Health Care Reform: Impacting Employers Now And In The Future
Under PPACA, if a group health plan offers dependent coverage, it must provide dependent coverage to adult children until such children turn age 26.
Now that the one-year anniversary of the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (PPACA) has come and gone, it is an appropriate time to look back at the compliance challenges employers have faced, and to anticipate the challenges still to come.
Current Compliance Challenges for Employers
PPACA, which was enacted on March 23, 2010, made extensive changes to existing law governing employer-sponsored health coverage (both fully insured and self-insured plans) and individual health insurance coverage. PPACA addresses many different facets of health care coverage, including
insurance market reforms, employer-mandated coverage, health insurance exchanges, individual
coverage mandates and new taxes and fees. As one might expect, employers providing group health
benefits to their employees have experienced numerous challenges over the past year in maintaining
such benefits in light of the PPACA mandates.
Many of the changes under PPACA became effective for plan years beginning on or after September
23, 2010, meaning January 1, 2011, for employers with calendar-year group health plans. Thus far,
more than 6,500 pages of regulations have been issued by the Departments of Health and Human
Services (HHS), Treasury and Labor (the “Agencies”) in connection with PPACA. As a result, over the past year, employers have spent many hours diligently reviewing, revising and updating their group health plans to comply with the new mandates.
TO GRANDFATHER — YES OR NO?
One of the most important and challenging decisions faced by employers under PPACA has been whether to retain “grandfathered” status. A “grandfathered health plan” is any group health plan (or individual insurance coverage) that was in effect on March 23, 2010, the date of enactment of PPACA. Grandfathered health plans are exempt from certain provisions of PPACA, such as the new claims and appeals procedure rules, the nondiscrimination testing requirements for fully insured group health plans, and the requirement to provide preventative care without participant cost-sharing.
In June 2010, the Agencies released regulations addressing how group health plans can retain grandfathered status. According to these regulations, certain changes in plan design, such as an elimination of benefits and specific increases in participant cost-sharing, will cause a loss of grandfathered status. Due to the rising cost of providing employer-sponsored health coverage, many employers have experienced difficulty in retaining grandfathered status. The Obama administration has estimated that by the end of 2013, 40 to 80 percent of small employer plans, and 34 to 67 percent of large employer plans, will lose grandfathered status. However, industry surveys indicate that 85 percent of employers anticipate losing grandfathered status for one or more of their group health plans by 2014.
WHAT BENEFITS ARE ESSENTIAL?
Under PPACA, many requirements hinge on the definition of “essential benefits,” which are the health benefits that are considered central and critical to providing adequate health care to individuals. The statutory language of PPACA provides a list of general categories of benefits that will be considered “essential health benefits.” Examples of these categories include hospitalization, emergency services, maternity and pediatric services, and preventative and wellness services.
Under PPACA, employers are severely limited in their ability to restrict these “essential benefits.” However, there has been a lack of clarifying guidance as to what benefits are considered “essential health benefits.” Therefore, employers have confronted difficult challenges in implementing the prohibition on lifetime and annual limits on essential benefits that became effective for plan years beginning on or after September 23, 2010. As a result, employers are relying upon a good-faith interpretation of whether specific benefits will be considered “essential health benefits” to comply with the lifetime and annual limit rules.
EMPLOYEES’ DEPENDENTS ARE NOT JUST “KIDS” ANYMORE
Under PPACA, if a group health plan offers dependent coverage, it must provide coverage to adult children until such children turn age 26, regardless of whether the child lives with the parent, is a student or is married. The requirement to extend dependent coverage to adult children up to age 26 has created substantial compliance challenges for employers, as most employers have experienced a significant increase in enrollment in group health plans as a result of this requirement.
HHS estimated that 1.2 million young adults would sign up in 2011. Based on early numbers from insurers, the number could be much higher. For example, WellPoint estimated that it would have 280,000 new dependent members (equal to 1/3 of total enrollment growth in the first three months of 2011) and Aetna has added 100,000 new dependent members.
Additionally, the cost to employers for this newly expanded coverage has been troublesome. While the federal government estimated that young-adult coverage will increase average family premiums by about one percent, industry groups say costs have been higher — at least 3.4 percent.
Impact of the Delay of Certain PPACA Mandates
In addition to the aforementioned challenges, over the past year, the Agencies have delayed the implementation of certain requirements under PPACA.
NONDISCRIMINATION TESTING REQUIREMENTS: UNCERTAIN AT THIS TIME
Internal Revenue Code Section 105(h) nondiscrimination testing provisions require that employers not discriminate in their group health plans in favor of highly compensated employees. In December 2010, the Agencies issued guidance
delaying the application of the requirements to fully insured group health plans until “after regulations or other administrative guidance of general applicability has been issued.” At this time, employers are left to design their group health plans without knowing what type of design will be allowable and what design is considered “discriminatory.”
CONTINUED GRACE PERIOD FOR FORMS W-2 AND CLAIMS APPEALS
Under PPACA, effective for taxable years beginning on or after January 1, 2011, employers are required to report the cost of employer-sponsored health coverage provided to employees on their Forms W-2. To provide employers with additional time to update their payroll systems to comply with this new reporting requirement, in late 2010, the Internal Revenue Service (IRS) issued guidance making this reporting requirement voluntary for Forms W-2 issued for 2011. Then, in March 2011, the IRS issued Notice 2011-28, which provides “small employers” (employers who issued fewer than 250 Forms W-2 during the previous year) with an additional grace period for compliance with the new Form W-2 reporting requirements under PPACA until January 2014. Most other employers must begin to comply with the Form W-2 requirements in 2012.
The Agencies have also implemented a series of regulatory enforcement grace periods for compliance with the new claims appeals procedure rules under PPACA, which are applicable only to non-grandfathered health plans. Currently, self-insured group health plan sponsors have until the first plan year beginning on or after January 1, 2012, to comply with certain internal claims
and appeals process rules.
CERTAIN PPACA MANDATES REPEALED
Certain provisions of PPACA have been repealed. Specifically, as part of federal funding legislation in 2011, Congress repealed the “free choice voucher” program established under PPACA, which was scheduled to begin on January 1, 2014. This program would have required employers to offer vouchers to employees who met certain household income level and premium contribution requirements. Employees would have used these vouchers to purchase health insurance through a health insurance exchange, rather than participate in the employer’s group health plan. As a result of the repeal of this program, employers will not be required to provide these vouchers to employees.
Future Challenges for Employers
INCREASED REGULATORY ACTIVITY IS INEVITABLE
The next few years will likely bring increased regulatory activity from the Agencies, since several of the most significant requirements under PPACA that impact employer-sponsored health coverage will become effective in 2014. The requirement for employers with more than 200 full-time employees to automatically enroll new employees in an employer group health plan (and continue the enrollment of current participants) becomes effective on the date specified in regulations to be issued by the Agencies. In addition, the Agencies have recently issued implementing regulations addressing the health insurance exchanges, which become effective in 2014, and the new four-page summary of benefits and coverage requirement under PPACA. The Agencies will likely also be issuing interpretive guidance addressing specific concepts under PPACA, such as “essential health benefits.”
CONSTITUTIONAL CHALLENGES MAY THREATEN PPACA PROVISIONS
The various constitutional challenges to PPACA will also undergo significant development over the next few years. Multiple court cases challenging the validity of PPACA — primarily the individual mandate (that is, the requirement for individuals to buy health coverage or pay a penalty) — have
already reached various courts of appeals.
On August 12, the Eleven th Circuit Court of Appeals, in Florida v. United States Department of Health and Human Services, struck down the individual mandate as unconstitutional, directly conflicting with a Sixth Circuit decision in early June. It is almost certain that the U.S. Supreme Court will determine the constitutionality of PPACA within the next few years, while the upcoming presidential election in 2012 and potential changes in Congress will also impact the implementation of PPACA.
FINAL THOUGHTS ON THE IMPACT OF PPACA ON EMPLOYER-SPONSORED HEALTH COVERAGE
The overall impact of PPACA on employer-sponsored health coverage has become a controversial issue over the past several months, and will likely continue to be a popular topic in political debates. According to a recent study released by McKinsey & Co., 30 percent of private sector employers will “definitely” or “probably” eliminate their employer-sponsored health coverage after 2014.
Almost immediately, political proponents of PPACA took issue with McKinsey’s findings and pressured McKinsey to release its methodology for the survey. Since the release of the survey, several additional studies have been released regarding the impact of PPACA on employer-sponsored health coverage, some of which directly contradict the McKinsey study by finding that employer-sponsored health coverage will actually grow in response to PPACA. The exact impact of PPACA is unknown at this time, as it is based on multiple variables, including the topics in this article.
SGR monitors the developments of PPACA, and provides updates to clients and other interested parties regarding these developments. To sign up for SGR Client Alerts for the most timely information on PPACA and other benefits topics, go to: www.sgrlaw.com/contact/1085/.