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Update On National Healthcare Reform (October update)

Summit Benefit Solutions - Updated October, 2010

This summary has been updated to reflect the current status of the law as regulations begin to emerge. Certainly a great deal more detail and guidance will emerge over the coming weeks and months to flesh out the provisions of this a mammoth law - the most significant piece of federal law pertaining to healthcare since Medicare. It is subject to regulation by three federal agencies: the Internal Revenue Service, the US Department of Labor and the US Department of Health and Human Services. In fact, in the almost 2,000 pages of law, the phrase "the Secretary shall" - as in "the Secretary shall issue regulations" - appears 1,037 times, and regulations have begun flowing....

Summarized below are the provisions we believe are most likely to have an impact on our clients' group medical plans. We have provided brief descriptions of some of the provisions in a timeline format, as well as a few Summit Notes where we feel that commentary is appropriate.

We hope you find this summary helpful. We look forward to continuing to provide information to you, both in this format and through upcoming seminar / webinar events, once further regulation begins to take shape. If you would like further details on how this impacts your particular health plans, as always please feel free to contact us.

"Grandfathered" Plans

Grandfathering applies to certain areas of the law for plans in effect on March 23, 2010. According to guidance issued simultaneously by the Departments of Health and Human Services and Labor and the Internal Revenue Service on June 14, plans may make only minimal changes to such features as cost sharing (co-payments, co-insurance, deductibles) and employer / employee contribution rates if they are to retain grandfather status. For most plans, the biggest impact of the loss of grandfather status will be in eliminating cost sharing on preventive and wellness services and perhaps in the elimination of plan maximums. This situation will need to be addressed during plan renewals.  As a result of typical renewal activity

Automatic Enrollment

One section of the law requires employers with over 200 employees to automatically enroll employees in their plan.  There is no specific effective date for this provision – it is to become effective “when regulations are issued.”  There is currently no timetable for issuance of these regulations, but this could impact larger employers at any time.

Notice of Modifications (i.e., “Renewal Changes….”)

The new law requires notice of “modifications” to a plan at least 60 days prior to the date the change becomes effective. There has been disagreement about the effective date of this notice requirement. Some think the requirement will take effect Jan. 1, 2011, for calendar year plans, while others think it might take effect March 23, 2012. Others think the 60-day advance notice is intended to apply now.  We will be watching this with great interest because it may wreak havoc with the renewal process.

Changes Effective on the Next Plan Anniversary:

  • Coverage for Pre-Existing Conditions in Children: Prohibits denial of coverage to children with pre-existing conditions. Will apply to adults in 2014.
    • Summit Notes: Keep in mind pre-existing condition exclusions today do not exist in many insured plans. Also, in all states, current HIPAA laws protect members moving from plan to plan without significant coverage breaks.
  • Coverage for Adult Children up to Age 26: Plans must allow children (whether married or unmarried) to stay on family policies until age 26 - there is no "dependency" requirement. Under "grandfathered" plans this does not have to be offered if the adult child is eligible for other employer sponsored coverage. The IRS has ruled that income will not be imputed to participants for premiums paid by the employer and participants may pay premium on a pretax basis through a Section 125 Plan as long as the Adult Child has not attained age 27 during the year.
    • Summit Notes: Note that this rule applies to self insured plans as well as fully insured plans. Self-insured plans may not opt out of this. Virtually all insurance plans have extended coverage of currently insured dependents to age 26. In general, those not currently covered may enroll at the next open enrollment date.
  • FSA's may Permit Adult Children to Participate, Effective March 30, 2010: FSA plans may adopt amendments during this calendar year that permit such participation retroactive to March 30 and, if the plan permits, employee participants may change their elections currently to reflect the Adult Child(ren) participation.
  • Prevention and Wellness Requirements: Requires new plans and plans renewing after September 23, 2010 to cover certain preventive services such as immunizations, screenings and infant preventive care, without deductibles and other employee cost sharing.  Regulations issued July 14, 2010 and may be accessed from HHS web site:  HealthCare.Gov Preventive Services Announcement.
    • Summit Notes: "Grandfathered" plans are exempt from this requirement.
  • Lifetime Limits Prohibition: Prohibits plans from imposing lifetime limits on certain essential benefits.
    • Summit Notes: Currently, some insured plans carry lifetime limits of, for example, $1 million or $2 million. This rule has potentially significant impact on self insured plans, which usually do impose lifetime limits driven by stop loss carrier policy limits.
  • Annual Limits Restrictions: Regulations require that annual limits on "essential benefits" be not less than $750,000 currently and then increase to $1.25 million then $2 million and finally to unlimited in 2014. We are awaiting further regulation with respect to "essential services," but they do include such plan features as ambulatory patient services, emergency services, hospitalization, maternity and newborn care, Rx, etc.
    • Summit Notes: This should have minimal if any impact on most plans. The typical plan seen among our clients has no internal limits with the exception of Mental Health and Substance abuse, the limits of which will be removed by Mental Health Parity law.
  • Prohibition on Discrimination: Prohibits new insured plans from discriminating in favor of higher-wage employees.
    • Summit Notes: Similar nondiscrimination rules already are in place for self-insured plans under federal law, and many states already impose similar rules for fully insured plans. Employers may be required to "test" plans under rules yet to be promulgated.
  • Appeals Process: Bolsters current ERISA appeals process for new health plans.
  • Prohibition on Rescission: Prohibits rescission of existing policies by health insurance companies when a person gets sick.
    • Summit Notes: Rescission is rarely seen among our clients. Group health plans currently in place appear to be grandfathered from this requirement
  • PCP and Ob-Gyn Choice: Permits members to choose any participating primary care physician in all new insurance plans; prohibits insurers from requiring prior authorization for women to see obstetrician-gynecologists, and guarantees access to emergency care.
    • Summit Notes: Most of our client plans already have the flexibility to choose any participating PCP.

Other 2010 Changes:

  • Small Business Tax Credit (effective now): Provides tax credits of up to 35% of premiums for small businesses to make employer coverage more affordable.
    • Summit Notes: Full credit is available to firms with 10 or fewer employees with average annual wages of less than $25,000. Firms with up to 25 employees and average annual wages of up to $50,000 are also eligible. Definition of employees excludes some owners.
  • Tax on Tanning Services: 10% tax on amounts paid for indoor tanning services (for services on or after July 1, 2010).
    • Summit Notes: Looks like we need to go to the beach instead, although it is getting to be too cold for that.

Changes for 2011:

  • FSA, HRA, HSA Change in "Qualified Medical Expense" Definition: Ends the tax-advantaged treatment of over-the-counter drugs (unless prescribed), by limiting the use of tax favored accounts to prescribed medications (or insulin).  Other “traditionally” covered items such as bandages, saline solution, etc., remain eligible for reimbursement.
    • Summit Notes: Important:  This takes effect for tax years after December 31, 2010.  FSA sponsors should notify participants of the new restriction during December so that the participants will be able to take last minute advantage of the current rules.
  • Medical Loss Ratio: Requires health insurance companies to report a medical loss ratio of at least 85% for large plans and 80% for small plans, averaged over 3 years. If they exceed the ratio, they are required to rebate the difference to enrollees.
    • Summit Notes: This seems to be the government trying to protect against excess profits by the carriers. We'll look forward to regulations to better define which enrollees will be rebated, and details on the overall process.
  • Limited Long-Term Care Program: Creates a limited long-term insurance program called "CLASS," financed by voluntary employee payroll deductions, to provide benefits to adults who can no longer perform certain activities of daily living.
    • Summit Notes: We will be closely following the development of this program, although many believe that this won’t become active for some time. Long term care protection is an increasingly important subject to employees and their families.
  • Increase in HSA Penalty Taxes: Increases from 10% to 20% the additional tax for HSA withdrawals prior to age 65 that are not used for qualified medical expenses.
    • Summit Notes: Another reason to not use your HSA money for that big screen TV.
  • Small Business Cafeteria Plan: Creates a Simple Cafeteria Plan for small businesses that will meet cafeteria plan nondiscrimination rules so long as specified contribution, eligibility and participation requirements are met.
    • Summit Notes: Most employers should be utilizing a Section 125 cafeteria plan today. It is also a requirement under some state laws today.

Some Changes for Future Years:

  • A new, standardized "Uniform Summary of Benefits" must be provided to participants by March 2012.
    • Summit Note: Additional guidance will be necessary to determine the format of this summary as well as the impact this new requirement will have on the current ERISA SPD requirements.
  • Employer Disclosure Requirement – Will Presumably Apply beginning in 2012 - Deferred from Original 2011 Effective Date.  Thiswill require employers to disclose the value of the benefit provided under each employee's health plan on the employee's Form W-2.
    • Summit Notes: This does not mean the cost of insurance will be included in income - it is simply a reporting mechanism showing the total cost (employer and employee share) of the plan. It will be an administrative change and impact to organizations. Still outstanding are logistics concerning how values will be reported (average among plans where options are available or on a per plan basis, for example).
  • Limits healthcare FSA annual maximum to $2,500.
    • Summit Note: This will not impact dependent care account maximums.
  • Various taxes imposed on insurers, device manufacturers, employers, and highly compensated employees.
    • Summit Note: Medicare tax rate will be increased by .9% for individuals earning over $200,000 and joint filers earning over $250,000. High income persons also must pay an additional 3.8% Medicare tax on their unearned and net investment income.
  • Individual responsibility to carry health insurance.
  • Fee (penalty) for employers not offering coverage.
  • No waiting periods exceeding 90 days.
  • No pre-existing condition exclusions for any enrollees.
  • No annual dollar limits on plan benefits.
  • State insurance exchanges established for participation in various plan options.
  • Stricter rules on insurance premium rating.
  • Increased Wellness Program incentives (20% to 30%).
  • Essential (minimum) benefits requirements - will include specific covered services, limits on deductibles, out of pocket costs.
  • Cadillac tax for high cost plans scheduled to take effect (40% on amounts over $10,200 per individual / $27,500 per family, indexed beginning this year).

The information being provided is for general education purposes and with the understanding that it not intended to be used or interpreted as specific legal, tax or investment advice. Summit Financial Corporation and its representatives do not provide tax or legal advice to individuals. Consult your tax advisor or attorney regarding specific tax issues.

The materials created through August 2011 are when the professionals of Summit Financial were with Ogilvie Security Advisors Corp. The professionals of Summit Financial have not been with Ogilvie Security Advisors Corp. since August 31, 2011 and have no further affiliation with that organization.