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October 2010
Note to Employers: Healthcare Reform Begins to Take
Effect
Several provisions of healthcare
reform became effective on September 23, including some provisions that
employers can avoid only by meeting “grandfather” requirements
As was broadly reported at the time, on September
23, 2010, several provisions of the Patient Protection and Affordable Care Act
(generally referred to as “healthcare reform”) went into effect.
For most employers, among the most important changes
is a provision regarding the “grandfathering” of existing employee health plans.
Any plan that was in existence on March 23, 2010, is grandfathered and, thus,
exempt from some of the insurance reforms that kicked in on September 23 (see
further discussion below).
Exemptions for Grandfathered Plans. Grandfathered
plans will be relieved of certain healthcare reform compliance obligations, such
as:
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patient protections, such as choice of primary
care provider;
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giving individuals direct access to an OB/GYN without a referral;
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prohibition of prior authorization, or increased cost-sharing, for
out-of-network emergency services;
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coverage of preventive health services without any cost-sharing;
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salary-based discrimination rules applicable to fully insured plans; and
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development of an internal and external independent appeals process.
To be grandfathered, and to avoid (for now) having
to comply with the above requirements, a plan must have had at least one
individual enrolled in coverage on March 23, 2010, and the plan must have
continuously covered at least one person (but not necessarily the same person)
since that date.
Changes Causing Loss of Grandfather Status.
The following actions are among those that will result in loss of grandfather
status:
-
changing insurance carriers or entering into new
contracts;
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eliminating coverage or a benefit;
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increasing co-insurance;
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increasing fixed cost-sharing amounts that exceed the amount in effect on
March 23, 2010, by medical inflation plus 15% (or the greater of $5 or 15%
for a co-pay);
-
decreasing the rate of employer contributions; or
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imposing new maximum limits on benefits.
Permissible Changes. The following actions,
by themselves, will not result in the loss of grandfather status:
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policy premium increases (although an employer
is not permitted to decrease the rate of employer contributions by more than
5%);
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changes to comply with law (however, changes that decrease benefits will
result in loss of grandfather status);
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compliance with non-mandatory reforms and increases in benefits; or
-
a
self-insured plan changing third party administrators or stop-loss carriers.
Mandatory Provisions. Grandfathered or not, all plans are subject to the
following provisions for plan years beginning on or after September 23, 2010:
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Pre-existing Conditions: No group health
plan or self-insured health plan may exclude children (under age 19) on the
basis of having a pre-existing condition.
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Lifetime Limits: No group health plan or self-insured plan may impose a
lifetime dollar limit on “essential health benefits.” Further, plans must
phase out annual limits on “essential health benefits” coverage by 2014. The
annual limits are: (a) $750,000 applicable to plan years between 9-23-10 and
9-23-11, (b) $1.25 million for plan years between 9-23-11 and 9-23-12, and
(c) $2 million for plan years between 9-23-12 and 9-23-13.
-
Cancellations: Group and self-insured plans are barred from canceling
health coverage once the individual has become a covered participant, except
in cases of fraud or intentional misrepresentation.
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Young Adults: Plans must allow young people, up to their 26th birthday,
to remain on their parents’ insurance policy, at the parents’ choice.
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the Phoenix area and throughout Arizona, Schmidt Westergard & Company, PLLC, is
an independent full-service tax, audit, accounting and business advisory firm
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