New York Labor and Employment Law Report : New York Employment Lawyer & Attorney : Bond Schoeneck & King Law Firm : NY Labor Relations, Employee Benefits

One consequence of losing grandfathered plan status in an employment-based group health plan is the requirement that specified preventive services must be covered on a "first dollar" basis. This means that the specified preventive care services may not be subject to a deductible, co-payment, or other cost-sharing requirement. The agencies jointly responsible for enforcing the Patient Protection and Affordable Care Act ("Affordable Care Act") -- the Internal Revenue Service, the U.S. Department of Labor Employee Benefit Security Administration, and the Department of Health and Human Services -- jointly published interim final regulations ("Regulations") relating to the coverage of preventive care services on July 19, 2010. The Regulations apply to new plans and to non-grandfathered group health plans for plan years beginning on or after September 23, 2010 (January 1, 2011, for calendar year plans).  Key aspects of the Regulations are explained below.

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The emergency jobless benefits bill that cleared Congress today does not revive the COBRA subsidy for involuntary terminations. The subsidy expired with respect to terminations after May 31st.
 

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During the debate on health care reform, proponents of the legislation stressed that employees who were happy with the health benefits currently provided by their employers would be able to keep them. To that end, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act ("PPACA"), provides that group health plans existing as of March 23, 2010 (the date that PPACA was enacted) are not subject to certain provisions of PPACA. PPACA referred to such plans as "grandfathered plans," and directed that regulations be issued to define what constitutes a grandfathered plan and what changes to such a plan might result in the loss of grandfathered plan status. On June 14, 2010, the Department of the Treasury, the Department of Labor and the Department of Health and Human Services jointly issued interim final regulations regarding grandfathered plan status.  The regulations further define what a grandfathered plan is and what changes to a plan will result in the loss of grandfathered plan status. The regulations are effective for plan years beginning on or after September 23, 2010.

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Effective for plan years that begin after September 23, 2010, the recently-enacted health reform legislation ("Health Reform") generally requires group health plans and health issuers that provide dependent coverage for children to continue to make such coverage available to an adult child until the child reaches age 26. Health Reform also modifies the Internal Revenue Code ("Code") to extend the income exclusion for medical care reimbursements under an employer-provided accident or health plan to an employee's eligible children who have not attained age 27 as of the end of the taxable year. In Notice 2010-38 ("Notice"), the Internal Revenue Service ("IRS") provides employers with helpful guidance regarding the federal income tax issues associated with extending medical coverage to an employee's eligible adult children.

Background

The extension of health coverage to adult children until age 26 is among the first provisions to take effect under Health Reform. Plans that operate on a calendar year basis (including self-insured plans and so-called "grandfathered" plans) will be required to make such coverage available effective January 1, 2011. The coverage must be made available regardless of the child's marital status, but (until 2014) generally need not be provided to an adult child who is eligible to enroll for coverage under a group health plan of the child's employer.

Prior to Health Reform, health coverage generally could be extended tax-free to a child of an employee only if the child was the employee's "dependent," as defined under Section 152 of the Code. In many cases, adult children cannot qualify as a dependent under Code Section 152 because they cannot satisfy applicable age, support, residency or other requirements of Code Section 152. As a result, an employer that provided coverage to an adult child generally was required to include the fair market value of the health coverage provided to the child in the employee's income.

As further explained below, the changes to the Code made by Health Reform and the guidance provided in the Notice clarify the circumstances under which adult children may now be eligible for tax-free health coverage, regardless of whether they are considered a dependent of the employee under Code Section 152.
 

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There is a second bite at the COBRA apple for employees who initially lost group health plan coverage as a result of a reduction in hours of employment during the period beginning September 1, 2008, which is followed by an involuntary termination of employment on or after March 2, 2010. These individuals (and their affected family members) would normally not be eligible for COBRA continuation of coverage because they were not covered by the health plan on the day before the termination of employment. However, the Temporary Extension Act of 2010 extends the availability of COBRA continuation of coverage, and the 65% COBRA subsidy, where there is a reduction in hours (resulting in a loss of coverage) followed by an involuntary termination of employment.

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This morning, President Obama signed the Temporary Extension Act of 2010 (H.R. 4691) after Senator Jim Bunning of Kentucky agreed to end his filibuster and the Senate voted Tuesday night to pass the measure.

The Act, generally referred to as an extension of unemployment benefits, also extends eligibility for the 65% COBRA subsidy to individuals who have involuntary terminations through March 31, 2010. Eligibility had expired for terminations after February 28, 2010. The law is retroactive, so that persons who were involuntarily terminated on March 1st and 2nd are eligible for the subsidy. No other changes in the terms of the COBRA subsidy were made.

Employers and other health plan sponsors should adjust their COBRA notices to reflect the new March 31, 2010 subsidy eligibility expiration date.
 

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A model notice that informs employees of the availability of premium assistance for employer-provided group health plan coverage was published in the Federal Register on February 4, 2010, one year after President Obama signed the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA). Employers who offer group health plan coverage must provide this notice to employees before the beginning of the next plan year, and annually thereafter. CHIPRA’s impact on employer health plans and the notice requirements are described below.

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While there has been significant press coverage of the health care reform bills being considered by Congress, there has not been as much attention given to the impact that this legislation could have on employers. As widely publicized, both the House and Senate passed their own versions of a health care reform bill. The House passed the Affordable Health Care for America Act (H.R. 3962) on November 7, and the Senate passed the Patient Protection and Affordable Care Act (H.R. 3590) on December 24. Both houses promise to act quickly to reconcile these two bills, with the goal of presenting President Obama with a bill for signing early in the year.

The bills differ in many ways, and it is too early to predict which provisions of the bills will survive the conference process, but at this stage, there are a few core concepts employers should understand:
 

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Starting January 1, 2010, employers and certain other entities that administer group health plans will be required, for the first time, to report on an Internal Revenue Service ("IRS") form certain types of group health plan violations and pay the applicable excise taxes. Violations that must be reported include a failure to satisfy health coverage continuation requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), certain requirements under the Health Insurance Portability and Accountability Act ("HIPAA"), certain mental health benefit parity requirements, childbirth hospital stay requirements, and certain health coverage continuation requirements for seriously ill higher education students. Administrators of group health plans were not required to self-report such violations when they were discovered, and the lack of such self-reporting often resulted in any applicable excise taxes not being paid. The IRS has issued regulations that will require such violations to be self-reported, and will require any applicable excise taxes to be paid in a timely manner.

Steps that should be implemented by employers to comply with these new requirements include:

making sure that employees or other persons who are involved in the administration of each applicable group health plan are informed about these new requirements;

implementing procedures that will help ensure the timely discovery of applicable group health plan violations, the timely submission of the IRS form reporting such violations, and the timely payment of all applicable excise taxes; and

to the extent an employer's group health plan is administered by another entity (e.g., a third party administrator, an insurance company or a health maintenance organization), reviewing any agreement with such entity to see if any changes are needed to help ensure compliance with these new requirements.

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On December 21, 2009, the President signed H.R. 3326, which includes the COBRA subsidy changes discussed in yesterday's blog entry. The enactment of this law means that by February 19, 2009, administrators of group health plans must issue a notice describing the COBRA changes to individuals who were eligible for the subsidy or who experience(d) a COBRA qualifying event at any time on or after October 31, 2009. This notice should describe:

• The extension of the maximum COBRA subsidy period from 9 months to 15 months;
• The extension to February 28, 2010, of the qualifying date for an involuntary termination entitling the COBRA qualified beneficiary to the COBRA subsidy as an "assistance eligible individual";
• The right of qualified beneficiaries whose COBRA terminated after October 31, 2009 (due to failure to pay the higher COBRA premium) to reinstate coverage retroactively by paying the subsidized premium (the 35% amount) by February 19, 2010, or by 30 days after the notice is provided, whichever is later;
• The right of assistance eligible qualified beneficiaries who paid the unsubsidized premium for COBRA for periods after October 31, 2009, to receive a refund or obtain a credit of the overpaid amount. (The administrator can choose the option it prefers: refund or credit).

Watch the U.S. Department of Labor website, www.dol.gov/cobra, for more information and, possibly, a model notice.
 

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On Saturday, the Senate passed the 2010 Defense Appropriations Bill, which contains an extension of the ARRA subsidy for COBRA continuation of health coverage. The Senate Bill is identical to the House Bill, and the President is expected to sign the bill this week. That signature date is important because it is the "enactment date," which drives some of the payment and notice requirements described below.
 

The Appropriations Bill does the following with respect to the 65% COBRA subsidy:

• Individuals who are involuntarily terminated through February 28, 2010, will be eligible for the subsidy (the previous date was December 31, 2009);
• The maximum subsidy period is extended to 15 months from the original 9 months; 
• Individuals whose subsidized COBRA coverage has already ended (some may have ended during November, 2009) have 60 days from the date of enactment (or 30 days after the notice discussed in the next bullet point, if later) to pay the 35% subsidized premium amount and obtain retroactive coverage by the subsidized COBRA. If the full premium was already paid, the "overpayment" amount can be refunded or credited towards future coverage;
• Within 60 days of the enactment of the law, Administrators of group health plans must provide a notice describing the foregoing to individuals who were eligible for the subsidy or who experienced a COBRA qualifying event at any time on or after October 31, 2009;
• The bill also "fixes" a problem recently identified in Department of Labor Q&As: The subsidy will be available to individuals who have a COBRA qualifying event (involuntary termination) through February 28, 2010. The previous law said that a terminated employee had to be eligible for COBRA by the expiration date. This is a subtle difference, but it caused an earlier termination of the subsidy than had been contemplated by Congress.
   

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Among other things, the Health Insurance Portability and Accountability Act (“HIPAA”) requires heath care plans, third party health plan administrators, pharmacy benefit managers, health care providers, and other so-called “covered entities” and “business associates” to maintain the confidentiality and security of an individual’s “protected health information” or “PHI.” The Health Information Technology for Economic and Clinical Health Act (the “Act”), passed earlier this year as part of the economic stimulus package, introduced substantial changes to the HIPAA privacy and security rules, including the addition of new notification requirements that may apply in the event that the privacy or security of PHI is compromised.

Under the Act, if the confidentiality or security of PHI is compromised by a “covered entity,” notification of the “breach” may have to be provided to (i) affected individuals, (ii) the United States Department of Health and Human Services (“HHS”), and (iii) in certain cases, the media. If a “business associate” compromises the confidentiality or security of PHI, the business associate may be required to notify the covered entity of the breach.

On August 24, 2009, HHS issued interim final rules (“Final Rules”) that clarify the breach notification requirements. Although the Final Rules are effective September 23, 2009, and although HHS expects covered entities to comply as of that date, sanctions will not be imposed for noncompliance that occurs prior to February 23, 2010. Until then, HHS has indicated that it will take appropriate corrective action to help covered entities achieve compliance. Covered entities and business associates should not delay implementing appropriate measures to comply with the requirements of the Final Rules, despite the delayed enforcement date. The most significant aspects of the Final Rules are discussed below.

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Governor Paterson recently signed legislation that will affect the administration of insured medical plans in New York State. The legislation generally extends the period that terminated employees may elect continuation coverage under an insured plan from 18 months to 36 months and requires medical insurers to offer continued coverage to employees’ unmarried children through age 29, regardless of financial dependence. Each aspect of the new legislation is explained below.

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