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

September 22 Deadline: On June 17, 2011, the CCIIO issued supplemental guidance which includes procedures for obtaining an extension of existing waivers, and revisions to the application process for new applicants. Additionally, the supplemental guidance requires plans or policy issuers to provide eligible participants and policy subscribers with an "Annual Notice," provide HHS with an annual update, and retain waiver-related records in case of an HHS audit, as described below. Significantly, HHS announced that all waiver extension requests and new applications for waivers must be received on or before September 22, 2011. New application and extension request forms are available on the CCIIO's website. Plans or policy issuers that do not receive approval for an extension or waiver will be required to come into compliance with the annual limit rules under the Act and the IFR.

Extensions for Plans or Policy Issuers with Existing Waivers: Plans and policy issuers that wish to extend existing waivers (i.e., those received for the plan or policy year beginning on or after September 23, 2010, but before September 23, 2011) must request a waiver extension by submitting the extension request form described above. The request should include updated contact information, enrollment information for the plan or policy, the plan's or policy's current annual limit, and a signed attestation that the plan or policy continues to satisfy the eligibility criteria for obtaining a waiver. Once the initial waiver extension is granted, plans or policy issuers must submit the same information at the end of each applicable calendar year (i.e., December 31, 2012 and December 31, 2013).

Existing waivers may be extended until January 1, 2014, so long as the plan or policy issuer: (1) provides the information described above by the end of each calendar year for which the extension applies; and (2) retains all records pertaining to the waiver application in the event of an HHS audit (see discussion below).

For New Waiver Applicants: Under the supplemental guidance, a plan or policy-issuer is eligible to apply for a new waiver if: (1) the plan or policy was issued prior to September 23, 2010; (2) the plan or policy issuer (with respect to the policy) has never applied for or been granted a waiver; and (3) the plan or policy coverage does not exceed the RAL amount for the applicable plan year (see footnote 1). New applications will be reviewed using factors listed in the CCIIO's November 5, 2010 guidance. Applicants may also submit optional supplemental information to demonstrate how the plan's or policy issuer's compliance with the IFR (in the absence of a waiver) would result in a "significant decrease in access to benefits" or a "significant increase in premiums."

Annual Notice Requirement: Under the CCIIO's December 9, 2010 guidance, plans or policy issuers with existing annual limit waivers must provide an "Annual Notice" informing all eligible participants and subscribers that the plan or policy does not satisfy the minimum restricted annual limits for essential health benefits and has received a waiver of the requirement. Mandatory language for the Annual Notice is provided in the June 17, 2011 supplemental guidance. Plans or policy issuers may not use other notice language to satisfy this requirement, unless the plan or issuer obtains permission from the CCIIO. The Annual Notice must be provided each year the annual limit requirements are waived, and must be provided conspicuously, in bold 14-point font, on the front of plan or policy materials that describe the plan's or policy's terms of coverage (e.g., summary plan descriptions).

Record Retention: Plans or policy issuers with existing waivers must retain all waiver-related records (including documentation used in supporting the plan's or issuer's original waiver application). If, during audit, HHS determines the waiver data provided by an applicant contains material mistakes or omissions, HHS may withdraw the waiver or extension, and require the plan or policy issuer to come into compliance with the annual limit rules under the Act and IFR.

ACTION REQUIRED: Plans or policy issuers seeking to extend existing waivers or to apply for new waivers should prepare (or have prepared) extension requests or new applications in accordance with the requirements and procedures contained in the CCIIO's June 17, 2011 supplemental guidance, for submission on or before September 22, 2011.

Plans or policy-issuers that have been granted a waiver or extension should review the revised compliance requirements described in the supplemental guidance, which include providing an annual update to HHS, providing an Annual Notice to all eligible participants and policy subscribers, and retaining all waiver-related records to avoid issues that could arise in an HHS audit.
 

Additional Guidance For Grandfathered Health Plans
On April 1, 2011, the Departments issued a sixth set of FAQs regarding the implementation of the PPACA . For a summary of the FAQs, click here.

Form W-2 Cost Of Coverage Reporting
On March 29, 2011, the IRS issued interim guidance (Notice 2011-28) regarding the PPACA requirement that employers report the “aggregate cost of applicable employer-sponsored coverage” to employees on IRS Form W-2. Included in the interim guidance is a set of Q&As that addresses, among other things: (1) which employers are subject to the reporting requirement; (2) methods of cost-reporting in specific circumstances (e.g., termination from employment, successor employers, retirees, etc.); (3) how to determine the aggregate cost of applicable employer-sponsored coverage; (4) the coverage required to be reported; and (5) calculating the dollar amount of reportable coverage costs. The IRS emphasizes that cost of coverage reporting to employees is for informational purposes only, and will not cause otherwise excludable employer-provided health benefits to become taxable income.

Although voluntary for the 2010 and 2011 tax years (Notice 2010-69), most employers that provide health coverage to their employees are required to report cost information beginning with the 2012 tax year. (Note, employers that choose to report the cost of coverage for 2010 and/or 2011 may rely on Notice 2011-28.) Transitional relief may be available, however, for: (1) small employers (i.e., employers that file less than 250 Forms W-2 for the 2011 tax year); (2) terminated employees to whom Forms W-2 are provided before the end of the year; (3) multiemployer plans; (4) health reimbursement arrangements; (5) stand-alone dental and vision plans; and (6) self-insured plans not subject to COBRA continuation coverage or other federal law requirements (e.g., church plans).

Automatic Enrollment Requirement For Large Employers
The PPACA requires large employers (those with more than 200 full-time employees) that are subject to the Fair Labor Standards Act to automatically enroll new full-time employees (or continue enrollment for current employees) in one of the employer’s health benefit plans. Employers are not required to comply with the automatic enrollment provisions until regulations are issued and effective, which the DOL intends to complete by 2014. To assist in the development of proposed regulatory guidance, the DOL hosted a public forum (held April 8, 2011) for individual and organizational stakeholders to exchange information and ideas regarding the automatic enrollment requirements. Forum topics included the definition of “full-time employee,” selecting the appropriate plan/benefit package (for employers that maintain multiple health plans or benefit packages) and type of coverage (e.g., single or family) in which employees would be automatically enrolled, and notice requirements for employees who wish to opt out of coverage. A transcript of the forum will be available on the DOL’s website at www.dol.gov/ebsa/healthreform.
 

Automatic Enrollment for New Employees

The PPACA requires employers with more than 200 full-time employees to automatically enroll new full-time employees in the employer's health plan. However, the FAQs clarify that employers are not required to comply with this mandate until the Employee Benefits Security Administration promulgates regulations, which will be sometime before 2014.

Notice of Plan Modifications

The PPACA requires group health plans to provide 60 days notice to enrollees before making material modifications to the plan's terms or coverage if they were not reflected in the most recent summary of benefits and coverage. However, the FAQs explain that employers are not required to comply with this mandate until the Departments issue standards for plans to follow for compiling and providing a summary of benefits and coverage.

Varying Coverage Based on Age

The PPACA provides that group health plans providing dependent coverage for children cannot vary such coverage based on age (except if they are 26 or older). The FAQs point out, however, that the PPACA permits varying coverage based on age that applies to all enrollees, including employees, spouses, and dependent children. An example in the FAQs suggests that a plan could charge a copayment for non-preventive care to all enrollees age 19 and over, but waive it for those under 19. However, it could not charge a copayment to dependent children age 19 and over, but waive it for those under 19.

Grandfathered Health Plans

The PPACA provides that group health plans existing as of March 23, 2010, called "grandfathered plans," are not subject to certain PPACA provisions as long as they do not make specific plan changes outlined in PPACA regulations. A plan that makes such changes would lose its grandfather status. The FAQs address the scenario where a grandfathered plan has a fixed cost-sharing requirement other than a copayment, such as a deductible or out-of-pocket spending limit, which is calculated based on a formula that includes a fixed percentage of an employee's compensation. The FAQs conclude that, if the formula remains the same as it was on March 23, 2010, a compensation increase that causes a cost-sharing increase under the formula would not cause the plan to lose grandfather status, even where the cost-sharing increase exceeds the PPACA regulatory threshold.

Mental Health Parity and Addiction Equity Act of 2008

If plans provide mental health and substance use disorder benefits, the MHPAEA generally requires that financial requirements and treatment limitations for such benefits cannot be more restrictive than for medical and surgical benefits.

Small Employer Exemption

Group health plans subject to ERISA and the Internal Revenue Code are exempt from the MHPAEA as a "small employer" if they have 50 or fewer employees, preempting any State insurance law definition of small employer. The FAQs note, however, that for nonfederal government plans the PPACA applies, and it defines "small employer" as one that has 100 or fewer employees.

Increased Cost Exemption

The Departments explain in detail how the cost exemption works. The MHPAEA provides that if a plan makes changes to comply with the MHPAEA and incurs a 2% or greater cost increase in the first year the MHPAEA applies to it, or a 1% or greater cost increase in any year after the first year, then the plan is exempt from the MHPAEA the following year (that is, the year after the cost increase was incurred). The exemption lasts for one year, and then the plan must comply again. However, the plan could incur another cost increase of 1% or greater due to compliance-related changes and be exempt the following year. When calculating the cost increase percentage, the plan should include increases in the plan's portion of cost sharing as well as non-recurring administrative costs (for example, adjusting computer software), which should be appropriately amortized. Plans must further demonstrate that cost increases are directly attributable to MHPAEA compliance rather than utilization or price trends, random claim experiences, or seasonal variations in claims processing. The FAQs clarify that, until the Departments issue regulatory guidance on how the increased cost exemption will be implemented, plans can follow the procedures outlined in their earlier 1997 regulations to claim the exemption.

HIPAA and Wellness Programs

HIPAA regulations generally prohibit discrimination in eligibility, benefits, or premiums based on employee health. Where wellness programs require employees to meet a certain health standard (such as losing weight) to obtain a reward (such as lower premiums), they must satisfy HIPAA's nondiscrimination requirements. There are five requirements: (1) the total reward cannot exceed 20% of the total cost of coverage; (2) the program must be reasonably designed to promote health or prevent disease; (3) the program must provide employees an opportunity to qualify for the reward at least once per year; (4) the reward must be available to all similarly situated employees, which means there must be a reasonable alternative standard for employees with a health condition that makes it unreasonably difficult for them to satisfy the original standard; and (5) the alternative standard must be published in all plan materials. The PPACA incorporates these nondiscrimination rules, except that it changes the maximum reward from 20% of the total cost of coverage to 30%. The Departments intend to propose regulations before 2014 that implement this percentage change, as well as consider other nondiscrimination rules.

Independent Wellness Programs

The FAQs clarify that the nondiscrimination rules only apply to wellness programs that are part of a group health plan and not those that are operated independently as a separate employment policy. The FAQs list examples of independent programs, which include subsidizing healthier cafeteria food and gym memberships, providing pedometers (to encourage walking and exercise), and banning smoking in the workplace. Note, however, that these independent programs may still be subject to Federal or State nondiscrimination laws.

Meeting Health Standard as Condition of Reward

The FAQs explain that the nondiscrimination rules only apply to wellness programs that require employees to meet a certain health standard to obtain a reward. The FAQs provide two examples of programs that do not contain such a standard and thus are not subject to the nondiscrimination rules. In the first example, a group health plan offers, as part of its wellness program, an annual premium discount of 50% of the cost of coverage to employees that attend a monthly health seminar. The FAQs conclude that, because employees do not have to meet a health standard to obtain the discount, the nondiscrimination rules are inapplicable -- including the rule limiting the reward amount to 20% of the cost of coverage. In the second example, a group health plan offers, as part of its wellness program, to reimburse employees for their monthly gym membership fee. The FAQs conclude that the nondiscrimination rules are inapplicable because the employees are not required to meet a health standard to obtain the reimbursement.
Application of the Nondiscrimination Rules

The FAQs provide an example of how to apply the nondiscrimination rules. The example is a group health plan that offers, as part of its wellness program, a discount of 20% of the cost of coverage to employees that achieve a cholesterol count of 200 or lower. The plan also states that if the employee has a health condition making it unreasonably difficult for them to satisfy the cholesterol count within a 60-day period, then the plan will create a reasonable alternative standard. The FAQs conclude that, although the plan requires employees to meet a health standard and is therefore subject to the nondiscrimination rules, it does not violate them because the total reward does not exceed 20% of the total cost of coverage, and the reward is available to all similarly situated individuals because it includes a reasonable alternative standard.

Significance of Grandfathered Plan Status

A grandfathered plan is not subject to a number of the provisions of PPACA, including the preventative care mandate, certain nondiscrimination requirements, mandatory internal and external appeals rules, and restrictions on pre-authorizations for OB/GYN, pediatric and emergency care services. However, grandfathered plans are subject to many of the most significant PPACA requirements, including the tax penalties on employers for failing to provide affordable health coverage, restrictions on annual and lifetime limits, adult children coverage to age 26, limits on waiting periods, and the prohibition on pre-existing condition exclusions.

Definition of Grandfathered Plan

Under PPACA and the regulations, a grandfathered plan is coverage provided under a group health plan in which an individual was enrolled on March 23, 2010. The regulations make clear that the grandfathered plan rules apply separately to each benefit package made available under a group health plan. Thus, if an employer's group health plan offers three different coverage options (e.g., an HMO, a PPO and a high deductible health plan), the grandfathered plan rules apply separately to each coverage option. Thus, the loss of grandfathered plan status for one of the options does not affect the grandfathered plan status of the other two options, even though all three options are components of the same group health plan.

Changes that Will Not Result in Loss of Grandfathered Plan Status

The regulations and their preamble list a number of changes that will not affect a plan's grandfathered status. Most importantly, the enrollment of new employees or new beneficiaries in a plan after March 23, 2010 will not affect a plan's grandfathered status. However, the regulations include anti-abuse rules designed to prevent employers from circumventing the grandfathered plan rules by transferring employees from one plan to another without a bona fide business reason or through a merger, acquisition or similar business transaction (if the principal purpose of the transaction is to cover new employees under a grandfathered plan).

An increase in the premium for a coverage option does not result in the loss of grandfathered plan status, although a decrease in the share of such premium paid by the employer may (see below). In addition, changes made to a plan to comply with Federal or State legal requirements, voluntary changes to comply with the provisions of PPACA, and a change in third party administrators for a self-funded plan generally will not result in the loss of grandfathered plan status.

Changes that Will Result in Loss of Grandfathered Plan Status

The changes listed below will result in an immediate loss of grandfathered plan status. Once grandfathered plan status is lost, it cannot be regained.

New Policy or Contract of Insurance -- Grandfathered plan status will be lost if the employer enters into a new policy or contract of insurance after March 23, 2010. However, the renewal of an existing policy or contract will not result in the loss of grandfathered plan status.

Elimination of Benefits -- The elimination of all or substantially all benefits to diagnose or treat a particular condition will result in loss of grandfathered plan status. For example, a plan that eliminates benefits for cystic fibrosis would no longer be a grandfathered plan, even if the change affects relatively few individuals.

Increase in Co-insurance -- Any increase in a co-insurance requirement (measured from March 23, 2010) will result in loss of grandfathered plan status.

Increase in Deductible or Out-of-Pocket Limit -- An increase in a deductible or out-of-pocket limit will result in the loss of grandfathered plan status, if the total percentage increase (measured from March 23, 2010) exceeds a "maximum percentage increase" (essentially, the medical inflation rate determined under the regulation, plus 15%).

Increase in Co-payments -- An increase in a co-payment amount will result in the loss of grandfathered plan status, if the increase (measured from March 23, 2010) exceeds the greater of $5 (increased by medical inflation) or the maximum percentage increase (as defined above).

Decrease in Employer Contribution Rate -- A decrease in the employer's contribution rate (based upon cost of coverage) for any tier of coverage for any class of similarly situated individuals by more than five percentage points below the contribution rate for the coverage period that includes March 23, 2010 will result in the loss of grandfathered plan status. Essentially, this means that, to maintain grandfathered plan status, an employer must continue to pay the same percentage (subject to the five percentage point allowance) of the total cost of coverage that it was paying on March 23, 2010.

Change in Annual Limits -- The imposition of a new annual limit or a reduction of an existing annual limit will result in the loss of grandfathered plan status.

Notice Requirements

In order to maintain its grandfathered plan status, a group health plan must disclose to participants and beneficiaries that it is being treated as a grandfathered plan. An appropriate notice must be included in any plan materials provided to participants and beneficiaries describing the benefits provided under the plan (e.g., summary plan descriptions, benefit booklets, and open enrollment materials). The regulations provide model language which, if included in the appropriate documents, will be deemed to satisfy the notice requirement.

Recommended Actions

Employers should keep the grandfathered plan rules in mind when considering any changes to their group health plans. While PPACA and the regulations allow certain changes to be made without loss of grandfathered plan status, many changes (particularly changes to a plan's cost sharing provisions) may result in the loss of grandfathered plan status and the application of all of PPACA's requirements. Employers will need to weigh the benefits of maintaining grandfathered plan status against the need or desirability of plan changes that may jeopardize such status. For many employers, the loss of grandfathered plan status may be inevitable. In fact, the Federal government estimates that, by 2013, only 55 percent of all large employer plans and 34 percent of all small employer plans will remain grandfathered.