Impact of Health Care Reform Law on Group Health Plans
Unless otherwise noted below, the following provisions become effective for group health plans on their next plan year beginning on or after September 23, 2010 (i.e., January 1, 2011 for calendar year plans).
Dependent coverage for children up to age 26
Grandfathered1 or new group health plans that provide dependent children coverage must continue to make such coverage available for an adult child until the child reaches age 26, regardless of the child’s marital status. However, for plan years beginning before 2014, grandfathered group health plans must make such coverage available for an adult child until the child reaches age 26 only if such adult child is not eligible to enroll in an eligible employer-sponsored health plan other than such grandfathered health plan.
Prohibition on lifetime benefit limits and restricted annual benefit limits
Grandfathered and new group health plans (1) may not establish lifetime limits on the dollar value of benefits for any participant or beneficiary; and (2) may only establish a restricted annual limit on the dollar value of benefits for any participant or beneficiary with respect to the scope of essential health benefits. Further, beginning in 2014, group health plans may not establish annual limits on the dollar value of benefits for any participant or beneficiary. However, group health plans may still place annual or lifetime limits on specific covered benefits that are not essential health benefits.
Limited grounds for rescinding coverage
Grandfathered and new group health plans are prohibited from rescinding coverage retroactively for an individual who is enrolled under the plan, unless the covered individual has engaged in fraud or makes an intentional misrepresentation of material fact prohibited by the terms of the plan.
Prohibition of preexisting conditions exclusions
Group health plans, including grandfathered plans, may not impose any preexisting condition exclusions for children under the age of 19. Moreover, for plan years beginning on or after January 1, 2014, group health plans may not impose any preexisting condition exclusions.
60-day prior notice of material modifications
Effective March 23, 20102, group health plans must provide notice to enrollees of a material modification in any of the terms of the plan or coverage involved that is not reflected in the most recently provided summary of benefits and coverage no later than 60 days prior to the date on which such modification will become effective.
Extension of nondiscrimination rules
The nondiscrimination rules of Internal Revenue Code §105(h)(2) are extended to apply to fully insured group health plans. Grandfathered plans are exempt from this requirement.
Over-the-counter drug prohibition
For taxable years beginning January 1, 2011, costs for over-the-counter drugs may not be reimbursed through an HSA, HRA, health FSA, or Archer MSA unless such drugs are prescribed by a doctor or are insulin. Additionally, for tax years beginning January 1, 2013, the FSA limit on salary deferral is $2,500, as adjusted for changes in the cost of living.
Mandated claims appeals processes
Non-grandfathered group health plans must implement an effective internal and external appeals process for appeals of coverage determinations and claims. Enrollees of the plan must be provided notice of the internal and external appeals process in a culturally and linguistically appropriate manner and the availability of any applicable assistance with the appeals process.
Additionally, enrollees must be allowed to review their file, present evidence and testimony as part of the appeals process, and receive continued coverage pending the outcome of the appeal. The external review process must comply with the applicable state external review process and/or standards established by the secretary of health and human services.
Temporary reinsurance program for early retirees
By June 23, 2010, a temporary reinsurance program will be established which provides reimbursement to participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees3, and to the eligible spouses, surviving spouses and dependents of such retirees. The program will reimburse employment-based plans for 80 percent of the portion of the costs attributable to claims between $15,000 and $90,000. While the program is scheduled to be in effect until 2014, the government has only allocated $5 billion to the program.
Cost of employer-sponsored health coverage included on Form W-2
For taxable years beginning January 1, 2011, employers must report on Form W-2 the aggregate cost of employer-sponsored coverage other than the amount of any salary reduction contributions to a flexible spending arrangement.
Small employer tax credit
For taxable years beginning January 1, 2010, an employer with no more than 25 full-time employees and average wages of less than $50,000 that purchases health insurance for its employees and covers at least 50 percent of the total premium cost is eligible for a tax credit of up to 35 percent of the cost of the employer’s premium contribution in the small group market (up to 25 percent credit in the case of tax-exempt employers).
Over the next several years, group health plans face significant new challenges under the lengthy and complex Health Care Reform Law. Group health plans should consult with legal counsel immediately regarding this subject and have their plan design, procedures and administration thoroughly reviewed. .
1 Group health plans which were in existence on March 23, 2010 are deemed “grandfathered” and are exempt from certain provisions of the Health Care Reform Law. The Health Care Reform Law fails to address the extent to which grandfathered plans may be amended without forfeiting their grandfather status. Accordingly, group health plans should exercise caution in making plan design changes, other than those required by the Health Care Reform Law, until further guidance has been provided.
2 This effective date is a conservative view.
3 “Early Retiree” means a retiree who is age 55 and older but is not eligible for coverage under title XVIII of the Social Security Act.
IRS Circular 230 Disclosure:
Unless expressly stated otherwise, this document is not intended or written to function as a covered opinion under Department of Treasury regulations. Any federal tax advice within this document is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties that may be imposed, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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Samantha Kopacz is an attorney with Fraser Trebilcock Davis & Dunlap, PC and specializes in employee benefits and healthcare law. Kopacz can be reached at firstname.lastname@example.org.