Health Care Reform: The Eight Steps for Employers Now
By Barran Liebman
With all of the press, articles, and presentations covering Health Care Reform and the enormity of the topic, we have prepared a simple guide to what employers must do today or within the next few months to comply with the Health Care Reform requirements. While it is important to begin the planning process for Health Care Reform, it is perhaps more important to not get lost in the broad details and misunderstand or simply miss the requirements taking effect now.
Health Care Reform is effective the first day of your plan year beginning after September 23, 2010. This is the typically the first day of the Plan Year that you list on your Form 5500 or the date on which you annually enroll individuals in health plans (renewal date).
1. Assemble and Review Plan Documents
The first step is to assemble your plan documents and ensure you have accurate and adequate plan documents meeting ERISA and any applicable state law requirements (a good example is a written “Cafeteria or Section 125 plan document.”) Your “plan documents” consist of some combination of insurance company drafted documents, summary plan description documents, “wrap” documents prepared by an outside party, administrator/ASO/consultant/lawyer drafted plan documents, and employee handbooks or other internally prepared summaries of benefits.
Review the plan provisions to prepare for amendments relating to lifetime and annual limits, dependent coverage, and any ancillary rules that were recently passed and required such as mental health parity or genetic nondiscrimination that are not in properly referenced in your plan documents.
2. Identify Impacted Plans
In most cases, the impacted plans will include your group health plan and may include your dental plan, vision plan, prescription drug plan, and cafeteria plans. It is unlikely that your disability, life, or accidental death & dismemberment are impacted by Health Care Reform. Group health plans include Health Reimbursement Accounts (HRAs) but would not include Health Savings Accounts (HSAs), except for the high deductible health plan component of the HSA. Health Care Reform impacts both insured and self-funded plans.
3. Understand Requirements for 2010-11 Plan Year
There are only two main amendments required related to Health Care Reform in 2010-11 (depending on your plan year).
Age 26 Dependents – Your group health plan must provide coverage for all adult children. “Adult” is defined as age 18-26. You may not use any other status to qualify dependents, such as student status or marital status. You may continue to cover other individuals such as domestic partners or financial dependents, but you are mandated to cover adult children. Your plan documents should be amended to clarify the “Dependent” definition. You will likely need to carefully examine and coordinate provisions such as Michelle’s Law with the Health Care Reform’s dependent coverage mandate.
A frequent question is what to do with individuals who may be impacted by the dependent provision now. Most health insurers are allowing for enrollment in the current plan year for individuals who would otherwise lose coverage by aging out of the plan’s current definition of dependent. For example, a plan which provides coverage through age 24 and the individual turns age 25 in June of the current plan year would be allowed to remain on the plan. However, insurers are generally reluctant to allow a nonenrolled individual onto the plan during this plan year without additional underwriting.
New Dependent Rules: A copy of the regulations, frequently asked questions, and tax guidance can be found at click here.
Annual/Lifetime Limits – Your group health plan must provide for the restricted annual limits and lifetime limit provisions. Not only is this an important plan document provision, it may also dramatically impact your premiums, particularly if you have a self-funded plan.
4. Prepare for Notice Requirements
Health Care Reform provides for expanded notice requirements. You must prepare for additional notices relating to the expanded rights under Health Care Reform of dependents as well as notices relating to automatic enrollment, and the related required notices such as the Children Health Insurance Program mandatory notices.
5. Prepare for Automatic Enrollment
Employers with 200 or more employees may be required to automatically enroll newly hired employees. Employers must also provide adequate notice with an expanded notice requirement if the employer pays less than 60 percent of the premium costs. Current employees are not required to be automatically enrolled until 2014.
6. Open Enrollment and Renewal
The Open Enrollment period for the next plan year will likely present a few unique challenges with a few new rules and potential underwriting concerns with annual limits. Please be aware of the Notice of Material Modifications provision which requires 60 days pre-notice prior to implementing any material modification in the group health plan.
7. Do not Forget About the Small Business Tax Credit
The Small Business Tax Credit is available for employers with under 25 full-time employees (counted by aggregating all hours worked by your workforce) and pay average wages of less than $50,000 per year. There are potential planning opportunities to take advantage of this tax credit if you are close to the 25 employee limit.
8. Be Careful of Grandfathering Provisions
It is important to be watchful of continuing your grandfathering status for purposes of Health Care Reform. We do not believe changing plan provisions, changing deductibles or copayments, changing structure to a Health Savings Account, changing insurance companies, or converting to a self-insured model would cause the plan to lose grandfathered status. We do believe you should be careful about “wrapping” any plans or switching ERISA plan numbers, such as Plan 501 to 505.
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