This is cross-posted from our recent client alert.
With 2014 just around the corner, numerous mandates under the Patient Protection and Affordable Care Act, as amended (“PPACA”) are about to become effective. Below is a checklist of upcoming PPACA mandates that employers must implement in 2014, as well as a list of existing enrollment and annual notice requirements that group health plan sponsors should consider during open enrollment.
Additionally, with the recent decision of the U.S. Supreme Court in U.S. v. Windsor overturning part of the Defense of Marriage Act (“DOMA”), group health plan sponsors should take into account the impact of this decision on their plans. As such, a brief summary of relevant DOMA considerations are provided below.
For a refresher on the PPACA mandates which became effective this year, please see our 2013 group health plan checklist here.
I. Requirements That Apply to All Group Health Plans (Whether Grandfathered or Not)
Beginning with the dates specified below, a group health plan subject to PPACA must comply with the following requirements, regardless of its status as a “grandfathered health plan”:
- Annual limits will no longer be permitted on essential health benefits.
Currently, annual limits on “essential health benefits” cannot exceed $2 million. Effective for plan years beginning on or after January 1, 2014, group health plans may not establish annual dollar limits on such benefits for any participant or beneficiary. However, this prohibition does not prevent a group health plan from excluding all benefits for a particular condition (but if any benefits are provided for a condition, the prohibition may apply depending on the benefits provided). Other legal requirements may restrict a plan’s ability to eliminate certain benefits.
Essential health benefits include those benefits that fall into one or more of the following categories: (i) Ambulatory patient services; (ii) Emergency services; (iii) Hospitalization; (iv) Maternity and newborn care; (v) Mental health and substance use disorder services (including behavioral health treatment); (vi) Prescription drugs; (vii) Rehabilitative and habilitative services and devices; (viii) Laboratory services; (ix) Preventative and wellness services and chronic disease management; and (x) Pediatric services (including oral and vision care). The exact items and services that are considered essential health benefits are generally determined by reference to a benchmark insured plan in each state. The Department of Health and Human Services (“HHS”) considers self-insured and large group insured plans to have used a permissible definition of essential health benefits if they use any benchmark plan. For more details, see our blog post here.
- All pre-existing condition exclusion provisions will be prohibited.
For plan years beginning on or after September 23, 2010, group health plans were prohibited from imposing any pre-existing condition exclusions ( “PCEs”) on any individuals enrolled in such plan who were under 19 years of age. Effective for plan years beginning on or after January 1, 2014, this prohibition becomes a general prohibition on PCEs (i.e., group plans will be required to remove any restrictions on plan entry and exclusions from coverage based on preexisting conditions).
- Reinsurance payments will be assessed and need to be made.
Open enrollment under the Health Benefit Exchanges (each more commonly referred to as an “Exchange” or “Marketplace”) began October 1, 2013, with coverage effective as of January 1, 2014 for any qualified individuals whose selections are received by December 15, 2013. While this does not directly impact group health plans (outside of the notice requirements, discussed below), the cost of operating such Exchanges following January 1, 2014 will impact group health plans. Each State that operates an Exchange is also required to establish a reinsurance program, which is intended to reduce the uncertainty of insurance risk in the individual market by partially offsetting risk for high-cost enrollees. Such reinsurance programs will require contributions from both health insurance insurers and group health plans for 2014 through 2016.
The determination of the amount owed by any group health plan is the product of the average number of covered lives of “reinsurance contribution enrollees” (i.e., employees enrolled in such plan and their dependents) multiplied by the contribution rate prescribed by HHS for such benefit year.
A group health plan will be required to provide to HHS by November 15 certain enrollment data for the plan, which HHS will then use to determine such plan’s contribution amount. HHS is then required to notify the plan within thirty days of receiving the data (or December 15, if later) of the amount of reinsurance contribution payments required by that plan for the year. Any payment owed by a plan is due no later than 30 days after notification. For 2014, the contribution amount is $63 per enrollee. The contribution should go down in future years. This amount will be paid by insurers for insured plans. With respect to self-funded plans, the plan is liable, but it may contract with its third party administrator to transfer the contribution payments to HHS.
States that elect to operate their own reinsurance programs may require supplemental contributions and administrative cost payments above the contributions which would otherwise be calculated by HHS. However, such supplemental contributions may only be collected on insured products in the state in order to cover the administrative expenses of the state.
- Marketplace notices must be sent to existing employees by October 1, 2013, and thereafter to new employees upon hire.
Employers are required to distribute notices to employees informing them of the availability of health insurance through the Marketplace and employer-offered health coverage. The Department of Labor (“DOL”) has provided employers with two sample form notices which can be used to comply with this requirement: one for employers who sponsor a group health plan (here) and one for employers who do not (here). Additional information on the notice can be found on our blog.
- The “individual mandate” begins in 2014 (even though the employer mandate has been delayed).
Although it does not directly affect group health plans, beginning in 2014, individuals who do not (or whose spouses or dependents do not) have “minimum essential coverage” for any month will generally be assessed what is referred to as a “shared responsibility penalty.” This should not be confused with the potential penalty for certain large employers who do not offer minimum essential coverage for all full-time employees, which has been delayed until 2015.
The Internal Revenue Service (“IRS”) recently issued final regulations on the “individual mandate” which we discussed here. This requirement may cause some employees who previously declined coverage to enroll in their employer’s plan, although we expect the effect will not be that significant given the relatively small penalty involved.
II. Additional Requirements That Apply to Non-Grandfathered Plans
Group health plans that are not grandfathered for PPACA purposes must comply with the following additional requirements. Each such requirement is effective for plan years beginning on or after January 1, 2014 (unless otherwise noted):
- Plans cannot impose certain limitations on participation and reimbursement of costs incurred in connection with participation in certain approved clinical trials for life-threatening diseases.
Where a group health plan covers an individual who is eligible to participate in an “approved clinical trial” (as determined by a referring health care professional or participant-provided medical information), then the plan will be prohibited from denying that individual participation in such a clinical trial. Applicable clinical trials are phase I, II, III or IV clinical trials that are conducted in relation to the prevention, detection and treatment of cancer or other life-threatening diseases or conditions where the underlying study or investigation is (i) approved or funded by certain federal organizations, (ii) conducted under an investigational new drug application reviewed by the Food and Drug Administration or (iii) a drug trial that is exempt from having such an investigational new drug application.
Additionally, such plans generally will be prohibited from denying, limiting or imposing additional conditions on the coverage of “routine patient costs” for items and services furnished in connection with participation in such a trial, although the plan does not have to cover the cost of the trial itself. Routine patient costs include any items and services consistent with the coverage provided in the plan that is typically covered for an individual who is not enrolled in a clinical trial. Investigational items, devices or services, data collection and analysis items or services not used in the direct clinical management of the patient and any services clearly inconsistent with widely accepted and established standard of care for a particular diagnosis are specifically excluded from such costs.
Finally, a group health plan will be prohibited from discriminating against an individual who participates in such a clinical trial on the basis of that individual’s participation.
If an individual described above is accepted by an in-network provider for a clinical trial, the plan may require that the individual use that in-network provider. However, these provisions also apply to an individual participating in an approved clinic trial outside of the plan’s health care provider network if the plan provides out-of-network coverage for routine patient costs, as discussed above.
- Cost-sharing limitations may not be above certain ceiling amounts.
Cost-sharing generally includes deductibles, co-insurance, co-payments, and similar charges and any other expenditure required of a covered individual which is a “qualified medical expense” for any essential health benefit covered under the plan. For plan years beginning in 2014, cost-sharing amounts will not be permitted to exceed $6,350 for self-only coverage and $12,700 for family coverage, which are the 2014 maximums for high-deductible health plan coverage that allows an individual to contribute to a health savings account. Such amounts are also referred to as “out-of-pocket maximums.” While some out-of-pocket maximums have excluded co-payments in the past, they must be included for this purpose. The cost-sharing limit may be applied solely to cost-sharing incurred for in-network services; out-of-network may have a higher cap. For plan years beginning in 2015 and after, the self-only coverage amount will be increased by the Secretary of the DOL in accordance with applicable regulations, although these increases will not be tied to the high deductible health plan maximums and may be different. After 2014, the family coverage amount will be twice the self-only amount for the applicable year.
If a group health plan uses more than one provider to administer benefits that are subject to these out-of-pocket maximums, the requirement will be considered met if: (i) the major medical coverage portion of the plan (which excludes prescription drug coverage) complies with the annual limitation; and (ii) an out-of-pocket maximum on coverage which does not consist solely of major medical coverage separately does not exceed the annual limitation. However, such relief is transitional and applies only for the first plan year beginning in 2014. Small employer insured plans (generally, those plans for employers with less than 100 employees in the preceding year) are also subject to limits on deductibles.
Employers, whether small or large, should confirm that their plan designs comply with these requirements.
- Certain non-discrimination rules will apply to non-grandfathered group health plans.
PPACA provides for the following non-discrimination requirements in relation to plan participants and health care providers:
1. Individual’s Health Status
A group health plan is prohibited from establishing rules for enrollment eligibility (either new or continued eligibility) under such plan based on certain health status-related factors. This discrimination prohibition includes applying a premium or contribution requirement to any individual (either as a condition of enrollment or continued enrollment) that is greater than such requirements placed on similarly situated individuals enrolled in the plan on the basis of certain health-status related factors. However, a group health plan is not prohibited from establishing premium discounts or rebates or otherwise modifying applicable co-payments or deductibles in return for an individual’s adherence to a program designed to promote health or prevent disease (e.g. a wellness program).
For plan years beginning on or after January 1, 2014, recently finalized IRS regulations apply to such wellness programs. A plan considering implementing (or which currently operates) such a program may wish to consult with its employee benefits counsel to ensure that such program is compliant with current guidelines. For a more in-depth discussion of these IRS regulations, see our prior posts and client alert on this topic.
2. Health Care Providers
A group health plan may not discriminate with respect to participation in the plan against any health care provider acting within the scope of that provider’s license or certification under the applicable state law. To the extent an item or service is covered, and consistent with reasonable medical management techniques specified under the plan with respect to the frequency, method, treatment or setting for an item or service, the plan must not discriminate based on a provider’s license or certification. However, this does not mean that a group health plan must contract with any health care provider willing to abide by the terms and conditions for participation established by the plan. It also does not prevent a group health plan from establishing varied reimbursement rates based on quality or performance measures. Employers should be aware of this requirement, although most plans will rely on the insurer or third party administrator with regard to provider selection.
- Excessive enrollment waiting periods are also prohibited.
Group health plans will be prohibited from applying a waiting period (i.e., the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective) which exceeds 90 days.
However, a group health plan that requires an employee regularly work a specified number of hours per period (e.g. 30 hours per week) does not have to abide by the 90-day requirement for certain newly hired employees. Specifically, if the employer cannot determine whether the employee will meet the hours requirement on date of hire (e.g., in the case of a variable-hour employee), the plan is permitted to take a reasonable period of time to determine whether the employee meets the hours requirement. The measurement period must be consistent with the employer mandate rules. The measurement period will not be counted against the 90-day requirement and will not violate this rule as long as (i) any waiting period after the measurement period does not exceed 90 days and (ii) the coverage is made effective no later than 13 months from the employee’s start date.
III. Existing Notice and Filing Requirements
Below is a list of enrollment and annual notices that group health plan sponsors should consider during open enrollment in addition to the Marketplace Notice described above.
- Enrollment Notices.
1) COBRA Notice.
Plan administrators must provide an initial written notice of rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) to each employee and his or her spouse when group health plan coverage first commences. Additionally, plan administrators must provide a COBRA election notice to each qualified beneficiary of his or her right to elect continuing coverage under the plan upon the occurrence of a qualifying event. Each of these notices must contain specific information, and the DOL has issued model notices. The model election notice was updated this year to include a discussion of Marketplace coverage options, as discussed here.
2) HIPAA Privacy Notice.
If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan. Notice of availability to receive another copy must be given every three years. Plan sponsors should confirm that the notices of privacy practices for their group health plans have been revised to reflect the requirements under Subtitle D of the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and the final omnibus rule released earlier this year. Following a material modification, which includes any change required pursuant to HITECH or the omnibus rule, the revised notice of privacy practices must be distributed to plan participants within 60 days after the change to the notice. However, if a group health plan posted a revised notice on any website dedicated to the health plan by September 23, 2013, the plan sponsor is permitted to send the revised notice with its next annual mailing to participants.
3) Special Enrollment Rights.
A group health plan must provide each employee who is eligible to enroll with a notice of his or her HIPAA special enrollment rights at or prior to the time of enrollment. Among other information, this notice must describe the rights afforded under the Children’s Health Insurance Program Reauthorization Act.
4) Pre-existing Condition Exclusion Notice.
If the plan contains pre-existing condition exclusions, subject to the PPACA limitations discussed above, a notice describing the exclusions and how prior creditable coverage can reduce the exclusion period must be provided to participants as part of any written enrollment materials. If there are no written enrollment materials, the notice must be provided as soon as possible after a participant’s request for enrollment.
5) Summary of Benefits and Coverage.
A Summary of Benefits and Coverage (“SBC”) must be provided to participants and beneficiaries prior to enrollment or re-enrollment. At open enrollment, an SBC must be provided for each benefit package offered for which the participant or beneficiary is eligible. Upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished no later than 30 days prior to the first day of the new plan year, unless the participant or beneficiary requests a summary for another benefit package. The SBC must also be furnished to special enrollees within 90 days after enrollment pursuant to a special enrollment right. Finally, PPACA requires that a plan sponsor provide 60 days advance notice to participants before the effective date of any material modifications to its plan. Such notice must be given only where the material modification(s) would affect the information required to be included in the SBC. The advance notice may be either in the form of an updated SBC or a separate document describing the material modification(s).
- Annual Notice Requirements.
The following notices must be provided to participants and beneficiaries each year. An employer may choose to include these notices in the plan’s annual open enrollment materials.
1. Women’s Health and Cancer Rights Act Notice.
The Women’s Health and Cancer Rights Act requires that a notice be sent to all participants describing required benefits for mastectomy-related reconstructive surgery, prostheses, and treatment of physical complications of mastectomy. This notice must be given to plan participants upon enrollment and then annually thereafter. The DOL has developed model language to fulfill this requirement.
2. Medicare Part D Notice.
Group health plans providing prescription drug coverage must provide a notice to any individual covered by or eligible for the group health plan who is eligible covered under Medicare Part A or for Medicare Part B (an “eligible individual”). The notice must explain whether the plan’s prescription drug coverage is creditable. Coverage is creditable if it is actuarially equivalent to coverage available under the standard Medicare Part D program. To satisfy the distribution timing requirements, the notice is generally distributed upon an individual’s enrollment in the plan, each year during open enrollment (before the new enrollment commencement date of October 15), and during the plan year if the status of the coverage changes (either for the plan as a whole or for the individual). Model notices are available from the Centers for Medicare and Medicaid here.
3. CHIP Premium Assistance Notice.
Employers must also provide notices annually to employees regarding available state premium assistance programs that can help pay for coverage under the plan and how to apply for it. A model notice from the DOL is available here.
- IRS Form W-2 Reporting Obligation.
Beginning with the 2012 tax year, employers have been required to report the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2. The reporting requirement is informational only and does not affect the amount includible in income. Helpful FAQs with respect to the W-2 reporting requirements can be found on the IRS website here. See also our blog post regarding whether the cost of EAPs and wellness programs should be included in the Form W-2 reporting.
- ERISA’s General Notice Requirements.
It is important to keep current with ERISA’s general notice requirements, as to both timing and content. For example, changes in plan design must be reflected in Summaries of Material Modifications (“SMMs”) or updated summary plan descriptions (“SPDs”) timely distributed to eligible employees. If a plan change involves a material reduction in covered services or benefits, an SMM or an updated SPD must be furnished within 60 days after adoption of the change. Note that this obligation is independent of the PPACA requirement to issue a revised SBC or notification of material modification at least 60 days before a material modification to a SBC becomes effective (as discussed above); however, satisfaction of the PPACA requirement will satisfy this requirement with respect to such changes. Restated SPDs must be furnished every five years if the plan has been amended within five years of publication of the most recent SPD, and every ten years if the information has not been changed. Open enrollment may present the best time to distribute these materials.
IV. DOMA Considerations
On June 26, 2013, the U.S. Supreme Court overturned part of DOMA in its ruling in U.S. v. Windsor. In particular, Windsor overturned Section 3 of DOMA, which required that for federal law purposes only opposite sex couples could be treated as married. Following Windsor, federal government agencies have generally taken one of two approaches with respect to employee benefits: (1) treating a same-sex couple validly married in a state that recognizes same-sex marriage as “married”, even if such couple moves to a state which does not recognize same-sex marriage (a “place of celebration” approach) or (2) treating a same-sex couple validly married in a state that recognizes same-sex marriage as “married” only when such couple resides in a state that recognizes same-sex marriage (a “place of domicile” approach). Currently, thirteen states and the District of Columbia allow same-sex marriage.
Following Windsor, group health plan sponsors should review their plans to determine what impact the decision has on their plan and whether any revisions may be required to properly express the intent of the group health plan sponsor and comply with applicable law.
- General Points for Group Health Plan Sponsors to Consider.
In certain instances, the definitions of “spouse” and “married” under a plan must comply with federal and/or state law requirements. However, in those instances where a plan is given discretion as to how to define such terms, such as in a self-funded group health plan, the plan documents as currently drafted may not accurately reflect the company’s position in offering spousal benefits following the Windsor decision. As such, plan sponsors should (i) determine the company’s position and (ii) review and amend, if necessary, the eligibility provisions. Changes will likely also affect open enrollment materials, plan highlights, and summary plan descriptions.
- Family Medical Leave Act.
On August 9, 2013, the DOL revised previously issued guidance regarding qualifying reasons for leave under the Family Medical Leave Act (“FMLA”). Such revised guidance provides that a “spouse” is “a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including…same-sex marriage.”
Following this guidance, qualifying reasons for an employee to take FMLA leave in relation to their same-sex spouse include:
- To provide care for such spouse’s serious health condition;
- To care for a covered service member spouse with a serious injury or illness; and
- Certain situations arising from the military deployment of such spouse.
Employers should ensure that the language of their policies is compliant with such guidance. A copy of the guidance can be found here.
As of the date of this posting, FMLA takes a “place of domicile” approach.
- Federal Tax Implications.
The Internal Revenue Service has also issued guidance as to treatment of same sex couples under the Internal Revenue Code. Under Rev. Rul. 2013-17 (effective September 16, 2013), same sex couples who are validly married under the laws of a State are considered to be in a “marriage” for federal tax purposes. If a validly married same-sex couple moves to a State which does not recognize same sex marriage, the couple will continue to be considered to be in a “marriage” for federal tax purposes. Therefore, the terms “spouse,” “husband and wife,” “husband,” and “wife” as used in the Internal Revenue Code each apply to a validly married same sex couple, regardless of where they reside. However, such treatment only applies to validly married couples, and does not include domestic partnerships or civil unions (whether same sex or opposite sex).
If a plan provided domestic partner or same-sex spousal coverage during 2013 or prior years, the plan sponsor may be entitled to file an employment tax refund for any employment taxes withheld from the affected employee’s pay and paid by the plan sponsor. In Notice 2013-61, the IRS issued streamlined procedures for an employer to use to claim these refunds. In order to determine the proper tax treatment for an employee who enrolls a same-sex spouse in group health plan coverage, plan sponsors should communicate to employees that they should indicate that their dependent is a same-sex spouse.
The IRS plans to issue additional guidance to provide more detail on how to apply these new rules to employee benefit plans. Keep checking here for updates regarding future guidance from the IRS.
- ERISA Implications.
The DOL announced on September 18, 2013 that it would take a “place of celebration” approach with respect to ERISA, similar to that of the IRS. The DOL stated that it intends to issue future guidance addressing the impact of such approach on specific provisions of ERISA and its regulations. Check www.benefitsbryancave.com for updates regarding future guidance from the DOL.