Healthcare Reform
Summary of Most Frequently Occurring Questions
Updated as of 4/9/2010
Effective ]gates
The healthcare reform provisions will start applying to group health plans when the plan year
begins on or after September 23, 2010. So, for a group health plan whose plan year began
on September 1, 2010, the healthcare reform provisions will not apply to that plan until
September 1, 2011. For a group health plan whose plan year starts in October, November,
or December, the applicable healthcare reform provisions will apply in 2010. However, for
group health plans that function on a calendar year basis, the applicable healthcare reform
provisions will apply on January 1, 2011.
~:Grandfathered Plans ~ ~Ct t2Q,. 'CO V/~T~ (S ; ~ ~ 2,~~~ ll, FATS-Ic-~.I~
Under the new healthcare reform law, a grandfathered plan is a group health plan that was in
existence on March 23, 2010. In other words, it's a plan that covered at least one individual
on the date that the PPACA was signed into law. The law contemplates that, for plans that
meet the grandfather definition, grandfather protections continue for an unlimited time
(previous versions of healthcare reform proposals only provided a limited five-year period).
The healthcare reform law contains important provisions exempting existing health plans
from the application of some of the new law's improvements in healthcare coverage and
quality. Grandfathered plans are excused from complying with some, but not all of those
provisions.
SUMMARY OF EFFECTIVE DATES FOR GRANDFATHER RULES
The listing below shows the insurance reform provisions that do NOT apply to grandfathered
plans. Each of these exemptions is discussed in greater detail in Willis EB Alert Vol. 3,
Number 3.
Effective for plan years starting on or after September 23, 2010
~~ ~
The material in this document is intended only to provide general information on the topics addressed. The
information provided is not intended as, does not constitute, and should not be used as a substitute for, legal
advice or a legal opinion.
* Requirement for coverage of certain preventive health services and
immunizations without cost-sharing
* No discrimination in favor of higher-wage employees (although self-insured plans
continue to be subject to prior nondiscrimination rules)
* Requirements to provide patient protections regarding emergency services,
choice of primary care provider, and access to gynecological/obstetric services
* Requirement for internal and external appeals processes
Effective for plan years starting on or after January 1, 2014
* Plans must cover routine patient costs for care in connection with clinical trials
* Discrimination against providers prohibited as long as they act within the scope of
their licenses
* Out-of-pocket maximum can be no greater than that allowed for ahigh-deductible
health plan offered in connection with a health savings account
* Deductibles can be no greater than $2,000 for single coverage and $4,000 for
family coverage (may apply only to plans offered in the small group market)
* Wellness incentives up to 30% of individual COBRA rate permitted (federal
agencies may allow additional increases up to 50%)
Special grandfather rule for adult child coverage: Until 2014, grandfathered plans have the
power to deny coverage to employees' children until age 26 when such individuals are
eligible for other employment-based coverage.
We know that the exemptions listed above are applied so that grandfather rules govern
individuals who were enrolled in a plan as of March 23, 2010. The final version of the
healthcare reform law also says grandfather protections are not changed if a group health
plan allows new family members and new employees to subsequently join a grandfathered
plan. As a result, a plan sponsor maintaining a grandfather plan can continue to allow
participants to make personal and dependent coverage changes without risking termination
of the plan's grandfather protection.
Many unanswered questions need to be worked out in the regulations, so plan sponsors
should use caution before undertaking significant changes to existing group health plans in
advance of such published guidance because there could be some risk that a particular type
of plan change might inadvertently alter grandfather status protections.
Dependent Coverage Until Age 26
The material in this document is intended only to provide general information on the topics addressed. The
information provided is not intended as, does not constitute, and should not be used as a substitute for, legal
advice or a legal opinion.
Plans that cover dependent children must make health coverage available for such children
until they reach age 26. (In other words, eligibility for employees' children may end at the
attainment of age 26.) The law does not mandate coverage for dependent children, but if any
child of an employee is eligible, then eligibility must be extended until the child turns age 26.
It is clear that a plan cannot condition eligibility on a child being unmarried or being afull-time
student. It's not clear whether a plan can impose other requirements (e.g., residing with the
employee, financial dependence, etc.). We hope to get clarification on this before the
effective date.
Although eligibility for employees' children generally must continue until age 26,
grandfathered plans may exclude some of these children. Until the start of the 2014 plan
year, a grandfathered plan may exclude any child who is eligible for other employment-based
coverage. (In other words, until 2014, grandfathered group health plans need only cover
employees' children that do not have another source of employer-sponsored coverage.)
There is no requirement for employer plans to cover the children or spouses of covered
dependent children (e.g., a worker's grandchild or son/daughter-in-law).
Health benefits provided to an employee's adult children until the end of the year in which
they turn age 26 are nontaxable regardless of dependent status. This does not make these
children dependents for other purposes if they would not otherwise qualify, however.
Over-the-Counter Drugs
Starting January 1, 2011, health flexible spending accounts (FBAs) and health reimbursment
arrangements (HRAs) can no longer reimburse participants for non-prescribed over-the-
counter drugs/medicines (OTC items) other than insulin. If the OTC item has been prescribed
by an appropriately licensed healthcare provider, health FBAs and HRAs may still provide for
'reimbursement of such items. After December 31, 2010, non-prescribed OTC items other
than insulin also will no longer be qualifying medical expenses that a health savings account
(HSA) or Archer MSA can reimburse on a tax-free basis.
Employers that sponsor health FBAs or HRAs that have allowed reimbursement of OTC
items will need to amend their plan documents to clarify that OTC items other than insulin will
no longer be reimbursable without an appropriate prescription (or to disallow reimbursement
of OTC items altogether, if that is preferred). Plans making these amendments must
distribute either an updated summary plan description or a summary of material
modifications describing the change. Plan administrators and TPAs acting on their behalf in
administering claims under health FBAs and HRAs will need to establish procedures to
prevent reimbursement of OTC items generally and, if the health FSA or HRA provides for it,
to allow reimbursement for insulin and prescribed OTC items.
The material in this document is intended only to provide general information on the topics addressed. The
information provided is not intended as, does not constitute, and should not be used as a substitute for, legal
advice or a legal opinion.
Since employers neither administer nor hire TPAs to administer distributions from HSAs and
Archer MSAs, there are no administrative steps for employers in connection with those plans.
Employers may wish to review their communications materials in connection with
contributions to HSAs, however, to ensure that they do not include statements about OTC
items that will be inaccurate in 2011.
'Small Employer Tax Credit
There were a number of questions dealing with the small employer tax credit. Starting this
year, a temporary sliding-scale small employer tax credit is available to help offset the cost of
employer provided coverage. The tax credits are provided in two phases, and the amount
available depends, in part, upon whether the employer is tax exempt. An eligible small
employer may have no more than 25 "full-time equivalent" employees with annual average
wages of less than $50,000. To qualify, the small employer must pay at least 50% of a
benchmark premium toward the cost of health insurance coverage it purchases for its
employees. (Pre-tax salary reduction contributions are not counted as part of the employer's
contribution.)
From 2010 through 2013, qualifying small employers will be eligible for a tax credit of up to
35% (25% for tax exempt employers) of the employer's actual contribution (excluding
employee pre-tax salary reduction contributions) toward the employee's health insurance
premium. The smallest businesses -those with 10 or fewer employees who have average
annual wages of less than $25,000 -will be eligible for full credit. The tax credits phase out
as firm size and wages increase. In 2014, qualifying small employers must participate in an
insurance exchange in order to claim the credit, but the maximum credit increases to 50% of
employer contributions (a reduced credit is available for tax exempt employers). Qualifying
employers may only claim the credit for up to two years after 2013.
Early Re#iree Reinsurance
By June 21, 2010, HHS is required to implement a temporary reinsurance program that
provides reimbursement to plans providing coverage for early retirees (those between the
age of 55 and Medicare eligibility). If an individual's medical expenses exceed $15,000, the
program will reimburse up to 80% of the excess until total expenses reach $90,000. The
reinsurance program is available to a group health plan maintained by one or more
employers (including state or local governments). It is also available to a plan maintained by
an employee or anization, a VEBA or a multiemplo er plan.
The material in this document is intended only to provide general information on the topics addressed. The
information provided is not intended as, does not constitute, and should not be used as a substitute for, legal
advice or a legal opinion.
In order to participate in the program, application must be made to HHS according to a
process HHS will create. The total appropriated for this program is $5 billion, and funds are
provided on a first-come, first-served basis. (If funds have not been used before then, the
program will end on January 1, 2014.) Qualifying employers will want to apply promptly when
HHS publishes the application process.
The reinsurance program is a short-term fix to shore up early retiree coverage until longer-
term measures (e.g., underwriting reform and health insurance exchanges) make coverage
more widely available for early retirees. It also counteracts incentives for employers to drop
early retiree coverage.
Plans considering submitting an application should note:
- A plan receiving reimbursement must use the funds to implement programs
and procedures to generate cost savings for participants with chronic and
high cost conditions.
- Reimbursements cannot be used as general revenue or applied as employer
contributions toward the cost of coverage.
- Documentation must be kept and submitted for the actual costs of items and
services for which a claim is submitted.
- Submitted claims are based on the actual amount expended by the plan
within the plan year and take into account any discounts, subsidies, rebates
or remuneration to the plan, but costs paid by the early retiree, spouse or
.dependent for deductibles, co-payments or co-insurance are included as
amounts expended by the plan.
- Reimbursements from the reinsurance program will not be included in the
employer's gross income.
- HHS will conduct audits of claims to ensure compliance with the program.
The material in this document is intended only to provide general information on the topics addressed. The
information provided is not intended as, does not constitute, and should not be used as a substitute for, legal
advice or a legal opinion.