules applied only to self-insured plans. See 29 U.S.C. 105(h). This change will become effective for plan years beginning on or after September 23, See PPACA Wellness Programs Effective January 1, 2014, the Affordable Care Act amends the PHSA to increase the amount of premium discounts or other rewards employers may offer employees for participation in a wellness program. Specifically, the law amends the safe harbor provision in the nondiscrimination section of the Health Insurance Portability and Accountability Act to allow employers to offer rewards up to 30 percent of the participating employee s cost of coverage under the Employer Plan. Previously, the maximum allowable reward was 20 percent. In addition, the Department of Labor ( DOL ), Department of Health and Human Services ( HHS ), or Department of Treasury ( Treasury ) may increase the reward to up to 50 percent of the cost of coverage. See PPACA 1201(4). Beginning on January 1, 2014, the Affordable Care Act requires applicable large employers to provide minimum essential coverage to employees or be assessed a penalty. The Affordable Care Act also provides grants (for fiscal years 2011 through 2015) to small employers that, as of the date of enactment, employ less than 100 employees who work 25 hours or greater per week, and do not already provide a workplace wellness program. See PPACA Other Provisions Grandfathered Plans The law exempts from some provisions grandfathered plans that were in existence on the date of enactment. For instance, grandfathered plans are exempt from the nondiscrimination provision prohibiting fully insured plans from discriminating in favor of highly compensated employees. See PPACA 1251, as amended by 10103(d), as amended by the Reconciliation Act 2301(a). Plans that renew coverage or add new members after the date of enactment will not lose grandfathered status. See PPACA However, many questions remain as to what employer actions may cause a plan to lose grandfathered status and the length of time plans can retain such status. The DOL, HHS, and Treasury have stated that further guidance on grandfathered plans is expected to be published in the very near future. See Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Depending Coverage of Children to Age 26 under the Patient Protection and Affordable Care Act, available at index.html#dependent_coverage. Reasonable Break Time For Mothers The Affordable Care Act amends the FLSA to require that employers provide a reasonable break time for employees to express breast milk for one year after a child s birth, as well as a private place to express breast milk. The law exempts from compliance any employer that employs fewer than 50 employees, if such a requirement would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer s business. PPACA No Lifetime Maximums For plan years beginning on or after September 23, 2010, the Affordable Care Act amends the PHSA to prohibit group health plans from establishing lifetime limits on the dollar value of benefits for any participant or beneficiary with respect to covered essential 3

4 benefits. PPACA 1001(5), as amended by 10101(a); PPACA 1004(a). Removal of lifetime maximums can adversely affect employer-borne costs associated with self-funded plans, many of which impose lifetime maximums for specific services or treatments. Employers who previously relied on lifetime maximums for cost containment may now wish to consider obtaining stop-loss coverage to mitigate costs resulting from this prohibition. Conclusions The Affordable Care Act will pose considerable challenges for employers. While presently there is little guidance on the employer-related provisions in the law, many of these provisions do not take effect for several years. Accordingly, employers would be well advised to study carefully the forthcoming regulatory pronouncements, including regulations to be promulgated by the DOL, HHS, and Treasury. 1 Other sections of the law contain different definitions of large employer. For instance, beginning in 2017, large employers may seek permission from each state to offer coverage to their employees through Exchanges. However, for purposes of this particular provision, the law defines large employer as an employer who employed an average of at least 101 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year. PPACA 1304(b)(1). 2 The law excludes part-time employees from penalty calculations. Full-time equivalents are only to be taken into account for purposes of determining whether an employer is an applicable large employer. PPACA 1513(a), as amended by the Reconciliation Act 1003(c). Health Care Reform: Upcoming Coverage Changes for Employer-Sponsored Plans By Courtney P. Fain, Alex M. Solomon, Steven M. Margolis and Eva Kovacs The Patient Protection and Affordable Care Act ( PPACA ), signed into law on March 23, 2010, and amended by the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act ), signed into law on March 30, 2010 (collectively, the Affordable Care Act ), mandates several changes in coverage that must be established by employer-sponsored health care benefit plans. Several of these coverage changes may have a significant impact on the cost of employer-sponsored plans and many are effective for plan years beginning on or after September 23, In this article we address several of the more notable changes in coverage required by the Affordable Care Act, although the changes discussed below are not an exhaustive list of all requirements under the Affordable Care Act. Grandfathered Plans Whether the coverage requirements discussed below must be implemented for any specific plan may turn on whether the health plan has grandfathered status under the Affordable Care Act. 1 A grandfathered plan is any health plan in which an individual was enrolled as of March 23, 2010 (the effective date of PPACA). In the original Senate bill and as adopted by the House, no changes were required of plans with grandfathered status. However, the Reconciliation Act extended several health care reforms to grandfathered plans, including requirements related to limitations on waiting periods, lifetime and annual limits, rescission of benefits, dependant coverage, and limitations on exclusions based on pre-existing conditions. Other changes, such as mandated preventative care with no cost-sharing and the prohibition on fully insured plans discriminating in favor of highly compensated employees, do not extend to plans with grandfathered status. While the Affordable Care Act explicitly allows for the addition of family members and new employees to join grandfathered plans without affecting the plan s status as a grandfathered plan, it does not address what additional changes, if any, can be made to grandfathered plans without causing the plan to lose such status. Further, it is unclear how long grandfathered plans will continue to be exempt from any mandates that were not already extended under the Reconciliation Act. In the recently issued interim final rules relating to dependant coverage for children until age 26, discussed in more detail below, the Departments of Treasury, Labor, and Health and Human Services indicated that regulations regarding grandfathered plans are expected shortly, and that it is expected that any changes to plans made to comply with the dependant coverage rules, including voluntary compliance before the start of the plan year, would not cause a plan to lose grandfathered health plan status. Further guidance is needed immediately as to what other changes would not affect grandfathered plan status before employers consider implementing any changes to plans for the upcoming benefit year given the significance of maintaining such status. 4

5 Changes Effective for Plan Years Beginning On or After September 23, 2010 Prohibition on Annual and Lifetime Benefit Limits The Affordable Care Act amends the Public Health Service Act ( PHSA ) to prohibit group health plans, including grandfathered plans, from establishing lifetime limits on essential health benefits for any participant or beneficiary. Additionally, group health plans, but not grandfathered plans, will be prohibited from establishing annual limits on such benefits. Until 2014, however, group health plans may impose a restricted annual limit on essential health benefits. The Affordable Care Act directs the Secretary of Health and Human Services to define restricted annual limit, and so it is currently unclear what type of annual limit may be permissible. Note that the Affordable Care Act also provides that the Secretary must define essential health benefits, but states that at a minimum such benefits shall include services within the following categories: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services (including behavioral health treatment), prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventative and wellness services and chronic disease management, and pediatric care, including oral and vision care. The Secretary of Labor is instructed to conduct a survey of employer-sponsored coverage to determine the scope of benefits typically covered by employers, and report to the Secretary of Health and Human Services to ensure that the scope of essential health benefits is equal to those typically offered by employer-sponsored plans. The Affordable Care Act expressly does not prohibit lifetime or annual limits on those benefits not deemed essential. No Rescissions of Coverage The Affordable Care Act further amends the PHSA to provide that coverage under group health plans, including grandfathered plans, cannot be rescinded unless the insured has performed an act or practice that constitutes fraud or makes an intentional misrepresentation of material fact as prohibited by the terms of the plan or coverage. Further guidance is needed as to the scope of the fraud or intentional misrepresentation of material fact that could warrant rescission. It is also unclear what impact this prohibition will have on employees who may be mistakenly enrolled in a plan. Under the Affordable Care Act, a group health plan offering dependent coverage must allow an adult child (without regard to marital or student status) to continue dependent coverage until age 26. Extension of Coverage for Children Until Age 26 Under the Affordable Care Act, a group health plan offering dependent coverage must allow an adult child (without regard to marital or student status) to continue dependent coverage until age 26. However, grandfathered health plans are not required to extend coverage to adult children under age 26 who are eligible for other employer-sponsored health coverage. This limited exception expires in On May 13, 2010, the Departments of Treasury, Labor, and Health and Human Services jointly issued interim final regulations (the Regulations ) providing guidance on implementing the extension of adult children s health coverage to age 26. The Regulations apply for plan years beginning on or after September 23, The Regulations provide that a group health plan that provides coverage for children can only specify the required familial relationship that a child under age 26 must have with the employee to be eligible for coverage (e.g., will eligible children be limited to the employee s children or will it also include stepchildren, foster children, and grandchildren). Consequently, other factors typically taken into account, such as financial dependency on the participant, residency with the participant, student status, employment, eligibility for other coverage, etc., cannot be used for purposes of defining dependent for eligibility (or continued eligibility). Thus, if the child has the required familial relationship to the employee, the plan must cover the child. The Regulations also provide that a group health plan will not have to extend coverage to an employee s grandchildren or to the spouse of the employee s child, although it can voluntarily do so. The Regulations also clarify that the exception regarding grandfathered plans does not allow a plan to deny enrollment merely because the adult child is eligible to enroll in the other parent s plan. The Regulations further clarify that, except for children age 26 or older, the group health plan may not vary the terms or conditions of coverage to offer (i) separate premiums for covered children, or (ii) various dependent coverage, based, in both instances, solely on the age of a child, e.g., charging more for children over age 21. The Regulations also provide transitional relief for a child under age 5

6 26 who lost coverage, was denied coverage, or was not eligible for coverage under a group health plan because the terms of such plan eliminated dependent coverage of a child prior to age 26. These rules apply to enrollment for the first plan year to which the extension applies. In subsequent years, coverage may be elected for an eligible child under the plan s normal enrollment opportunities. The Regulations require a plan or issuer to provide such a child with written notice, offering the opportunity to enroll, for an enrollment period of at least 30 days. This enrollment opportunity (including the written notice) must be provided not later than the first day of the first plan year beginning on or after September 23, 2010 and must be provided to the employee on behalf of the employee s child. The notice may be provided along with other enrollment materials. If a child is enrolled under the transitional rule, coverage must begin not later than the first day of the first plan year beginning on or after September 23, 2010, even if the request for enrollment is made after the first day of the plan year. Under the Affordable Care Act, the employer will be subject to a $100 per day/per affected participant excise tax under Section 4980D of the Internal Revenue Code (the Code ) for a failure to satisfy the requirements regarding the dependent coverage extension to age 26. Limitations on Cost-Sharing and Emergency Room Coverage The Affordable Care Act also provides that for insured and self-insured plans, but not for grandfathered plans, certain preventative care and immunizations, as recommended by the United States Preventative Services Task Force and the Health Resources and Services Administration, must be provided without any cost-sharing to the member. Cost-sharing is defined to include deductibles, coinsurance, copayments or similar charges. The implication of this requirement on the ability of plans to impose costsharing obligations on members seeking such covered preventative care from out-of-network providers is unclear and further guidance is necessary to explain whether this mandate was intended to apply only to those members who seek such care from in-network providers. It is clear, however, that plans that provide emergency room coverage cannot limit such coverage to in-network providers or facilities. Insured and self-insured plans, but not grandfathered plans, will not be able to impose higher cost-sharing obligations on those members who receive emergency care from out-ofnetwork providers or facilities than they impose on members who seek such coverage from participating providers or facilities. Further, plans will no longer be able to require pre-authorization for emergency services. Importantly, the Affordable Care Act provides definitions for what constitutes both an emergency medical condition as well as emergency services. Internal and Externals Appeals Procedures The Affordable Care Act amends the PHSA to require insured and selfinsured plans, but not grandfathered plans, to implement an effective appeals process for appeals of coverage determinations that, at a minimum: (1) includes an internal appeals process; (2) provides notice to members in a culturally and linguistically appropriate manner of the internal and external processes as well as the availability of any applicable office of health insurance consumer assistance or ombudsman to assist in the appeals process; and (3) allows the member to review his or her file, present evidence, and receive continued coverage during the pendency of the appeal. Compliance with ERISA, and specifically 29 C.F.R , is sufficient to satisfy the required internal appeals process. Additionally, group health plans must establish external appeals procedures that (1) comply with the applicable state law governing external appeals or (2) meet the minimum standards to be established through guidance if there are no applicable state requirements or if the plan is self-insured and not subject to such state requirements. The Affordable Care Act gives the Secretary of Health and Human Services the authority to deem external review processes as appropriate, but further guidance is certainly needed. No Discrimination in Favor of Highly Compensated Employees Section 105(h) of the Internal Revenue Code generally prohibits a self-insured group health plan from providing an employer s highly compensated individuals 2 with discriminatory participation or benefits. Excess reimbursements paid to a highly compensated individual under a discriminatory self-insured medical reimbursement plan are taxable to the individual. Prior to enactment of the Affordable Care Act, this prohibition was limited to self-insured group health plans, but employer-provided health benefits provided through fully insured group health plans were not subject to the Code Section 105(h) nondiscrimination requirements. Thus, an employer could provide more generous health insurance benefits to executives if using an insured group health plan. 6

7 This changed with the Affordable Care Act. Effective for plan years beginning after September 23, 2010, nondiscrimination requirements will now apply to employer group health plans that are fully insured. However, grandfathered health plans are exempt from the new non-discrimination requirements. Thus, employer-provided health insurance policies in existence on March 23, 2010 may continue to discriminate in favor of highly compensated employees. Under the Affordable Care Act, the employer will be subject to a $100 per day/per affected participant excise tax under Code Section 4980D for a failure to satisfy the nondiscrimination requirements for insured group health plans. Due to the discrimination rules for self-funded plans, some employers have instituted fully insured plans or arrangements to provide executives and key employees with more generous health insurance benefits. The above specified new prohibitions against discrimination in fully insured group health plans will require employers to significantly amend the coverage provisions of many employer-sponsored group health plans and to use other methods to reward executives. Additional Changes Effective September 23, 2010 The Affordable Care Act also amends the PHSA to prohibit group health plans, including grandfathered plans, from requiring a waiting period of more than 90 days to join a plan. Finally, the Affordable Care Act also amends the PHSA to provide that group health plans, including grandfathered plans, cannot exclude children under age 19 based on pre-existing conditions. Changes Effective in 2011 Limitations on Spending Account Coverage of Medications A number of changes will come into effect in Among those changes, the type of medications covered under various spending accounts will be limited to only prescribed pharmaceuticals and insulin. This change affects HSAs, Archer MSAs, Health Flexible Spending Arrangements, and Health Reimbursement Arrangements. The language of the Affordable Care Act suggests that these accounts may cover prescribed over-the-counter drugs. Thus, if a doctor prescribes a common over-the-counter medicine, it appears that such a purchase may be covered, where if an individual purchases the same medicine on his or her own initiative, it may not be covered. Beginning in January 2011, insurers must spend at least 85 percent of premiums on clinical services, activities that improve health care quality, and all other non-claims costs for the large group market and at least 80 percent for the small group market. Mandated Medical Loss Ratios Another significant change is the establishment of minimum medical loss ratios. Beginning in January 2011, insurers must spend at least 85 percent of premiums on clinical services, activities that improve health care quality, and all other non-claims costs for the large group market and at least 80 percent for the small group market. For small group market plans, the Secretary of Health and Human Services may change the ratio in a state if the 80 percent requirement causes a destabilization in the state s individual market. States may increase these ratios by regulations. Notably, the requirements for medical loss ratios apply to grandfathered plans. Questions remain on exactly what expenditures will count toward satisfying the applicable medical loss ratios. The Affordable Care Act calls upon the National Association of Insurance Commissioners ( NAIC ) to define subject to certification by the Secretary of Health and Human Services the three areas of activities listed in the Affordable Care Act as comprising the costs to be considered in calculating the medical loss ratio. The statute sets a deadline of December 31, 2010 for the NAIC to submit the definitions. However, the Affordable Care Act provides some specific exclusions of cost, such as federal and state taxes, that are not considered payments as satisfying the medical loss ratio. A failure to meet the respective medical loss ratios results in a rebate paid by the insurance company to the enrollee on a pro rata basis. Change Effective in 2012 Effective March 2012, health insurers, plan sponsors, and designated administrators of plans must provide participants with a summary of the plan. The summary of the plan differs from what is currently known as the Summary Plan Description required under ERISA. Under the Affordable Care Act, the summary of the plan must be no longer than four pages and have font no larger than 12 point. The content of the summary must include, among other things, definitions of standard insurance terms and medical terms, description of the coverage, and exceptions, reductions, and limitations on coverage. Notably, the Secretary of Health and 7

8 Human Services will provide standard definitions for the terms that must be included in the summary of the plan. Among such insurance-related terms that will be defined by the Secretary of Health and Human Services are UCR (usual, customary and reasonable) fees as well as out-of-network co-payments. If the relevant entity fails to provide the summary of the plan, it is subjected a $1,000 fine for each failure. Failures to provide the summary of the plan to different participants are considered independent violations. Change Effective in 2013 The law also imposes maximum salary reduction contributions of $2,500 to flexible spending arrangements. This change applies if a benefit is provided under a cafeteria plan through employer contributions to a health flexible spending arrangement. If an employee can elect in a taxable year to have salary reduction contributions in excess of $2,500, then the benefit will not be treated as a qualified benefit. Beginning in 2014, the maximum contribution will be adjusted for inflation. Changes Effective in 2014 Beginning in 2014, plans must permit individuals to participate in approved clinical trials. Specifically, the Affordable Care Act prohibits plans from barring an individual from participating in an approved clinical trial, and plans must cover routine costs attendant to such participation. Routine patient costs that must be covered include all items and services consistent with the coverage provided in the plan... that is typically covered for a qualified individual who is not enrolled in a clinical trial. The plan may mandate that the participant use an in-network provider performing the trial that is located in the same state. However, where the clinical trial is conducted Notably, the Affordable Care Act blurs the distinction between in-network and out-of-network providers and facilities in several instances, including in the coverage of emergency room services, which could impact negotiated rates and overall costs for plans. out of state, the plan may not require that the participant be treated by an in-network provider. Plans must cover only those clinical trials that treat cancer or other life-threatening disease or condition. The law defines life-threatening condition as any disease or condition from which the likelihood of death is probable unless the course of the disease or condition is interrupted. Additionally, the law also extensively defines what constitutes a clinical trial. In addition, the Affordable Care Act prohibits plans from discriminating against individuals who participate in approved clinical trials. Conclusion Under the Affordable Care Act, employer-sponsored group health plans, including grandfathered plans, will be required to implement several changes in coverage over the coming years, beginning as early as September 23, Several of these changes may lead to significant increases in costs for plans, including the extension of coverage to dependants until age 26, prohibition on lifetime and annual limits on essential health benefits, and limits on cost-sharing for certain preventative care. Notably, the Affordable Care Act blurs the distinction between in-network and out-of-network providers and facilities in several instances, including in the coverage of emergency room services, which could impact negotiated rates and overall costs for plans. Guidance on implementation of these coverage changes will be forthcoming from the Departments of Health and Human Services, Treasury, and Labor over the next several months, and employers should stay abreast of all rules and regulations as they consider making changes to plans. 1 Additionally, collectively bargained for plans may be exempt from certain provisions of the Affordable Care Act, which provides that collectively bargained for plans ratified before March 23, 2010 do not have to implement health care coverage reforms until the termination date of the last collective bargaining agreement related to coverage. 2 The top highly compensated individuals are (i) the five highest-paid officers, (ii) any 10 percent who owns more than 10 percent in value of the stock of the employer, or (iii) the highest-paid 25 percent of all employees. 8

9 Employer Update is published by the Employment Litigation Practice Group and the Executive Compensation and Employee Benefits Group of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153, (212) , All rights reserved. Quotation with attribution is permitted. This publication provides general information and should not be used or taken as legal advice for specific situations which depend on the evaluation of precise factual circumstances. The views expressed in these articles reflect those of the authors and not necessarily the views of Weil, Gotshal & Manges LLP. If you would like to add a colleague to our mailing list or if you need to change or remove your name from our mailing list, please log on to or send an to subscriptions@weil.com. Jeffrey S. Klein Practice Group Leader New York jeffrey.klein@weil.com Boston Thomas Frongillo thomas.frongillo@weil.com Dallas Yvette Ostolaza yvette.ostolaza@weil.com Frankfurt Stephan Grauke stephan.grauke@weil.com Houston Melanie Gray melanie.gray@weil.com London Joanne Etherton joanne.etherton@weil.com Peter Van Keulen peter.vankeulen@weil.com Miami Edward Soto edward.soto@weil.com New York Lawrence J. Baer lawrence.baer@weil.com Allan Dinkoff allan.dinkoff@weil.com Gary D. Friedman gary.friedman@weil.com Andrew L. Gaines andrew.gaines@weil.com Mark A. Jacoby mark.jacoby@weil.com Michael K. Kam michael.kam@weil.com Steven M. Margolis steven.margolis@weil.com Michael Nissan michael.nissan@weil.com Nicholas J. Pappas nicholas.pappas@weil.com Shanghai Helen Jiang helen.jiang@weil.com Washington, DC Michael Lyle michael.lyle@weil.com 9