Health Care Reform Laws Bring Major Changes for Group Health Plans

By Kirsten Stewart

Without a doubt, employers already are bracing for the significant changes that will be required in the design of their group health plans by the Patient Protection and Affordable Care Act (the "PPAC"), signed by President Obama on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 (the "HCER"), signed on March 30, 2010.  These Acts together have been commonly referred to as "health care reform laws."

The scope of health care reform laws is substantial.  The majority of the requirements will apply regardless of whether the employer is a governmental employer or a private employer, whether the plan is fully insured or self-insured, and whether the employer is considered large or small.  The health care reform laws impose a number of immediate changes on all group health plans, including insured and self-insured plans that were in existence on March 23, 2010.  Generally, these rules become effective for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar plan years).  Those requirements include the following:

• With very few exceptions, plans that offer dependent coverage must make coverage available to any child of an employee who is under age 26 and who would be treated as a dependent under the plan but for the child's age. This extension is not limited to full-time students or unmarried children. The health care reform laws carve out a small exception to this rule until plan years beginning on or after January 1, 2014, for "grandfathered" group health plans (explained below) so that these plans do not have to offer the extended dependent coverage until 2014 if the adult child is eligible for coverage under another employer-sponsored health plan. While this extended dependent coverage normally would be included in the employee's taxable income, the new law provides that employer-provided dependent coverage for adult children will be excluded from the employee's taxable income through the year in which the child turns age 26.
• Plans may not impose a lifetime dollar limit on "essential health benefits."
• Plans must comply with maximum caps (which, as of yet, have not been determined) on the annual limits that will be imposed for "essential health benefits." Beginning in 2014, annual limits on essential health benefits may not be imposed at all.
• A plan may not impose a preexisting condition exclusion against a child under age 19. Beginning in 2014, a preexisting condition exclusion may not be imposed on any participant, regardless of age.
• A plan may not rescind the coverage of any individual once the individual has become covered under the plan, unless the individual has committed fraud or made an intentional misrepresentation of a material fact. In addition, any coverage provided under the plan may not be cancelled without prior notice.

Only new plans and not "grandfathered plans" (explained below) will be required to meet the following requirements effective for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar plan years):

• Plans must have written internal and external appeal processes. ERISA-covered group health plans now must allow claimants to present testimony as a part of their administrative appeals process and to continue receiving coverage during the appeals process (pending its outcome).
• Plans may not impose any cost sharing requirements (such as copayments, coinsurance charges and deductibles) on certain preventive care.
• Insured group health plans must comply with the nondiscrimination requirements of the Internal Revenue Code, which prohibit a plan from discriminating in favor of highly compensated individuals as to eligibility to participate, and prohibit a plan from providing benefits that discriminate in favor of participants who are highly compensated individuals.
• Group health plans that provide for in-network coverage must permit each participant to designate any participating primary care provider who is available to accept that individual. Plans that cover emergency services cannot require pre-authorization for emergency services and must cover expenses without regard to whether the provider is a participating provider.

Under the health care reform laws, "grandfathered plans" generally are plans that were providing coverage on or before March 23, 2010.  Collectively bargained plans ratified before March 23, 2010, are treated as grandfathered plans until the date on which the last of the collective bargaining agreements relating to the coverage terminates. 

While it is clear from the statute that the addition of new employees and dependents will not disturb a plan's grandfathered status, it is unclear how many modifications can be made to a grandfathered plan before its preferential status is destroyed and it is treated as a new plan.  Modifications to plan design, other than the requirements imposed by the health care reform laws, should be carefully considered if the plan wishes to rely on its grandfathered status.

Major Changes for Flexible Spending Accounts, Health Care Reimbursement Accounts, and Health Savings Accounts:  Effective for tax years beginning on or after January 1, 2011 (as opposed to plan years beginning after a specific date), non-prescription medicines, other than insulin, will no longer be eligible for reimbursement under a health flexible spending account, health savings account, or health reimbursement account. This means that if a medication is available without a prescription, it will only be reimbursable under such a plan if it is obtained under a prescription.  Additionally, the penalty for nonqualified withdrawals from a health savings account made after December 31, 2010, will increase from ten percent to twenty percent.

This is just a summary of just some of the changes coming under health care reform.  Stay tuned for more information.

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