Released December 21, 2011I Download as a PDF

In 2011, the governing Agencies (HHS, IRS and CMS) were busy issuing a multiplicity of guidance relating to health care reform, including:

1. Effective January 1, 2011, flexible medical spending accounts, health savings accounts, and health reimbursement arrangements could no longer reimburse over-the-counter (OTC) medications unless the OTC medication was insulin, or prescribed.  Guidance was issued, specifically relating to how debit and credit cards could be used for these kinds of expenses, in satisfaction with the prescription requirement.
2. Delay in enforcing certain aspects of the internal claims and appeals process, and external review process until January 1, 2012.  These rules were later modified again, specifically relating to expedited notification of urgent claim matters, use of diagnosis and treatment codes, adherence of a strict compliance standard, matters subject to external review, and furnishing the required notices and determinations in a culturally and linguistically appropriate manner.
3. Guidance on reporting the aggregate cost of health coverage on the Form W-2
4. Clarification of events that would cause a plan to lose grandfathered status, specifically when a benefit option is eliminated, when there is a change in the plan’s drug formulary, or when there is a change in employer contribution.
5. Notification that CMS will no longer accept applications from plan sponsors pursuant to the Early Retirement Reinsurance Program beyond May 5, 2011.  More recently, CMS announced that $4.5 billion of the allotted $5 billion in program monies have all but been exhausted and will no longer provide reimbursements after January 1, 2012.
6. Repeal of the free choice voucher provision and Form 1099 reporting requirement
7. Updates relating to the waiver process established for mini-med plans, limited benefit plans, and stand-alone health reimbursement arrangements seeking a waiver from the annual limit restriction provisions of the ACA.
8. The preventive care coverage mandate was expanded to include women’s health services, such as annual well-women care visits, counseling and contraceptive coverage, without the imposition of any cost-sharing requirements.
9. Proposals on Exchanges, premium assistance, and uniform summary of benefits and coverage.
10. Suspension of the CLASS Act, a national voluntary long term care insurance program.
11. Final minimum loss ratio (MLR) rules that require insurers issuing individual and group health plans to spend at least 85% of premium dollars paid by the large group market (over 100 employees) on medical claims; 80% in the small group (100 or fewer employees) and individual markets.   Insurers who fail to meet the required target must pay a rebate the policyholder and subscriber.

The Courts were in the action, as well: 

• The Supreme Court announced that it will review four aspects of the health care reform law in the Spring of 2012: the constitutionality of the individual mandate provision, cessation of federal funding to expand state-run Medicaid, whether harm need be shown prior to reviewing the impact of the law (anti-injunction issue), and whether the entire law should be repealed, or whether only certain parts of it should be severed.  The Supreme Court has scheduled the hearings to begin March 26, 2012, and continue daily through March 28, 2012.  The Court has allotted 5.5 hours of oral arguments of the health care reform lawsuits spread over the three day period.  The first topic to be heard will be the anti-injunction issue, followed by the constitutionality of individual mandate, and lastly, the severability issue.  A ruling is expected sometime in Summer, 2012.
• To date, Appeal Courts have ruled on six challenges to the health care reform law; three more currently await rulings.
• The rulings issued from District Courts resulted in 3 cases where Court overturned the law or part of it; 6 cases where Court ruled the law was constitutional and dismissed the case; 9 cases where the Court dismissed the case for lack of standing or procedural problems; and 8 cases in which Court decisions are still pending.

And not to be left out in the cold, the States have been busy, too. To date, 28 States have been awarded federal grants to establish State-run Exchanges. 

In addition, over 44 state legislatures filed hundreds of legislative measures this year opposing elements of the ACA, or proposing alternative policies, such as:

• Enacting laws that would prohibit state agencies or officials from applying for federal grants, or using state funds to implement ACA provisions unless authorized by adopted state law;
• Creation of an Interstate Freedom Compact to join forces across state lines to coordinate or enforce opposition; and
• Bills proposing the power of nullification of the ACA within state boundaries.

So, with all this behind us, what should we be anticipating in 2012?

• Form W-2 Reporting of Health Coverage.  Certainly on the agenda for human resource departments is compliance with the Form W-2 reporting requirement.  It will be very important for payroll systems to track their employee’s participation in the health plans.  Employers will report the aggregate cost of both the employer and employee share of actual coverage the individual has (see IRS Issues Interim Guidance on W-2 Reporting).
• Uniform Summary of Benefits and Coverage.  The ACA requires all individual and group health plans (both ERISA plans and non-ERISA health plans), to provide a summary of benefits and coverage to participants of the plan.  The government came out with proposed regulations on August 17, 2011.  Due to numerous comments questioning how this provision can be implemented, the governing Agencies have stated there is no compliance requirement until regulations are issued; and they have indicated that adequate time after regulations are issued will be given to allow plans to comply.
• Patient-centered Outcomes Research Fee. Effective for policy/plan years ending after September 30, 2012 (for calendar year plans, the fee will first be applicable for the 2012 plan year), a fee will be imposed upon health plans to fund patient-centered outcome research.   The fee is to be paid by the insurer for a fully insured plan, by the plan sponsor for a self-funded plan.

The initial fee will be $1 per covered life, increasing to $2 per covered life (indexed) for policy/plan years ending after September 30, 2013.  This fee will cease to be assessed for policy/plan years ending after September 30, 2019. For a calendar year plan, this would be the 2018 plan year.   

At this point, we do not know how “average number of covered lives” will be defined nor do we have guidance about when or where the fee should be paid; we only know the years on which it is to be assessed.

• Cap on Flexible Medical Spending Accounts. Effective January 1, 2013, calendar year salary reduction contributions to flexible medical spending accounts (FSA) are limited to $2,500.  At this point, there is no guidance on what, if any, impact this might have on reimbursement levels.  Hopefully, between now and 2013, guidance will be forthcoming.

In the meantime, plans with ‘off-calendar year’ plan years may want to amend their plans to reflect this $2,500 cap on salary reductions for the plan year beginning in 2012.  Alternatively, a plan could wait until the 2013 plan year to make this amendment; though, the employer would have to ensure that for the 2013 calendar year, salary reduction contributions are limited to $2,500.

• Independent Claims and Appeals, and External Review Process.  Insured non-grandfathered group health plans should be aware that the insurers will be implementing the ACA’s claims, appeals and external review rules.  Self-funded plans should work with their third party administrator to make certain that these requirements can be satisfied. 
• Women’s Preventive Health Care.  Make certain that the women’s preventive care requirements can be implemented for plan years beginning on or after August 1, 2012.
• Notice of Grandfathered Status.  Grandfathered group health plans should make certain that their Notice of Grandfathered Status is included in plan materials provided to participants, including enrollment materials. The notice must also include the plan’s contact information for questions and complaints.
• Salary-based Discrimination Rules.  The ACA provides that salary based discrimination rules will apply to insured plans.  About a year ago, the governing agencies suspended this provision until future guidance is issued.  A recent informal non-binding comment by an IRS representative suggests that these rules will not be re-visited in the immediate future.  In other words, there are more pressing ACA matters being addressed by the Agencies. 

In particular, the Agencies are working hard on trying to figure out how the individual eligibility for premium assistance or cost-share through the Exchanges will be balanced with the employer’s health plan offering.  And, in particular, how the excise tax penalty assessment that would be imposed on employers employing 50 or more full time equivalent employee would be assessed if an employer’s employee is eligible for premium assistance or cost share through the Exchange.

Defining Essential Benefits 

To wrap up the year, the HHS’ Center for Consumer Information and Insurance Oversight issued an Essential Health Benefits Bulletin giving States significant discretion in defining the “essential benefits” package.  The definition of essential benefits is important in that it will provide a standardized framework of benefit coverage that must be included in health plans, beginning in 2014.  The essential benefit baseline applies to non-grandfathered plans in the individual and small group markets issued both in- and outside of Exchanges. Self-insured group health plans, health insurance coverage offered in the large group market, and grandfathered health plans are not required to cover the essential health benefits.  

The ACA requires the following types of classifications of coverage to constitute essential coverage:

1. Ambulatory patient services;
2. Emergency services;
3. Hospitalization;
4. Maternity and newborn care;
5. Mental health and substance use disorder services, including behavioral health treatment;
6. Prescription drugs;
7. Rehabilitative and habilitative services and devices;
8. Laboratory services;
9. Preventive and wellness services and chronic disease management; and
10. Pediatric services, including oral and vision care.

According to the Bulletin, States can utilize one of the following categories for defining essential benefits:

• One of the three largest small group plans in the state;
• One of the three largest state employee health plans; 
• One of the three largest federal employee health plan options; or
• The largest HMO plan offered in the state’s commercial market.  

On the one hand, the Bulletin delays the guidance that one might wish to have; on the other hand, it sanctions States’ preference for control over defining essential benefits.  

Note, both grandfathered and non-grandfathered plans are prohibited from imposing lifetime limits, and restricted on imposing annual limits on essential benefits.  We’re still awaiting guidance on how essential benefits will be interpreted for this purpose.

Certainly, there is much to stay tuned for as 2011 winds to a close, and 2012 ramps up.

About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.

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