Version 1 updated 04/30/2010 Health Care Reform frequently asked questions Health Care Reform... As the health reform provisions come into focus, this document is a collection of those frequently asked questions we have been posed with and the answers as they are available or become updated. (Updated 4/30/2010) Below you will find Q&A in this order 1. Employer Mandates 2. The Exchange 3. Cadillac Tax 4. Retiree Benefits 5. Annual & Lifetime Limits 6. Account Based Plans (H.S.A., F.S.A., etc) 7. Coverage for Dependents 8. Grandfathered Plans 1) Employer Mandates Q101. How does the pay or play mandate work if we don t offer coverage? A101. Starting in 2014, large employers (above 50 FTEs) would be assessed a pay or play penalty of $2,000 per full-time employee, if at least one employee obtains subsidized Exchange coverage. Q102. How does the pay or play mandate work if we offer coverage but employees prefer coverage through the Exchange? A102. Starting in 2014, large employers would be assessed a pay or play penalty of $3,000 for each full-time employee receiving subsidized Exchange coverage with an aggregate limit of $2,000 times the total number of full-time employees. Q103. Our plan currently has a waiting period for new employees. Is that still ok? A103. Starting in 2014, waiting periods beyond 90 days will no longer be permitted. Contrary to earlier proposals, there will be no penalties for waiting periods of less than 90 days. Q104. Does the employer mandate apply to our part-time employees? A104. No. The employer mandate would only apply to full-time employees (defined as scheduled to work at least 30 hours per week). There would be no penalty for not offering coverage to employees working less than 30 hours per week. Q105. Does the employer mandate apply to temporary or seasonal workers? A105. Yes. Other than the permissible 90 day waiting period, there are no explicit exclusions for temporary or seasonal workers who are working at least 30 hours per week.
Q106. For competitive reasons, we have very different benefits for different lines of business. Can we choose to play for some and pay for others? A106. Yes. Even though the final law did not retain the separate lines of business election that was in the House proposal, employers are still free to customize their benefit programs for different segments of their business. You should be aware however; that the Free Rider surcharge of $3,000 per subsidy-eligible worker is capped at $2,000 times the total number of full-time employees including those in lines of business where you do offer benefits. Q107. Does the employer mandate apply to our retirees? A107. No, but the individual mandate does. Q108. How does the employer mandate impact our partnership? A108. As an employer, your partnership would be subject to the free-rider surcharge for your employees. However, since partners are owners rather than employees, no penalty would be assessed for not providing coverage for them. Q109. Is the employer mandate penalty tax-deductible? A109. No. Mandate penalties for not offering coverage as well as the free-rider penalty for opt-outs are not deductible. Q110. The new employer mandate penalties are a lot lower than what we are spending now for medical benefits. How should I respond to senior management that is asking Shouldn t we just exit this business? A110. It is unlikely that an employer could simply terminate medical coverage and pay the (lower) penalty without damaging its competitive standing for labor, because these benefits are a significant part of your total compensation package. Instead, you will need to re-evaluate your mix of compensation and benefits to maximize the return of each dollar spent. 2) The Exchanges Q201. As a large company, can we elect to provide coverage through the Exchange? A201. No. For the first three years (2014-2016), only individuals and small employers (100 or fewer employees) can obtain coverage through the Exchange. Starting in 2017, states may allow employers of any size to participate. Q202. Can any of our employees choose coverage through the Exchange rather than our company plan? A202. Yes regardless of their income.
Q203. Which of our employees enrolling in an Exchange plan will be eligible for Exchange subsidies? A203. Individuals eligible for employer coverage are only eligible for Exchange subsidies if: The employee s contribution for an employer-sponsored plan exceeds 9.5% of household income (e.g. the affordability test), and The employee s household income is below 400% of the federal poverty level Q204. How will my employees determine whether they would be better off in our Company plan or buying coverage through the Exchange? A204. Each employee will need to make this decision on a case-by-case basis by comparing the coverage and costs they could get from your company versus the Exchange. Q205. Can employees pay for Exchange premiums on a pre-tax basis? A205. Only if the Exchange coverage is offered through the employer (not before 2017 for large employers). Q206. We have a lot of opt-outs. Will we have to give them all cash vouchers now to buy coverage through the Exchange? A206. No. You would have to provide certain employees tax-free Free Choice vouchers only under the following conditions: The employee s household income is under 400% of the Federal Poverty Level (FPL) and, The required contribution for employer-sponsored coverage is between 8% and 9.8% of AGI and, The employee is a full-time employee and, The employee opts out of your employer-sponsored coverage, and The employee purchases coverage through the Exchange In combination, these conditions are pretty restrictive and, for most plan sponsors, would apply to very few of your employees. While this would undoubtedly add to your administrative burden, the determination of voucher eligibility will be performed by the Exchange. Q207. How big would those Free Choice vouchers need to be? A207. The amount of the voucher would be the net employer subsidy (gross costs minus employee contributions) the employer would have paid for participants under the plan option where the employer pays the largest portion of the cost. This subsidy would also include the cost of dependent coverage if the employee purchases Family coverage from the Exchange. Under most plans, the value of this Free-Choice voucher is likely to be considerably more than the $3,000 free-rider surcharge that would apply when participant contributions are above the 9.5% threshold.
3) Cadillac Tax Q301. When is the Cadillac tax first effective? A301. The tax is effective in 2018. Q302. What is the standard threshold limit? A302. $10,200 for employees enrolled in self-only coverage and $27,500 for employees enrolling one or more dependents. These initial 2018 threshold amounts will be adjusted upwards if actual healthcare costs (based on the Federal Employees Health Benefit Plan) increase faster than expected. Q303. Are there any situations where we can use a higher threshold limit? A303. Yes. There are higher limits for early retirees (age 55-64) and high-risk occupations (including telecommunications). Also, the indexing amount may be higher for employers that have an age/gender mix higher than the national average. Lastly, any employee participating in a multi-employer plan (regardless of actual coverage level elected) is treated as having family coverage and the $27,500 threshold would apply. Q304. How will these thresholds be indexed in the future? A304. The threshold limits will increase by CPI+1% in 2019 and just CPI in later years. Q305. Who is responsible for calculating the amount of the Cadillac tax which is due? A305. The employer is responsible for calculating the total tax for each employee, allocating it to each benefit option and reporting the pro rata tax to each plan administrator or insurer. Q306. Who is responsible for paying the Cadillac tax to the IRS? A306. For HSA contributions, the employer is responsible for paying the tax. For all other coverage s, the plan administrator (typically, your TPA when self insured or insurance carrier) would be responsible for paying the tax to the IRS. However, the carrier or TPA (self insured plans) will almost certainly pass the cost of the tax back to the plan sponsor. Q307. Which health benefits are included in computing the Cadillac tax? A307. The tax is on the value of all medical benefits, (both employer and employee contributions), as well as the value of executive physicals and onsite health clinics. It also includes most contributions to account-based plans (HSAs, FSAs, HRAs). Q308. Which health benefits are excluded in computing the Cadillac tax? A308. The tax excludes disability and long term care plans, stand-alone dental and vision plans, as well as limited-purpose FSAs. The tax would also exclude employee contributions to HSAs that are not made through salary reduction.
Q309. Does the Cadillac tax apply to our retirees too? A309. Yes, but there are higher limits for pre-medicare retirees. Employers may also be able to mitigate the impact of the tax by blending pre-medicare retirees with Medicare eligible retirees. Q310. Our organization is not subject to income tax. Will our plans still be subject to the Cadillac tax? A310. Yes, the Cadillac tax applies to not-for-profits, multi-employer plans and governmental plans as well. Q311. Can a dual-income couples double-dip without triggering the Cadillac tax? A311. Yes, because the tax is computed separately by employer. For example, if the husband enrolls in family health coverage worth $20,000 under his employer s plan and his wife enrolls in family health coverage worth $18,000 under another employer s plan, the Cadillac tax would not apply to either plan even though their combined household coverage is worth more than each individual s excludable amount. 4) Retiree Benefits Q401. What changes have been made to the Medicare drug benefits? A401. The primary changes address the so-called "donut hole." First, those individuals who hit the donut hole in 2010 will get a $250 payment to defray their out-of-pocket costs. Second, starting in 2011, drug manufacturers will have to provide a 50% discount on brand drugs in the donut hole for most Part D participants. Third, the donut hole itself will be gradually phased out through 2020. Finally, to pay for some of these new benefits, Part D premiums will become income-related and will increase for the same beneficiaries who pay increased Part B premiums. Q402. Will employer plans also receive the new 50% discount for brand drugs in the donut hole? A402. No. The 50% discount applies to only Medicare-sponsored Part D plans that have a donut hole for brand drugs. So, there is no corresponding discount for employers who are taking the RDS (Retiree Drug Subsidy) subsidy. Q403. Will the changes to the Medicare drug benefits change our actuarial equivalence testing and eligibility for RDS subsidies? A403. No. The law explicitly provides that the 50% discount and improved Part D benefits are not to be reflected in the actuarial equivalence testing. So there should be no impact on your eligibility for RDS or the amount of RDS you can expect to collect (although these RDS payments will now become taxable). Q404. How can I estimate the potential annual impact that the taxation of the RDS will have on my company? A404. Starting in 2013, you will no longer be able to deduct RDS amounts from your taxable income. You can estimate the one-year (cash) impact by multiplying your annual RDS payment by your company s marginal tax rate. Q405. How can I estimate the potential effect that the taxation of the RDS subsidy will have on my company s financial statements?
A405. Currently, as a tax-paying employer, the FAS106 liability on your books for retiree medical benefits may be partially offset by a FAS109 deferred tax asset, recognizing the tax benefits that would be available on future deductions for these costs. Your actuary should be currently providing you with a measure of the APBO (Accumulated Postretirement Benefit Obligation) both with and without RDS. You can estimate the long-term (balance sheet) impact by multiplying the difference in these two amounts by your company s marginal tax rate reflected in any deferred tax asset that is included in the balance sheet. The estimate may be a bit closer if you subtract out of that amount, the 2010, 2011 and 2012 projected RDS amounts shown on the most recent disclosure. Your actuary can give you an exact number measured as of March 2010. It appears that the accountants are requiring the reduction in the deferred tax asset to be a one-time charge to earnings in the period that the legislation is signed. Thus, many employers had to take a one-time charge for this tax change in first quarter 2010. Q406. With the improvements in Part D and the cutback in RDS payments, does it make sense for us to revise our drug offerings to Medicare retirees? A406. The economics are clearly shifting, and it would be prudent to re-evaluate alternatives. Employers can directly offer a Part D plan or can subsidize or supplement Part D plans that their retirees can buy in the marketplace. The Part D marketplace has become more robust since the initial introduction of Medicare drug benefits. With the improvements in the Medicare drug benefits, and the elimination of the tax benefits for RDS, this is now the time to review the benefit offerings to retirees. Q407. What is the early retiree reinsurance program? A407. The law provides a government reinsurance program that beginning June 23, 2010, would pay a portion of the cost of coverage for early retirees and their dependents. Eligible retirees would be between 55 and 64, not on Medicare and not actively working for another employer providing health insurance. The reinsurance program would provide funds that would cover 80% of any eligible individual s claims between $15,000 and $90,000 in covered expenses. The reinsurance program would be available until the Exchanges are available in 2014, but only as long as the allocated $5 billion lasts. Application requirements and procedures are yet to be announced. Q408. How much money could we possibly get from the early retiree reinsurance program? A408. We ve actuarially estimated that the reinsurance payment might be worth at least $2,000 per covered member per year, IF the plan meets the yet unknown requirements, and IF the $5 billion has not run out. Q409. Can the reinsurance money be used to reduce the employer s cost of retiree coverage? A409. It s debatable. The original health reform proposal contained a provision that would restrict these funds to be used solely to reduce the retirees cost. This maintenance-of-effort provision was struck in the final bill signed by the President which replaced it with a less restrictive requirement that the funds could not reduce an employer s cost below zero (e.g. they could not profit on retiree coverage). In apparent conflict with the legislative wording, the White House and HHS subsequently issued a fact sheet, which stated that plans must use these funds to reduce health costs for retirees. Though HHS has authority to make rules for this program, we expect future guidance will clarify this conflict.
Q410. What changes have been made to Medicare Advantage plans? A410. The legislation provides for reductions in the federal funding for Medicare Advantage plans. There is a potential for very significant increases in premiums for Medicare Advantage coverage starting in 2011. For some employers, this change could be so significant as to warrant FAS106 re-measurement for this year. Q411. Do requirements such as the prohibition of annual and lifetime dollar limits, and coverage of children to age 26 apply to retiree plans? A411. Yes it appears that those requirements will apply. See Sections 5 and 7. 5) Annual and Lifetime Limits Q501. What is the general rule regarding lifetime limits? A501. For plan years beginning on or after September 23, 2010 (e.g. 2011 for calendar-year plans), you may not impose a lifetime limit on the dollar value of essential benefits for any participant. Q502. Does this requirement also apply to grandfathered plans? A502. Yes. Q503. Is there a delayed effective date for collectively bargained plans? A503. It appears that annual and lifetime limits would not have to be removed until the last collective bargaining agreement ratified before March 23, 2010 expires. Q504. Will a plan be able to impose a lifetime dollar limit on certain benefits, such as TMJ care or in vitro fertilization? A504. We presume that lifetime limits on these types of services will continue to be allowed. Q505. Would a plan be able to impose a non-dollar lifetime limit on benefits? A505. Yes. It appears that plans would be permitted to limit the number of days of coverage or visits per lifetime. However, it is unlikely that a plan could limit both the number of visits and the dollar amount per visit since if combined that would constitute a lifetime dollar limit. Q506. What are the rules regarding annual limits? A506. A plan may not impose annual limits on the dollar value of essential health benefits for any participant or beneficiary. Before 2014, a plan may impose a restricted annual limit on essential benefits. Guidance is required on what restricted limits will be allowed. The broader prohibition will be effective for plan years beginning on and after January 1, 2014.
Q507. What are essential health benefits that cannot be limited? A507. At a minimum, essential benefits include: Ambulatory patient services Emergency services Hospitalization Maternity and newborn care Mental health and substance use disorder services Prescription drugs Laboratory services Rehabilitative services and devices Preventive and wellness services and chronic disease management Pediatric services, including oral and vision care Any other benefit that the Secretary later deems essential Q508. Can we retain annual and lifetime maximum limits for Medicare supplement plans? A508. The existing regulations under HIPAA explicitly identify insured Medicare supplement plans (those that just fill in Medicare's deductibles and coinsurance) as HIPAA-excepted benefits. Therefore, stand alone Medicare supplement plans may not be subject to the requirement to provide unlimited benefits. However, typical carve out plans (those that provide benefits that coordinate with Medicare instead of just supplement them) are not accepted, and will have to provide unlimited benefits under the new rules. Q509. Are retiree-only plans exempt from the requirements to have an unlimited lifetime maximum? A509. Probably not. Although retiree-only plans had been exempt from HIPAA, this appears to have been changed by the health reform law. Under a literal reading of the law as drafted, retiree-only plans are subject to the same requirements as your active programs. Subsequent technical corrections or regulations MIGHT exempt your programs for Medicare retirees (whether or not they fit the limited Medicare supplement requirements), but we believe that they are unlikely to exempt your program for early retirees. Q510. Should we split our retiree plans from our active benefits? A510. Perhaps. If subsequent technical corrections restore exemptions for retiree-only plans, you would need to create a separate retiree-only ERISA plan in order to preserve your flexibility. It is clear that a single plan that covers both active and retiree benefits will have to eliminate annual and lifetime maximums. However, any newly segregated plan might not be considered grandfathered. Q511. If we don t amend our plan to eliminate the lifetime maximum limit, what s the penalty? A511. The HIPAA penalty of $100 per beneficiary per day would apply. Q512. How much will removing the lifetime maximum on our retiree plan mean to our financial statements? A512. This will depend on how low your maximum is today, how your carrier is administering it and the precise methodology your actuary is currently using to measure it. In many cases, the lifetime maximum does not have a significant impact on the measurement of retiree obligations. You should talk with your actuary as soon as possible to gauge the potential impact.
Q513. When do we have to reflect this increased retiree liability in our financial statements? A513. If it is material, you would need to reflect it in the period that it becomes measurable. You and your company s auditor might determine that before we receive regulatory guidance there is too much uncertainty to be able to reliably measure. Q514. What was the small-plan exemption to the HIPAA portability rules before health reform? A514. Originally, the HIPAA portability rules did not apply to plans that had less than 2 participants who are current employees. That exemption was repeated in 3 different places in the law: in the Internal Revenue Code, and ERISA (which generally regulate group health plans), as well as in the Public Health Service Act (which generally regulates individual insurance). This small-plan exemption had been widely interpreted to apply to retiree-only plans as well. Q515. What changes did health reform make to the small-plan exemption to the HIPAA portability rules? A515. Health reform eliminated the exemption contained in the Public Health Service Act (the provision with the widest application), and then amended the ERISA and the IRC by broad inference. A strict reading of the legislation would conclude that retiree-only plans are no longer exempt from the HIPAA portability rules, though it is not clear that this is what was intended. The retiree-only plan exemption might be restored in subsequent technical corrections. Alternatively, another HIPAA exemption may apply to some or all of an employer s retiree programs. Q516. What do the HIPAA portability rules have to do with annual and lifetime limits? A516. The new lifetime maximum provisions have been added to overall section of the law created for HIPAA portability. So, in general, any plan subject to the HIPAA portability rules is subject to the new lifetime maximum provision, and likewise any plan subject to the lifetime maximum provision is subject to HIPAA portability. The health care reform legislation not only added this new lifetime maximum provision into the HIPAA portability section, but made some changes to the rules defining which plans were exempt from HIPAA portability. Q517. What plans are exempt from the HIPAA portability requirements and the new annual and lifetime maximums? A517. HIPAA portability requirements have both statutory and regulatory exemptions that now will apply to the new annual and lifetime maximums. These rules exempt: Stand-alone dental or vision plans Medicare Supplements (but as currently defined, Medicare coordinated plans offered by employers are not exempt) Flexible Spending Accounts, which as defined includes reimbursement accounts that apply to retirees that are limited to $500 per year. Worker s compensation benefits Medical benefits provided under automobile insurance or general liability insurance We hope that regulations will expand the scope of these exemptions at least from some of the new requirements. In particular, the entire regulatory scheme of HIPAA and the new rules are meant to provide broad based coverage to individuals not yet on Medicare, so we would hope and strongly suggest that the Medicare supplement exemption be expanded to include any medical benefit and prescription drug benefit that
is provided by the employer to its Medicare eligible population. Otherwise, employers will just eliminate these benefits that coordinate with a Medicare scheme that was already designed to provide an adequate level of coverage of essential benefits for the older retirees. 6) Account-Based Plans Q601. How will health care reform affect health savings accounts? A601. There are only two direct changes to Health Savings Accounts (HSAs) under the law, both of which become effective January 1, 2011. First, amounts paid for over-the-counter drugs generally will no longer be treated as medical expenses only expenses for prescribed drugs and insulin will qualify for reimbursement. In addition, the penalty for all non-medical expense reimbursements will increase from 10 to 20 percent. Employer-sponsored HSA-compatible high deductible health plans (HDHP) will be affected in the same way as other group health plans. Q602. How will health care reform affect my health FSA program? A602. Health care reform made three changes to health FSAs: FSAs may no longer reimburse OTC medications (unless insulin or prescribed by a physician - effective 2011) The maximum employee contribution limit is reduced to $2,500 (effective 2013 and indexed thereafter) FSAs are included in the calculation of the Cadillac tax (effective 2018). Q603. How will health care reform affect my health reimbursement account program? A603. Beginning January 1, 2011, amounts paid for over-the-counter drugs generally will not be treated as medical expenses only expenses for prescribed drugs and insulin will qualify for reimbursement through a health reimbursement account. So, if your program currently reimburses expenses for all over-the-counter drugs, it will have to be changed. Q604. Are all OTC items affected by the change in rules? A604. No. The rule change is specific to OTC medications. Therefore, account plans would still be allowed to reimburse for other OTC items, such as bandages or medical devices. 7) Coverage for Dependents Q701. When do the new requirements regarding the extension of coverage for adult dependent children become effective? A701. Effective with plan years beginning after September 23, 2010 (e.g., 2011 for calendar year plans) health plans will have to extend medical coverage to adult children up to age 26. Collectively bargained plans may have a delayed effective date. The White House has been pressuring insurers for voluntarily early adoption of this provision. To date, many major insurers have announced they will provide gap coverage to enable continued coverage of full-time college students, under age 26, who are graduating this year. These offers are not available to self-funded clients, and typically only involve dependents who were currently enrolled and are only coming off coverage now (such as graduating seniors).
Q702. Do these age 26 requirements apply to dental and vision coverage, as well? A702. No. Stand-alone dental and vision plans (e.g., those with a separate election and costs) qualify as HIPAA-excepted benefits and are not subject to this mandate. Q703. Do we have to cover adult children to age 26 even if they are married? A703. This is not clear, and we are hoping for guidance on this point. Please note that your plan does not have to offer coverage to the spouse and dependents of these adult children. Q704. Can we continue to impose a full-time student status requirement for eligibility under our medical program? A704. No. You will no longer be able to make plan eligibility contingent on a child being a student. However, it appears that you may be able to vary employee contributions upon this status. Q705. Can I remove Michelle s Law details from my open enrollment packets and SPDs? A705. Yes. Michelle s law and its notice requirements only apply to plans which contain a student status requirement. If, however, you elect to vary employee contributions by student status, you would still need to provide these notices. Q706. Can we require that these adult children are not eligible for any other employer-sponsored group coverage? A706. Yes. For the next three years only, grandfathered plans may (but are not required to) exclude from eligibility, those adult children up to age 26 who are eligible for coverage under another employer-sponsored health plan. But for plan years starting in 2014, you can no longer impose this restriction. Q707. How can I determine whether or not these adult children have other coverage available? A707. You can use a process similar to what many employers already use to determine existence of other coverage when administering COB rules or spousal surcharges. These processes can range from honor system affidavits to full documentation audits. Q708. Will this new coverage for adult children be taxable income to them (similar to how we currently handle domestic partners)? A708. No. Health reform amends the Internal Revenue Code to provide that coverage provided to adult children, through the calendar year in which they turn age 26, is not includible in income and employees may pay for their share of the cost on a pre-tax basis. Domestic partner coverage, however, remains taxable income. Please note that this new tax status is available immediately, which means that if you are currently imputing income on adult dependents, you may need to adjust your procedures depending on the terms of your plan. Q709. How long do we have to continue to cover these adult dependent children? A709. You can terminate coverage of an adult dependent child on the date of his or her 26th birthday. However, if for administrative reasons you decide to continue their coverage until the end of that month or the end of that plan year, you may do so without adverse tax consequences to the employee.
Q710. If we have to offer coverage to age 26, do we also have to subsidize it to the extent we do for other dependents? A710. Probably not. There is nothing in the law that limits the manner in which an employer may charge for that coverage. Thus, absent further guidance, an employer could charge an adult child up to the full cost of his or her coverage (e.g., a COBRA rate). Q711. When adult dependent coverage ends at age 26, is that a Section 125 change in family status? A711. Yes. At that point, the employee could be allowed to change medical option tiers and corresponding salary reduction amounts (including contributions to a FSA). Q712. When adult dependent coverage ends at age 26, is that a COBRA qualifying event? A712. Yes. The loss of dependent status under the terms of the plan is a COBRA qualifying event and these adult children would be eligible for up to another 36 months of continuation, at COBRA rates. Q713. Will our fully-insured plan still be subject to various state rules regarding coverage of adult children? A713. Yes. Your fully-insured plan will be subject to both the federal requirements and applicable state insurance law mandates regarding dependent coverage. Therefore, you will need to provide the better of the two requirements in each state. Q714. We periodically audit the eligibility of our dependents. Is that no longer necessary? A714. While the law expands the definition of eligible dependents, it does not eliminate the need to periodically audit the eligibility of dependents enrolled in your plan. It still will be important to confirm marital status, relationship status, and, under the new law, whether an adult child is eligible for other employer-sponsored health coverage. If your plan varies employee contributions by dependent status (e.g., you charge less for fulltime students or financially dependent children) you still will need to verify these characteristics. Q715. How will removing the full-time student requirement impact our upcoming Dependent Eligibility Verification Audit (DEVA) results? A715. By eliminating the student requirement for children over 19, your dependent eligibility verification audit removals will likely go down and your legitimate plan enrollment should go up. Q716. What is rescission? A716. Rescission is the practice of retroactively terminating insurance coverage (sometimes, in advance of a large claim). The health reform law curbed perceived insurance company abuses by prohibiting rescissions except in the case of fraud or intentional misrepresentation; and when cancellation is permitted, it can only be done with advance notice. Q717. How will the prohibition on rescissions impact dependent eligibility audits? A717. Some have broadly interpreted this requirement as to preclude removing ineligible dependents found in
an audit from the plan unless there is fraud. This would be a significant restriction on plan administrators since the vast majority of ineligible dependents are found to be unintentionally non-compliant rather than committing outright fraud. This interpretation is likely overreaching and will need to be clarified in subsequent guidance. What s now more clear is that the common employer practice of choosing to provide amnesty (only terminating coverage, not retrospectively) is now likely required. 8) Grandfathered Plans Q801. How can I tell if our medical plan is grandfathered? A801. If your plan was in existence on March 23, 2010, it will be a grandfathered plan. Q802. Will our plan remain grandfathered if we add new employees or dependents? A802. Yes, grandfathered plans can enroll new employees and their dependents and dependents of currently enrolled employees. Q803. Will our plan remain grandfathered if we make modifications to it? A803. It is likely that some changes will be permitted. However, subsequent guidance might limit the types of changes that can be made to a plan and still retain grandfathered status. Q804. From which rules are grandfathered plans exempt? A804. Grandfathered plans are exempt from the following requirements: Coverage of preventive health services at 100% Coverage of certain treatment related to clinical trials Implementation of various activities such as case management, reduction in hospital readmission and wellness programs and report the status report to Secretary of HHS and participants Implementation of specific appeals process, including external review Permitting HHS to annually review premium increases (insurers only) Permitting certain choice of providers for pediatric and ob/gyn care and require in-network coverage for emergency room visits to non-network providers Prohibition against insured plans discriminating in favor of highly compensated employees by insured plans (self-insured plans remain subject to Section 105(h) nondiscrimination rules) Q805. With which rules will grandfathered plans still need to comply? A805. Grandfathered plans must still comply with the following requirements: Extension of coverage to adult children to age 26 Prohibition of lifetime dollar limits Prohibition of pre-existing condition limitations on dependents under age 19 (2011-2013) and prohibit pre-existing condition limitations entirely by 2014 Restrictions on annual dollar limits from 2010-2013 and no annual dollar limits beginning in 2014 Use of the standard uniform explanation of coverage Prohibition against rescission Prohibition of waiting periods greater than 90 days $2,500 limit on salary reduction contributions to health FSAs
No tax-free reimbursement of over-the-counter medications (other than insulin) not prescribed by a physician Auto enrollment Report medical loss ratios and give rebates if they do not meet the applicable standards (insurers only) Cadillac plan excise tax Q806. Will grandfathered plans be permitted to increase rewards under their wellness programs from 20% to 30%? A806. Not under the law as currently drafted. The provision that increases permissible rewards under wellness programs to 30% of the cost of employee coverage (or of applicable dependent coverage if the employee s dependent can also participate) is in a section of the law that does not apply to grandfathered plans. We believe that this was a drafting error that will likely be fixed in technical corrections. Q807. Are collectively bargained plans also grandfathered? A807. Perhaps. The law provides a delayed effective date for plans maintained pursuant to one or more collective bargaining agreements ratified before March 23, 2010; generally health care reform changes will apply only after the last of those agreements terminates. Right now it is unclear how the grandfather provisions and this delayed effective date provision may interact. Additional guidance is necessary. Plans maintained pursuant to agreements ratified on and after March 23, 2010 are not grandfathered and will be subject to all of the health care reform requirements as they become applicable. Marwil & Associates alerts are for informational purposes. Its content should not be construed as legal or business management advice. Readers should contact their legal counsel or professional advisors before making any decisions based on information in these Alerts.