1 year in healthcare reform: health-care reform & group health plans.

• Author: Sears, Christopher S.

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A Year has passed since the president signed the Patient Protection and Affordable Care Act (PPACA). In that time, federal agencies have issued numerous regulations, (1) plaintiffs have filed lawsuits challenging its constitutionality (with some success and some losses), and Congress has attempted to repeal the act. Through all of this, sponsors of group health plans--including state and local employers and retirement funds--have dealt with the challenge of complying with numerous, significant health plan changes mandated by PPACA.

But it's not over yet. Many governmental plan sponsors have yet to comply with the "first round" of changes that must be implemented. In addition, the future holds a new set of compliance obligations that are not yet effective, such as auto-enrollment, the elimination of waiting periods, and several new reporting requirements. This article will review significant components of the Act, discuss what governmental employers should be doing now, and foreshadow what tasks are on the horizon for future compliance. (2)

DOES THE ACT EVEN APPLY TO YOUR HEALTH PLAN?

The act applies to group health plans as defined in the Public Health Service Act (PHSA) (3)--among other things, self-insured, and fully insured plans sponsored by employers and employee organizations. Unlike many other employee benefit laws, there is no exception for governmental plans. However, among other things, the act does not apply to:"

* Most health flexible spending accounts (FSAs), particularly if the FSA accepts only employee contributions and an employer does not make contributions.

* Stand-alone dental and vision benefits, so long as enrollees have the right to elect not to receive coverage for the benefits and the enrollee is required to pay an additional premium for that coverage, if elected.

* Health savings accounts, although the high deductible health plan (HDHP) that accompanies an HSA would be a plan subject to the mandates.

Retiree-Only Plans. Another important exception exists for retiree-only plans. Many governmental employers, unlike most employers in the private sector, still offer health cover age to retirees, and large governmental retirement funds often provide retiree health plans. While there was originally some confusion regarding whether the Department of the Health and Human Services (DHHS), the Department of Labor (DOL), and the Department of Treasury would allow retiree-only health plans to be exempted from complying with PPACA coverage mandates, the departments indicated they would not require governmental retiree-only plans to comply with PPACA coverage mandates (although such plans should review any liability that may exist through civil law suits by enrollees under state law).

As a result, numerous employers have removed their retirees from their active health plans and created retiree-only health plans to avoid PPACA mandates regarding retirees. However, governmental employers must be cautious and ensure that the retiree plan is truly only for retirees. Steps to demonstrate this separation include separate plan documents, separate plan summaries, separate funding sources (e.g., separate insurance policies or funding trusts), and separate actuarial analyses for setting premiums. Furthermore, governmental employers should carefully consider their rehire policies in light of any desire to maintain a retiree-only plan.

HOW MUCH OF THE ACT APPLIES TO YOUR PLAN?

"If you like your health-care plan, you can keep your health-care plan." This political promise made during the health-care debate is embodied in the grandfather provisions of PPACA. A grandfathered plan needs to comply only with limited provisions of PPACA. Generally, a grandfathered plan is one that was in existence on March 23, 2010, and does not make certain changes after that date. As long as a plan maintains its grandfathered status, the limited application of the PPACA lasts indefinitely.

Maintaining grandfathered status reduces PPACA compliance (and the potentially increased costs of providing preventive care and additional procedural rights under the plan), but it also ties an employer's hands in terms of increasing coinsurance, copayments, and other important plan design options. After carefully reviewing their plans, many employers have determined that their plans already substantially comply with several of the additional mandates for non-grandfathered plans and that maintaining grandfathered status is simply not important, given the significant constraints on plan changes.

A number of actions can cause a plan to lose its grandfathered status. These standards apply separately to each benefit package made available under a plan (e.g., if an HMO, PPO, and HDHP option are all offered under the plan, each such option is analyzed separately). If a plan makes any of the following changes after March 23, 2010, it (or the benefit package, as applicable) will lose grandfathered status: (5)

* Eliminating all or substantially all benefits to diagnose or treat a particular condition, regardless of whether the change affects relatively few individuals.

* Increasing the percentage cost-sharing requirements (e.g., coinsurance amounts) imposed on enrollees.

* Increasing the fixed-amount cost-sharing requirements (e.g., copayments, deductibles, out-of-pocket limits)

by more than medical inflation plus 15 percent (or, for copayments, by more than five dollars, if greater).

* Decreasing the percentage of the plan's overall full premium the employer pays by more than 5 percent.

* Decreasing an overall aggregate annual limit in place on March 23, 2010, or introducing a new overall annual limit on plan benefits (unless the new limit is at least as high as any lifetime limit the plan may have had in place on March 23, 2010).

Special rules apply to insured collectively bargained plans. Subject to further guidance, any other changes will not cause a plan to lose grandfathered status, so employers may enroll new and existing employees and their dependents. They may also make voluntary changes to increase benefits, conform with required legal changes, voluntarily adopt other coverage mandates in the PPACA, and change third-party administrators without losing grandfathered status. Furthermore, an insured plan may change health insurers without ceasing to be a grandfathered plan, so long as the insurance coverage is effective on or after November 15, 2010. However, plans that changed health insurers with an effective date between March 23, 2010, and November 15, 2010, did not maintain grandfathered status and may not reclaim it retoactively. (6) Finally, increases in the dollar amount of premiums employees pay do not affect grandfathered status so long as the employer does not increase the employee's contribution rate percentage of the overall premium by more than 5 percent.

Important Procedural Requirements. The plan materials a grandfathered plan provides to enrollees must include a statement that the plan believes it is grandfathered under the PPACA and must provide contact information for questions and...