Treasury Official Discusses Employer Coverage Obligations Under Health Reform Rules

Children’s coverage and retroactive rescissions were among the health reform topics discussed by Kevin Knopf, attorney-advisor, Treasury Office of Benefits Tax Counsel, at the American Bar Association’s 21st Annual National Institute on Health and Welfare Benefit Plans in Washington, D.C. on October 25. Knopf elaborated on the official guidance issued on those requirements under the Patient Protection and Affordable Care Act.

Children’s Coverage

The ACA requires that employers providing health insurance coverage to an employee’s dependent child must continue to do so until the child reaches age 27. Knopf acknowledged that, while they prevent an insurer from defining “child,” the regulations do not themselves provide a definition of “child” for purposes of the health care reform package. He said that this was not a mistake: rather than provide a hard-and-fast definition, the IRS instead provided a safe harbor for taxpayers who rely upon the definition of “child” in IRC Sec. 152.

Despite this flexible interpretation of the law, Knopf reported that the Treasury continues to receive questions concerning step- and foster children. He stated that both of these children would fall within the Code Sec. 152 safe harbor.

However, when the parent-child relationship terminates, the IRS will no longer consider the child to belong to the insured individual and the insurer is no longer to continue coverage, Knopf explained. As an example, he pointed to a situation where an insured has a stepchild, but subsequently divorces the spouse and no longer carries on a relationship with the child.

Knopf also observed that the regulations prevent insurers from varying the terms of health coverage based on the age of the dependent child. He pointed out that an insurer could only charge additional fees for covering an adult child if it charged those fees for all children, and he indicated that the IRS is continuing to review this rule.

Retroactive Rescission

Knopf also explained that the ACA imposes new strict standards on when a health insurer may retroactively revoke an individual’s coverage. He noted that these restrictions arose because, while individuals could theoretically obtain retroactive health insurance coverage in the event of revocation, they cannot practically do so. He explained that the new law only allows retroactive rescission based on very few circumstances.

Knopf also recognized, however, that the restrictions are not airtight. He noted that an insured individual’s fraud or intentional misstatement of material fact could still justify the insurer’s retroactive revocation.

Additionally, the IRS’s answer to a frequently asked question describes a situation in which an employee terminates employment, he or she fails to pay any insurance premiums, and the employer delays terminating their health insurance coverage. The IRS will not consider the employer to have a restricted rescission where it retroactively eliminated the employee’s coverage back to the date of termination, if the delay is because of administrative delay.

Knopf reported that retroactive rescission of health care coverage may be limited for both medical and nonmedical reasons. This includes errors committed by the plan, mistakenly granting nonqualified employees health care coverage. He pointed to an example in the regulations where an employer provides health insurance coverage for full-time employees, but not for part-time employees. When an employee switches from full-time to part-time, but the plan mistakenly continues coverage, the regulations explain that the employer may prospectively, but not retroactively cancel the employee’s coverage.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

Human Resource Officers Anticipate Health Reform Will Lead To Higher Costs

The potential for increased cost-shifting to private payers, the health insurance exchanges operating effectively in all states by 2014, and the elimination or revision of the tax on high cost plans are the issues of greatest concern about the new health reform law of chief human resources officers (CHROs) at large firms. Furthermore, nearly all (96%) of the more than 250 CHROs the HRPolicy Association surveyed in September 2010 believed that the Patient Protection and Affordable Care Act (ACA) will raise their companies' costs: 56% of these expect an increase of 5% or less; 27% expect a 6% to 10% increase; and 19% anticipate increases of more than 10%.

In response to increased costs, 64% of the CHROs predicted that their companies would split costs with their employees and retirees, and 19% said they would pass on the costs to their employees.

In addition, CHROs believed that a much greater number of employees than Congress anticipated will obtain health coverage though the new state exchanges, and receive the federal subsidy, than will remain in their employers' plans. The trend will be away from employer-sponsored coverage over the next ten years --about one-third (34%) of the CHROs said their company was likely to provide employer-sponsored coverage in 2020, while one-fifth (19%) said not likely, but nearly half (47%) were not sure. This will end up costing the federal government far more than planned, the CHROs predicted.

Employers want true health reform, not repeal of the new law, the CHROs said --56% see the need for major "adjustments" to the ACA, but only 3% are in favor of outright repeal with no further attempts at reform. In addition, members support the delivery systems and payment reform projects of the ACA. The CHROs feel that the ACA does not bend down the cost curve because health coverage is expanded without taking steps to change the way care is delivered.

The report further found that "Association members believe another attempt at reform is inevitable, and they are ready to work with Congress on future iterations to ensure that health reform will lead to a sustainable, high quality health care system providing coverage for all Americans while promoting the competitiveness of U.S. employers."

For more information, visit http://www.hrpolicy.org.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

NAIC Sends Medical Loss Ratio Recommendations To HHS

On October 21, the National Association of Insurance Commissioners (NAIC) voted to adopt a model regulation containing the definitions and methodologies for calculating medical loss ratios as required by the Patient Protection and Affordable Care Act (ACA).

In a prepared statement, Kathleen Sebelius, HHS Secretary, said regulations based on the model would be published quickly: "The next step is for the HHS to issue a medical loss ratio regulation that will provide clear guidance to stakeholders in the coming weeks.

"We will work quickly to promulgate this regulation, using the NAIC recommendations as a basis, because we believe these new policies will help ensure not only cost savings but higher quality care for consumers. We look forward to working closely with NAIC throughout the process."

Background

On October 14, the NAIC Health Insurance and Managed Care Committee approved a draft regulation, and that draft "passed with only technical amendments" on October 21, according to NAIC.

The ACA required the NAIC, by Dec. 31, 2010, to establish uniform definitions and standardized methodologies for calculating medical loss ratios (Public Health Service Act Sec. 2718). Under the regulation, the "numerator used to determine the medical loss ratio for the plan year is calculated as incurred claims plus any expenses to improve quality." The denominator is calculated as earned premiums less federal and state taxes and licensing or regulatory fees. Thus, the more expenses used for improving quality the higher the loss ratio and the easier it will be to meet minimum standards.

Under the ACA, starting in 2011, a minimum loss ratio of 80% is prescribed for insurance sold to individuals and small employer plans, and a minimum of 85% is required for large-plans (plans with 101 or more employees).

Attempts to limit the amount of insurance sales commissions in the denominator were unsuccessful; for now, these commissions would be included in administrative expenses and will go toward reducing the medical loss ratio. The NAIC reportedly has created a subgroup to work with the HHS to determine the exact relationship between commissions and the medical loss ratio.

The October 14 model regulation also included "credibility adjustments" for small insurers, which would allow as much as an 8.3% addition to the medical loss ratio for insurers with between 1,000 and 2,499 lives. The adjustment would be reduced for larger insurers and would be eliminated for insurers with 75,000 or more lives.

Quality Improvement Expenses

The NAIC October 14 model defined quality improvement expenses as follows:

"Quality improvement expenses are expenses, other than those billed or allocated by a provider for care delivery (i.e., clinical or claims costs), for all plan activities that are designed to improve health care quality and increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements."

NAIC also stated that quality improvement expenses "should be grounded in evidence-based medicine, widely accepted best clinical practices, or criteria issued by recognized professional medical societies, accreditation bodies, government agencies, or other nationally recognized health care quality organizations. They should not be designed primarily to control or contain cost, although they may have cost reducing or cost neutral benefits as long as the primary focus is to improve quality."

Quality improvement activities should be designed to achieve the following goals:

• improve health outcomes;
• prevent hospital readmissions;
• improve patient safety and reduce medical errors, lower infection, and mortality rates;
• increase wellness and promote health activities; or
• enhance the use of health care data to improve quality, transparency, and outcomes.

Included Quality Improvement Activities

The NAIC listed the following as categories of activities that would "improve health outcomes" (and thus can be used as quality improvement expenses):

• Patient centered intervention such as:
• Making/verifying appointments;
• Medication and care compliance initiatives;
• Arranging and managing transitions from one setting to another (such as hospital discharge to home or to a rehabilitation center);
• Programs to support shared decision making with patients, their families and the patient's representatives; and
• Reminding insured of physician appointment, lab tests or other appropriate contact with specific providers;

• Incorporating feedback from the insured to effectively monitor compliance;
• Providing coaching or other support to encourage compliance with evidence based medicine;
• Activities to identify and encourage evidence based medicine; and
• Use of the medical homes model (ACA Sec. 1311).

Excluded From Quality Improvement

The NAIC also identified the following to be excluded as quality improvement expenses:

• All retrospective and concurrent utilization review;
• Fraud prevention activities;
• The cost of developing and executing provider contracts and fees associated with establishing or managing a provider network;
• Provider credentialing;
• Marketing expenses;
• Most accreditation fees; and
• Costs associated with calculating and administering individual enrollee or employee incentives.

Reaction From AHIP

America's Health Insurance Plans (AHIP)president and CEO Karen Ignagni released the following statement on the NAIC-approved medical loss ratio proposal: "The current medical loss ratio proposal will reduce competition, disrupt coverage, and threaten patients' access to health plans' quality improvement services."

Earlier in October, AHIP sent aletter to the NAIC which included the following comments:

"On the central question of whether the medical loss ratio regulation will advance the health reform goals of improving access to insurance, minimizing disruption for consumers and employers, and improving quality of care, we are concerned that the current draft proposal will create unintended consequences and not achieve the expected goals."

"To promote access to a wide range of health plan choices for consumers and employers, the new medical loss ratio requirements should include adequate adjustments that take into account the statistical variability and credibility of small blocks of covered lives in an environment where extremely high cost, but low frequency claims (such as several complicated transplants or neonatology claims) can create major volatility.... NAIC can address these serious concerns by strengthening the credibility adjuster to avoid potential insolvencies and support competition.

"To ensure that individual patients receive the best care based on the latest available evidence, the NAIC's definition of 'activities that improve health care quality' should be structured to ensure that current and future patients have access to the most up-to-date and innovative support programs and tools that health plans are able to develop. Defining health care quality initiatives in a way that is too narrow or static will turn back the clock on progress and create new barriers to investment in the many activities that health plans have implemented to improve health care quality. More specifically, we want to highlight our recommendations for modifying the definition of health care quality initiatives to include fraud prevention and detection programs and the initial startup costs associated with implementing the new ICD-10 coding system."

For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

Reform: majority continues to favor repeal; litigation continues

Though the first wave of its coverage provisions have been in effect since late September, the Affordable Care Act continues to be debated, both in the court of public opinion and in courts of law.

Approximately 55% of  "likely voters" surveyed on October 16 and 17 said that they favored a repeal of the Affordable Care Act, according to Rasmussen Reports. Since the passage of the ACA in March, support for repeal has ranged from a low of 53% to a high of 63%. Of the 40% who opposed repeal of the law, 30% said they "strongly oppose" repeal.

Party affiliation. Not surprisingly, support for the law is divided among party lines: Rasmussen found that 84% of Republicans and 57% of independents favor repeal, while 63% of Democrats oppose repeal.

Litigation continues. Even assuming that Republicans regain control of one or both Houses of Congress, garnering a veto-proof majority seems unlikely. However, court challenges to the law continue to move forward. Late last week, a Florida District Court allowed a constitutional challenge to the ACA to go to trial (State of Florida, et al. v. U.S. Department of Health and Human Services (No. 3:10-cv-91-RV/EMT). The challenge, brought by 20 states, contends in part that the individual mandate portion of the law violates the Commerce Clause. (Beginning in 2014, most individuals will be required to obtain health insurance or pay a penalty.)

As we discussed earlier this month, a federal court in Michigan has concluded that the individual mandate does not violate the Commerce Clause. It seems inevitable that the Supreme Court will ultimately decide the law's fate. In the meantime, of course, compliance efforts must continue--go here for help with that.

Health risk assessments: avoid family history

Did you include a health risk assessment (HRA) as part of your open enrollment planning for 2011?

If so, take note of a recently-released set of FAQs from EBSA. These question/answer sets detail what group health plans must do to comply with the Genetic Information Nondiscrimination Act.

GINA bars a plan from collecting genetic information (including family medical history) prior to or in connection with enrollment. Thus, under GINA, health plans must ensure that any health risk assessment (HRA) conducted prior to or in connection with enrollment does not collect genetic information, including family medical history.

Health plans are allowed to have employees complete an HRA, but must comply with two provisos. First, the genetic information that is obtained must not be used for underwriting purposes. Second, if it is reasonable to anticipate that the collection will result in the plan receiving health information, the plan must explicitly notify the person providing the information that genetic information should not be provided.

Wellness program rewards. For plans that give out wellness program awards, an HRA that requests family medical history may be used, says EBSA, but only if it is requested to be completed after enrollment, if it is in no way related to enrollment, and if there is no premium reduction or any other reward for its completion.

In the FAQ, EBSA suggests that plans use two separate HRAs: one that would collect genetic information, and one that would not. The first would have to be conducted after enrollment and could not be connected to any kind of reward program.

The FAQs are here. Go here for more answers on the rules governing genetic information and employee benefit plans.

EBRI: COBRA premium subsidy “take up” rate less than expected

Several surveys and studies released in 2010 have concluded that the COBRA participation—or “take-up” rate---increased when subsidized coverage was made available for those who lost their jobs between September 2008 and May 2010. However, the rate of improvement reported has varied widely. EBRI, using Census Bureau data, has now issued a study concluding that take up rates increased less than was expected when Congress enacted the subsidy as part of the 2009 stimulus law (EBRI Notes, October 2010, ebri.org).

Lower than expected. When the American Recovery and Reinvestment Act of 2009 was passed, the Congressional Budget Office anticipated that $14 billion in COBRA subsidies would be provided in 2009. This expenditure was expected to provide 7 million people with subsidized coverage. Instead, EBRI says that census data shows that the number of nonworking adults with coverage through a former employer increased from 5 million in December 2008 to 5.7 million in August 2009. (One caveat: full 2009 results for this census data won't be released until January 2011, so these numbers could change.)

Bad sign for heath reform? So, what are the implications of the lower-than-expected take-up rate? EBRI speculates that it may mean that even with a 65% subsidy, COBRA premiums are not affordable for many families. A need for COBRA usually goes hand in hand with a loss of income, after all.

EBRI also sees a connection between lower COBRA take up rates and the probability for success of the subsidies under the ACA, scheduled to become available in 2014. As with the COBRA subsidies, the ACA subsidies may not have as large an affect as predicted when health reform was passed. This in turn means that the rate of uninsured will not drop as much as predicted.

Want to learn more about COBRA benefits? Go here.

Insurance companies may charge more for sick kids

Parents who are thinking of looking for child-only health insurance coverage might want to pay especially close attention to insurers’ open enrollment periods, based on a recent news release from the Health and Human Services Department (HHS).

In the wake of health care reform, many insurance companies have dropped or are threatening to drop child-only policies, a move which drew fire from HHS Secretary Kathleen Sebelius on October 13, writing to the National Association of Insurance Commissioners, “Unfortunately, as we discussed, some insurers have decided to stop writing new business in the 'child-only' insurance market – reneging on a previous commitment made in a March letter to 'make pre-existing condition exclusions a thing of the past,'" adding, “… the decision of some health insurance companies to stop selling new polices for children is extremely disappointing.”

This latest move by the insurance industry has forced the Obama Administration to make yet another concession with regard to the PPACA. HHS is now stating that insurers may, until 2014, raise the cost of coverage for sick children, subject to state law, but only outside their open enrollment periods. As of 2014, higher rates based on a child’s health status will be completely prohibited.

What this means for parents of children with pre-existing conditions, is that, until 2014, it is important to sign their children up for insurance during a provider's open enrollment period. Otherwise, they will run the risk of paying substantially higher premiums.

Many insurers apparently expressed worries during a September 22 meeting with Sebelius and President Obama about the financial consequences of “adverse selection,” whereby parents would not insure their healthy children until they become sick, which would drive up insurance rates. Sebelius responded to these concerns by stating in her letter that “. . . we believe that there are options other than abandoning families who seek this coverage, as evidenced in states with similar laws already in place. In response to questions we have received, we have clarified that a range of practices related to “child-only” policies are not prohibited by the Affordable Care Act . . . “.

Those practices include allowing health insurance issuers to determine the number and length of open enrollment periods for children under 19 (as well as those for families and adults), consistent with state law, allowing rates to be adjusted for health status as permitted by state law until 2014, allowing insurance companies to impose a surcharge for dropping coverage and subsequently reapplying for it if permitted by state law, and allowing for the implementation of rules, consistent with state law, to help prevent employers from encouraging workers to enroll children in child-only policies instead of employer-sponsored insurance. It would seem that any real financial fears on the part of insurers would be addressed by these provisions.

The letter also pointed to state Children’s Health Insurance Program (CHIP) coverage and the Pre-Existing Condition Insurance Plan (PCIP) program, the latter having been created by the PPACA. Every state, said Sebelius, “. . . has coverage available to children without regard to pre-existing conditions through their Medicaid and CHIP programs; in most states, these programs are available to families with incomes below $88,000 (twice the poverty level).”

Some health insurers proposed accepting health applicants year-round and restricting the sale of policies to children with pre-existing conditions to an open enrollment period. In her letter, Sebelius characterized this approach as "legally infirm, and inconsistent with the language and intent of the Affordable Care Act," adding that it would be unlawful for states to allow insurance companies to deny coverage of children with pre-existing conditions outside the companies' open enrollment periods. So, the good news is that, if your child has a pre-existing condition, a health insurance provider that sells child-only policies must cover him or her, but the bad news is that, outside the open enrollment period, premium rates will probably be substantially higher.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

No tax on health care benefits - until 2018

There have apparently been concerns among many employees that passage of health care reform would mean that they would have to pay tax on the value of health benefits they receive from their employers. One source of this rumor was probably the fact that there is now a space for employers to include, if they wish, the cost of health benefits on the 2011 W-2 Form, which the IRS has just released. Inclusion of the information will be mandatory starting in 2012.

One example, from charlestonteaparty.org, states "Starting in 2011, (next year folks), your W-2 tax form sent by your Employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that’s a private concern or governmental body of some sort. If you’re retired? So what; your gross will go up by the amount of insurance you get."

The entry goes on to state that: "You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That’s what you’ll pay next year. For many, it also puts you into a new higher bracket so it’s even worse. This is how the government is going to buy insurance for the 15% that don’t have insurance and it’s only part of the tax increases."

However, in a blog on the White House website, http://www.whitehouse.gov/blog/2010/10/12/putting-old-rumor-rest, Stephanie Cutter, Assistant to the President for Special Projects, has pointed out that the amount definitely will not be taxed. The reason for the new reporting requirement in Box 12 of the W-2 Form is, according to Cutter, writing to consumers, “so you can know more about your benefits and you are an empowered consumer.”

This is not entirely true either, however. While the White House is busy crowing over the fact that it has, at least in this sense, proven the health care reform naysayers wrong, it should be pointed out that there will be a tax on the cost of some health benefits, just not until 2018.

A 40-percent excise tax will be imposed on health coverage providers starting in 2018, to the extent that the aggregate value of employer-sponsored health coverage for an employee exceeds a threshold amount (Code Sec. 4980I, as added by Act Sec 9001(a) of the Patient Protection and Affordable Care Act (P.L. 111-148), and amended by the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152).

This is the tax on so-called "Cadillac" health plans. The dollar limits for determining the tax thresholds will generally be $10,200 multiplied by a health cost adjustment percentage for an employee with self-only coverage, and $27,500 multiplied by a health cost adjustment percentage for an employee with coverage other than self-only coverage.

The good news for employees is that the insurance companies, not consumers, will be responsible for paying the tax, and the vast majority of plans are not likely to reach the threshold.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

Eastern District of Michigan knocks out two claims against ACA

According to healthcarelawsuits.net, several lawsuits filed against the Affordable Care Act have been dismissed, but there are still in excess of 20 active claims challenging the constitutionality of the law. Some of the more interesting recent activity occurred on October 7, when the U.S. District Court for the Eastern District of Michigan ruled against the plaintiffs' motion for preliminary injunction and dismissed two of six claims in Thomas More Law Center v. President of the United States (No. 2:10-cv-11156). The plaintiffs, a conservative Christian not-for-profit law center, plan to appeal.

The suit includes a claim under the Commerce Clause of the U.S. Constitution, which is a claim common to other suits against the ACA, as well as claims that the ACA is an unconstitutional tax, that it violates the Tenth Amendment, and that it violates the Equal Protection and Due Process provisions of the Fifth Amendment. The suit also includes a claim that the passage of the ACA violates the First Amendment right to the free exercise of religion - specifically, that it forces citizens to fund abortion, even if their particular religion prohibits it. The plaintiffs asked for a preliminary injunction of the ACA.

Does the individual mandate violate the Commerce Clause? Notably, the Commerce Clause claim is one of the two claims the court dismissed. The plaintiffs had argued that, when the Supreme Court has found that certain statutes survived under the Commerce Clause, they regulated economic activities, and the plaintiffs were, in this instance, being forced to purchase health insurance merely because they existed, not because they were engaging in any particular activity. The court noted that this was a case 0f first impression, because it had never had to address the activity/inactivity argument put forth by the plaintiffs.

The U.S. government responded that the ACA does not violate the Commerce Clause because, first, the economic decisions that the ACA regulates regarding payment for health care services have a direct and substantial impact on the interstate health care market, and, second, the individual mandate is essential to the ACA's regulation of the business of health insurance, an interstate activity.

The court agreed with the government, stating the decision by the plaintiffs to forgo insurance coverage in favor of paying for health care out-of-pocket would drive up the cost of health insurance, shifting the cost to health care providers, and driving up taxes. The court pointed out that the health care market is different from other markets, in that no one can ever ensure that he or she will never participate in it. The plaintiffs did not demonstrate inactivity with regard to the health care market, said the court. If they chose to forgo insurance, they would be making an economic decision to try to pay for health care later, on their own. The court added that the Supreme Court has repeatedly rejected arguments that individuals who choose not to engage in commerce place themselves beyond the reach of the Commerce Clause.

Although other district courts will not be bound by the Eastern District of Michigan's decision, it is hard to believe that the court's twenty-page order will have no influence. The judge did, however, rule that the plaintiffs have standing to challenge the individual mandate provision of the ACA.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

Mini-Med Plans Get Waivers From Annual Limit Rules

Sen. Jay Rockefeller’s skepticism notwithstanding, the Department of Health and Human Services went ahead and gave 30 organizations waivers from health plans’ annual limits requirements. Without the waivers, companies would have had to provide individual policies with a minimum of $750,000 in coverage next year, increasing to $1.25 million in 2012, $2 million in 2013, and unlimited coverage in 2014. Reportedly, the Obama Administration defends the waivers as the best way to keep people insured until the law fully takes effect. Regulations implementing the Affordable Care Act established those annual limits to incrementally eliminate coverage limits beginning in 2014. As we discussed previously in this blog, Sen. Rockefeller questions the value of the mini-med policies BCS, one of the waiver grantees, sells to McDonald’s hourly employees.

In early September guidance, HHS explained the reason for the waivers this way:
A class of group health plans and health insurance coverage, generally known as “limited benefit” plans or “mini med” plans, often has annual limits well below the restricted annual limits set out in the interim final regulations. These group plans and health insurance coverage often offer lower-cost coverage to part-time workers, seasonal workers, and volunteers who otherwise may not be able to afford coverage at all. In order to ensure that individuals with certain coverage, including coverage under limited benefit or mini med plans, would not be denied access to needed services or experience more than a minimal impact on premiums, the interim final regulations contemplated a waiver process for plan or policy years beginning prior to Jan. 1, 2014 for cases in which compliance with the restricted annual limit provisions of the interim final regulations “would result in a significant decrease in access to benefits” or “would significantly increase premiums.”

As of September 30, 968,765 individuals are affected by the waivers of the annual limit requirements. Among the organizations granted waivers, and the number of employees affected, are UFT Welfare Fund (351,000); CIGNA (265,000); Aetna (209,423); BCS Insurance (McDonald’s Corp, 115,000); and 26 other much smaller organizations. You’ll notice that these four large organizations granted waivers are all insurance companies. Another 114 applications for waivers are under review.

As costly as medical services are these days, is a $2,000 annual coverage limit health policy worth even the $14 weekly premium that low wage enrollees pay? Wouldn’t individuals be better off skipping these low-coverage, low-value so-called mini-med policies, save the premium dollars they otherwise would pay, and, should they need medical care, negotiate a payment rate with providers? Is low-value coverage better than no coverage at all? I wonder...

What do you think?

Early Retiree Reinsurance Program Popular Among Many Sponsors

Since late August, the Department of Health and Human Services (HHS) has approved nearly 3,000 applications for the early retiree reinsurance program (ERRP) established under the Affordable Care Act. HHS says applications for the program have been received from more than 50% of Fortune 500 companies, all major unions, and government entities in all 50 states and the District of Columbia. The approved applications represent nearly every sector of the economy: 32% of applications came from businesses, 26% from state and local governments, 22% from union sponsors, 14% from schools and other educational institutions, and 5% from nonprofit organizations.

Among the applicants for the ERRP are these nine states that are suing to overturn the Affordable Care Act: Alaska, Arizona, Florida, Idaho, Indiana, Louisiana, Michigan, Nebraska, and Nevada. Cities or counties in many other states that also are challenging the health reform law also have applied for the ERRP. Might as well take advantage of the program while it’s available—even while they fight it.

You may recall that this temporary reinsurance program reimburses part of the claims cost for participating employment-based plans that provide health insurance coverage for early retirees (ages 55 to 65), and their eligible spouses, surviving spouses, and dependents. The program is to reimburse plan sponsors 80% of individual claims between $15,000 and $90,000. The program is effective June 1, 2010, and ends on the earlier of Jan. 1, 2014, or when the $5 billion appropriated for the program is exhausted.

The intent of the ERRP is to encourage employers to continue to provide their early retirees with medical benefits, at least until the health insurance exchanges establised by the ACA become operational.

Beginning this month, approved applicants will begin to submit claims and receive reinsurance payments on those claims.

A complete list of approved applicants is available here.

Although many companies are taking advantage of ERRP, others have decided to phase out their current retiree coverage offerings because of health care reforms. For example, 3M Company has announced that it would replace its Retiree Group Medical Plan with a health reimbursement arrangement, beginning Jan. 1. 2013 for Medicare-eligible retirees amd spouses, and beginning Jan. 1, 2015, for non-Medicare eligible retirees and eligible dependents. Non-Medicare retirees and their families may use the HRA funds to purchase individual insurance through the insurance exchanges.

3M attributes to the ACA changes the company’s switch to an HRA. Health reform “should dramatically improve the individual insurance marketplace for non-Medicare eligible retirees and their eligible dependents,” a 3M spokesman explained. “At the same time, the 3M-sponsored retiree group medical plans will no longer have the advantages over the individual insurance marketplace that they once did.” The ACA presents an opportunity to shed costs, in 3M’s view.

Read all about it here!

McDonald's Insurer Quizzed On Loss Ratio Compliance

In an October 1 letter to BCS Financial Corporation, which provides medical benefits for McDonald’s hourly employees, Sen. Jay Rockefeller (W.Va.), Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, has requested premium and claims information to clarify the fast food restaurant chain’s health care coverage, which reportedly will not meet the medical loss ratio requirements instituted by the Patient Protection and Affordable Care Act.

According to the letter, a recent memo from McDonald’s to the Department of Health and Human Services warned that the company would not be able to meet the new minimum loss ratio requirements. Reportedly, McDonald’s provides low level medical coverage, (also called a mini-med plan) for workers at 10,500 U.S. locations, most of them franchised. A single worker pays up to $14 a week for a plan that caps annual benefits at $2,000, or about $32 a week to get coverage up to $10,000 a year.

Citing a recent Wall Street Journal article, Mr. Rockefeller tells BCS, “Your company is apparently spending a significantly lower percentage of McDonald’s employees’ health care premiums on their medical care than the benchmarks established in ACA. If this is the case, McDonald’s hourly wage workers are setting aside portions of their paychecks for an insurance product that may not be providing them a good value.”

Mr. Rockefeller added, “In addition to spending an insufficient portion of their premium dollars on medical care, the products BCS is selling to McDonald’s employees are not likely to protect them against the costs of a major health care episode. The $2,000 maximum annual coverage you apparently offer in your McDonald’s 'Basic Plan' would not come close to covering the costs of hospital emergency services or the delivery of a child.”

Just a day earlier, HHS acknowledged that it was working on regulations to clarify the loss ratio requirements. According to Jay Angoff, director of HHS’s Office of Consumer Information and Insurance Oversight, “The issue of the applicability of the medical loss ratio requirements to plans such as mini-med plans has come up. HHS has not yet issued regulations implementing the medical loss ratio requirements because the Affordable Care Act tasks the National Association of Insurance Commissioners (NAIC) with first making recommendations to the Secretary.”

“Although the NAIC is close to completing its work, Mr." Angoff said, “we understand that some employers must soon make decisions regarding coverage options for 2011. As such, we fully intend to exercise [HHS Secretary Kathleen Sebelius'] discretion under the new law to address the special circumstances of mini-med plans in the medical loss ratio calculations. According to the Affordable Care Act, medical loss ratio 'methodologies shall be designed to take into account the special circumstance of smaller plans, different types of plans, and newer plans.' We recognize that mini-med plans are often characterized by a relatively high expense structure relative to the lower premiums charged for these types of policies. We intend to address these and other special circumstances in forthcoming regulations.”

Among the items Mr. Rockefeller requested from BCS by October 15 were the following:
1. the health insurance products BCS currently offers for sale to McDonald’s employees;
2. copies of all materials and communications McDonald’s employees receive in connection to the marketing or purchase of BCS health insurance products;.
3. the number of McDonald’s employees who currently are covered by BCS health insurance products.
4. the business arrangement under which McDonald’s allows BCS to sell health insurance products to McDonald’s employees;
5. for each of the last five calendar years, provide the following information regarding McDonald’s employees covered by BCS plans:
• the amount of premiums employees paid for coverage;
• the amount of all medical claims;
• the number employees who were covered at the end of each calendar year;
• the number employees who made payment claims for health services;
• the number employees covered who reached the products’ annual spending limits; and
• the average time period employees were covered before ending the coverage.

HHS already has initiated a waiver process for mini-med plans in regard to the minimum annual limit provision. According to Mr. Angoff, “HHS has approved dozens of these waiver requests, most often filed by so-called 'mini-med' plans, and in doing so, has ensured the continuation of health coverage for workers and their families. Complete waiver applications were generally processed in 48 hours.”

More information on health reform and loss ratio requirements is available here.

HR pros focusing on health reform’s short-term implications

As they learn more about the new health reform law, human resource professionals are addressing its short-term implications, according to a poll by the Society for Human Resource Management (SHRM).

According to SHRM, 75 percent or more of organizations are:

• Working with a legal or benefits counsel to better understand the law’s implications;
• Sending staff to classes—including seminars and webcasts—to learn details of the law and its impact; and
• Partnering with current health benefits providers to design 2011 plans to include areas affected by the law.

Analyzing financial impact. More than 50 percent of respondents say that their organizations are developing a cost analysis for their executives and analyzing the short-term financial impact of the law and the feasibility of offering health care. The larger the organization, the more likely it was taking these steps, SHRM found.

Start shifting to long-term strategies. “Although many organizations have been appropriately focused on the short-term implications of the law, attention should now be turning to more long-term strategies that consider both financial and human capital consequences,” says Mark Schmit, SHRM’s director of research.

Maintaining grandfathered status. About one-third of HR professionals say that they are trying to maintain their organizations’ grandfathered status.  Health care plans that were in existence on March 23, 2010—the day that health reform was signed into law—are “grandfathered” in, meaning that they are exempted from some requirements. Among survey respondents, 11 percent said their organizations have decided not to maintain their grandfathered status.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.