PPACA and Beyond – Implications for Employers Today
The vast scope of the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act enacted in March 2010 (collectively, "PPACA") has captured widespread attention with an array of new obligations and opportunities. Several of the provisions that affect group health plan sponsors directly will take effect immediately or in the near future. These are in addition to many other legislative and regulatory requirements effective as of 2010. In this alert, we highlight some of the near-term requirements of PPACA and health care reform more generally that are of particular interest to employers. These topics include:
- Provisions of PPACA affecting group health plan sponsors
- The Health Information Technology for Economic and Clinical Health Act ("HITECH")
- The Genetic Information Nondiscrimination Act ("GINA")
- The Children's Health Insurance Program Reauthorization Act ("CHIPRA")
- The Mental Health Parity and Addiction Equity Act (the "Wellstone Act")
- Extension of COBRA Premium Subsidy
- Group Health Plan Excise Tax Reporting
- TRICARE Final Regulations
- Medicare Part D Proposed Regulations
- Status of Cafeteria Plan Regulations
(Capitalized terms which are otherwise undefined in this alert are as defined in the pertinent statutory and/or regulatory texts.)
Beginning January 1, 2011, employers will be required to disclose the value of the benefit provided by the employer for an employee's health insurance coverage on the employee's Form W-2.
PPACA subjects private sector employers for the first time to many existing provisions of the Public Health Service Act, including the requirement that group health plans provide a summary of benefits and coverage before enrollment or when existing enrollees re-enroll. Strict standards concerning form and content apply to these summaries, including standardized definitions of key terms. Employers will need to ensure that these documents are provided to eligible employees when required and that they meet the specific needs and characteristics of the employer's workforce. The Secretary of the Department of Health and Human Services ("HHS") must develop the standards no later than March 23, 2011 and they will become effective as of March 23, 2012.
Some employers may enjoy increased tax benefits as a result of PPACA. Certain small employers may be eligible for a payroll tax credit if they make minimum uniform contributions toward their employees' health insurance. This credit is available to tax-exempt as well as for-profit organizations and is available for tax years beginning after January 1, 2010. The IRS has already updated its website to provide preliminary guidance on the operation of this credit, including a list of FAQs to assist employers in determining their eligibility for the credit and claiming it on their tax returns.
Simplified Plan Design
For plan years beginning after December 31, 2010, certain small employers will also be able to create a simple cafeteria plan that provides a safe harbor from the nondiscrimination requirements otherwise applicable to cafeteria plans.
New Limits on Health Flexible Spending Accounts
For taxable years beginning on or after January 1, 2011, reimbursements from Health Flexible Spending Accounts ("Health FSAs") will only be available for insulin and for prescribed medicine or drugs. Health FSA dollars may still be used for over-the-counter medicines if they are prescribed. For taxable years beginning on or after January 1, 2013, cafeteria plans must limit contributions to Health FSAs to $2500 per year. Employers that offer Health FSAs as part of a cafeteria plan should be prepared to communicate and explain these new provisions to their employees.
PPACA represents major reform of the legal regime governing the provision of health care in the United States. The issues mentioned above represent a sampling of the possible provisions that apply to employers and are not intended to be comprehensive. Substantial impending changes apply for employer-sponsored group health plans with respect to benefits, coverage, nondiscrimination rules and appeals processes, among other issues. Much official guidance will be required in order to clarify the new obligations of the various affected parties. In addition, affected parties have already mounted legal challenges to specific provisions of the legislation, including the state Attorneys General who have challenged the constitutionality of the state-based health insurance exchanges to be established beginning January 1, 2014.
The Health Information Technology for Economic and Clinical Health Act of 2009 ("HITECH") amends the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") to impose new breach notification requirements on Covered Entities (such as group health plans) and their Business Associates (such as third party administrators). These requirements, which became effective September 23, 2009, include notification of affected individuals, HHS and possibly the media upon discovery of a breach of unsecured Protected Health Information ("PHI").
HITECH also expands the scope and application of the HIPAA Security and Privacy Rules directly to Business Associates. (These requirements previously applied only to Covered Entities.) As of February 17, 2010, Business Associates are directly subject to the administrative, physical and technical safeguard requirements of the Security Rule. They are also now directly subject to certain provisions of the Privacy Rule, including making PHI available for amendment and destroying PHI when the Business Associate Agreement ("BAA") terminates.
In addition to ensuring their own compliance with the breach notification rules, Covered Entities will need to understand the new obligations HITECH places on the Business Associates with whom they contract. In this regard, Covered Entities should ensure that their BAAs comply with HITECH. Covered Entities should also be prepared to amend their BAAs to reflect any guidance HHS issues with regard to the changes that are required to existing BAAs to bring them into compliance with HITECH.
Title II of the Genetic Information Nondiscrimination Act of 2008 ("GINA") prohibits employer discrimination on the basis of genetic information, which includes family history of disease or disorder as well as information about the genetic tests of an individual or the individual's family members. In addition, GINA imposes strict confidentiality requirements on employee genetic information that is in the employer's possession and on employer acquisition of genetic information relating to an employee. Prohibited discrimination is broadly defined to include the individual's compensation, terms, conditions or privileges of employment. The Equal Employment Opportunity Commission ("EEOC") has stated that this includes health benefits.
The EEOC has yet to publish final regulations implementing Title II, leaving important issues unresolved such as whether the prohibition on employer acquisition of genetic information includes information employees or job candidates make available on social networking sites. Nonetheless, Title II of GINA took effect on November 21, 2009. Employers should therefore review their administrative procedures to ensure that they maintain appropriate safeguards to protect genetic information and to prevent it from affecting group health plan decisions, such as enrollment eligibility. Employers must also post a notice explaining the employment nondiscrimination rules under GINA.
The Children's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA") requires employers that maintain group health plans in certain states to notify their employees of potential opportunities for premium assistance available in their state. The state of residency of the employee determines whether such an "Employer CHIP Notice" is required, not the location or principal place of business of the employer.
The compliance date for providing the Employer CHIP Notice varies depending on the group health plan's plan year but may be as early as May 1, 2010. (For calendar year plans, this date will be January 1, 2011.) Employers that maintain group health plans should therefore act now to determine their obligations under CHIPRA, which may vary depending on whether or not they have multi-state operations and where their employees reside. The Department of Labor has issued a Model Employer CHIP Notice in English and Spanish that employers may use as a template to assist in complying with this new requirement.
The Mental Health Parity and Addiction Equity Act of 2008, or "Wellstone Act," which is effective for plan years beginning after October 3, 2009, expands and changes the Mental Health Parity Act of 1996 ("MHPA") to encompass substance abuse treatment. Specifically, the Wellstone Act subjects group health plans that include both medical/surgical and substance use disorder benefits to strict parity requirements. For example, the financial requirements and treatment limitations of such plans (including deductibles and length of coverage for treatment) must be no more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits. In addition, if such a plan provides for out-of-network surgical/medical benefits, then it must also provide for out-of-network substance use disorder benefits. Similar provisions also apply under MHPA to group health plans that include both medical/surgical and mental health benefits.
Employers have a number of options and obligations under the Wellstone Act. First, the Wellstone Act applies only to group health plans that offer substance use disorder benefits; it does not require a plan to offer them. Employers that adopt plans without such benefits are therefore exempt from the Wellstone Act. Second, under some circumstances, the Wellstone Act may not apply to a group health plan if applying the substance use disorder parity rules results in certain specified cost increases under the plan. Third, employers who do sponsor plans covered by the Wellstone Act should review and update the plan information they communicate to participants, including plan documents and Summary Plan Descriptions ("SPDs").
Final regulations implementing the Wellstone Act are scheduled to apply to group health plans for plan years beginning on or after July 1, 2010. However, a coalition of managed behavioral healthcare organizations ("MHBOs") has filed a lawsuit seeking to block implementation of these regulations, alleging that the federal government both failed to provide an adequate comment period and exceeded the terms of the statute by, for example, prohibiting the use of separate deductibles for mental health and medical treatment.
The American Recovery and Reinvestment Act of 2009 provided a 65% subsidy on COBRA health insurance premiums for workers who lost group health plan coverage as a result of involuntary termination between September 1, 2008 and December 31, 2009. This date has been extended on multiple occasions, most recently through May 31, 2010. Under the terms of the subsidy, eligible individuals pay 35% of their COBRA premiums and their former employers receive a credit on their payroll tax returns for the remaining 65%. Eligible individuals may receive the subsidy for up to 15 months.
Employers that sponsor group health plans may be subject to excise taxes if they fail to comply with their obligations under applicable federal laws, including GINA, MHPA, MHPAEA, COBRA and HIPAA. The IRS has issued final regulations that require employers to report such compliance failures and pay any tax that is due on or after January 1, 2010 on the new IRS Form 8928. Due dates vary depending on the type of failure and the type of employer. Certain exemptions from the excise taxes may apply to employers that exercised reasonable diligence but did not learn of the compliance failure or for failures due to reasonable cause that the employer was able to correct by making the affected beneficiary whole.
While these excise taxes are not new, the IRS has not previously imposed a return filing requirement with regard to these failures. Employers concerned about a possible compliance failure with regard to any of the above federal group health plan obligations should determine their filing requirement with respect to the failure and file Form 8928 along with any applicable excise taxes in a timely manner. The requirement to file Form 8928 exists independently of and does not replace the requirement to file Form 5330 with regard to other excise taxes which may be applicable to employee benefit plans.
TRICARE is the health care program serving active duty service members, reservists, retirees and certain other members of the military community. On April 9, 2010, the Department of Defense issued final regulations concerning the new TRICARE incentive prohibitions, which were enacted in 2007 to prohibit employers from offering TRICARE beneficiaries financial or other incentives not to enroll in employer-provided health plans if those health plans would otherwise provide primary coverage in relation to TRICARE. At the same time, the final regulations exempt certain arrangements from the prohibition, such as benefits offered under a cafeteria plan to all employees regardless of their eligibility for TRICARE. The final regulations also permit employers to offer a cafeteria plan benefit only to employees eligible for TRICARE so long as certain strict criteria are met, including signed certifications of employer compliance with those criteria.
These final regulations are effective as of June 18, 2010. Employers that sponsor group health plans should ensure that their group health plans comply with the TRICARE incentive prohibitions. Employers should also review the requirements for the permitted exemptions from the TRICARE incentive prohibitions to ensure that any applicable plan or plans they are sponsoring complies with the specific rules applicable to those exemptions.
On October 22, 2009, the Department of Labor issued proposed Medicare Part D regulations that include Coordination of Benefits ("COB") and Medicare Secondary Payer ("MSP") provisions affecting group health plan sponsors. These provisions require Medicare Part D plans to report payer information to the Medicare COB Contractor. For active employees enrolled in a group health plan, the group health plan typically serves as the primary payer and the enrolled employee is responsible for transmitting the required coverage information to the Medicare Part D Plan. The new provisions also require Medicare Part D plans to coordinate with other payers about retroactive claims adjustments and overpayment and underpayment issues. Further, they impose a time limit of three years on the coordination of Medicare Part D benefits.
These proposed regulations have the potential to affect employers that sponsor group health plans and have Medicare Part D eligible active employees in a number of ways. First, they will require employers to work more closely and in a timely manner with Medicare Part D plans to coordinate benefits for affected employees. Second, employers must assist their employees in providing the Medicare COB Contractor with the required coverage information. Employers should therefore be prepared to communicate appropriate coverage information to their Medicare Part D eligible employees and to respond to COB inquiries from Medicare Part D plans.
The IRS issued proposed cafeteria plan regulations in 2007 that replace various interim proposed regulations and represent the first major revision of the rules governing cafeteria plans since they were enacted over 20 years ago. Although these regulations were intended to take effect in 2009, the IRS has yet to issue final regulations with an accompanying effective date. Nonetheless, the IRS has stated that employers may rely on the new proposed regulations for guidance pending issuance of the final regulations and employers may wish to do so to the extent that they are dealing with issues on which there has been no other formal guidance. Employers should also be aware that the final regulations may reflect changes resulting from the enactment of PPACA.
A variety of factors will affect the impact of these legislative and regulatory developments on a specific employer and the group health plans it sponsors. Some provisions apply only to employers with more than a minimum number of employees. Other provisions apply differently to single employer and multiple employer plans, and effective dates may be delayed for collectively bargained plans. In some cases, the application will depend upon whether the employer is a tax-exempt or for-profit entity or a state or local government. In addition, as we have noted, various exceptions and exemptions from the general rules may apply in specific circumstances. Further regulatory guidance is still needed in many areas, and the interaction of the individual pieces of legislation remains unclear. We encourage employers that sponsor group health plans to inform themselves of their current and forthcoming obligations under federal health care law.
For more information please contact the following attorneys:
Richard W. Skillman at 202-862-5034 or email@example.com
Patricia Gimbel Lewis at 202-862-5017 or firstname.lastname@example.org
Joanne C. Youn
Ronald G. Cluett
© 2010 Caplin & Drysdale, Chartered
All Rights Reserved.
Caplin & Drysdale
Washington, D.C. Office: One Thomas Circle N.W., Suite 1100
Washington, D.C., USA 20005
PH: +1 202-862-5000 FX: +1 202-429-3301
New York Office: 375 Park Avenue, 35th Floor
New York, New York, USA 10152
PH: +1 212-319-7125 FX: +1 212-644-6755
About Caplin & Drysdale
Caplin & Drysdale provides employee benefits counseling and exempt organization counseling to companies, organizations, and individuals throughout the United States and around the world. The firm also provides general tax law counseling, corporate law counseling, political activity law counseling, white collar defense and complex civil litigation services.
This email alert is intended as a summary of legal issues for your general information. It does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.