Health care reform brings a number of changes to employers and plan sponsors. One such change is the requirement to report the aggregate cost of employer-sponsored health coverage on an employee’s Form W-2.

This requirement was originally effective for tax years beginning after December 31, 2010. However, the IRS has made reporting optional for the 2011 tax year, so employers are not required to include this information on W-2 Forms issued for 2011.

Click to read More: 2011 W2 Reporting Optional

Last week Paul Lambert attended the International Society of Certified Employee Benefit Specialists Annual Symposium. He was really struck by some of the statements and statistics offered up by the final speaker. Doctor Larry Luter, Chief Medical Officer of Meritan Health, stated that “Healthcare costs are not out of control, but healthcare spending is out of control.”

To make his point he referenced a CDC study on obesity. During the past 20 years there has been a dramatic increase in obesity in the United States. In 2009, only Colorado and the District of Columbia had a prevalence of obesity less than 20%.

In 1985 the CDC reported that Massachusetts, New York and Connecticut had obesity rates of under 10%. In 2009 the CDC reported obesity rates of 21.4% in Massachusetts, 24.2% in New York and 20.6% in Connecticut.

Obesity is a major risk factor for cardiovascular disease, certain types of cancer, and type 2 diabetes. It is a major cause of increased medical spending.

Dr Luter went on to point out that drivers of Healthcare costs include:
• Poor compliance with diet and exercise
• Erosion of doctor-patient relationship
• Lack of personal accountability
• People not being aware of health risks.

The next wave of impact hits on Healthcare reform.

September 23, 2010 was an important date under the Patient Protection and Affordable Care Act. Several key provisions took effect for new and renewing plans as of this, the sixth month anniversary of President Barack Obama’s signing the PPACA into law. These provisions include:

• Dependents may stay on their parents’ plans up to age 26 (many carriers implemented this change several months ago to their fully insured plans, however all plans must do so)
• Specified preventive care must be available to insureds with no cost sharing
• Annual benefit limits on “essential” benefits must be at least $750,000
• In network lifetime benefit limits are no longer permitted
• Children up to age 19 may not be subject to pre-existing conditions
• Carriers ability to rescind coverage is limited to cases involving fraud or intentional misrepresentations of material fact
• Rules concerning discrimination in favor of highly compensated individuals now applies to health insurance coverage
• Emergency room treatment must be covered at in-network levels regardless of whether the provider is actually in the network
• Carriers must have in place a coverage appeals process
• Plans with gatekeepers must allow enrollees to designate any in-network doctor as their primary care physician (including OB/GYNs and pediatricians)

Some of these changes require the use of model notices to your employees.

360 Corporate Benefit Advisors can help you explain how PPACA’s changes impact your employee benefit plans as part of your open enrollment process.

360 Corporate Benefit Advisors has released its 24th Annual Survey of Employee Benefit Plans. This year over 560 organizations participated in the survey. This data will be used to benchmark our clients’ current programs and help them to develop strategic plans for the future.

Key findings include:

• Over 92% of companies require employee contributions for medical benefits 
• 45% of respondents require contributions of 25% or more; 54% require dependent contributions of 25% or more; while 13% require a dependent contribution of 50% or more.
• 70% of plans now have in network deductibles.
•  45% of companies have consumer driven benefit plans.
•  42% of plans have copays of $25 or more.

It was reported in this week’s New York Times that a number of carriers including Aetna and some Blue Cross plans are asking states for increases of 1% to 9%, just for provisions required under the Health Reform legislation. These increases are in addition to the rate hikes they are seeking to cover rising medical costs. The increase will hit individual plans and small employers the hardest.

The interim final rules on Health Reform contain details about the preventive care provisions that will expand most non-grandfathered plans preventive care benefits.  

Beginning with renewals on or after September 23, 2010, non-grandfathered benefit plans cannot include member cost sharing or copays for the following preventive care provided in-network: 

• Evidence-based items or services that have a rating of A or B in the current recommendations of the United States Preventive Services Task Force.
• Immunizations for routine use in children, adolescents, and adults that are recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention.
• For infants, children and adolescents, evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by the Health Resources and Services Administration.
• For women, to the extent not otherwise addressed by the United States Preventive Services Task Force recommendations, evidence-informed preventive care and screenings provided for in comprehensive guidelines supported by the Health Resources and Services Administration.  

The Mental Health Parity + Addiction Equity Act of 2008 (the MHPAEA) was signed into law on October 3, 2008, as part of the Emergency Economic Stabilization Act of 2008. The MHPAEA requires group health plans to apply the same treatment limits on mental health or substance-related disorder benefits as they do for medical and surgical benefits. The MHPAEA also extends this parity requirement to inpatient and outpatient services, whether in-network or out-of-network, and to emergency care services.

The American Recovery and Reinvestment Act (ARRA) provides a COBRA premium reduction for eligible individuals who are involuntarily terminated from employment through the end of May 2010. Due to the statutory sunset, the COBRA premium reduction under ARRA is not available for individuals whose employment terminates after May 31, 2010. However, individuals who qualified on or before May 31, 2010 may continue to pay reduced premiums for up to 15 months, as long as they are not eligible for another group health plan or Medicare.

The Unemployment Compensation Extension Act of 2010 signed by the President on July 22, 2010, did not extend the COBRA premium reduction.

Ever since the Health Reform bill was signed into law, benefit professionals have been concerned about the lack of details found in the plan. Even though the law contained over 2,000 pages of legislation, they left vast amounts of regulations to the Department of Health and Human Services, the IRS and the DOL.

One of the important unanswered questions was “what is a grandfathered plan” and what changes can an employer make yet still retain that status? Maintaining grandfather status would allow an employer to avoid certain mandated benefit plan provisions.

Recently some of those questions have been answered in an announcement by HHS. According to the release employers will be able to make modest changes to their plans while still being able to maintain their grandfather status. Compared to an employer’s medical polices in effect on March 23, 2010, grandfathered plans:

• Cannot Significantly Cut or Reduce Benefits.  Examples they provided included a prohibition of a plan to no longer cover care for people with certain types of diseases such as diabetes, cystic fibrosis or HIV/AIDS. From a practical perspective, this shouldn’t have much of an impact since most employers don’t do this anyway.
• Cannot Raise Co-Insurance Charges.  Typically, co-insurance requires a patient to pay a fixed percentage of a charge (for example, 20% or 30% of a bill).  Grandfathered plans cannot increase this percentage. Recently there has been a trend by employers in some states to include in-network coinsurance. Organizations will have to think twice before allowing for such a change to take place.
• Cannot Significantly Raise Co-Payment Charges.  Frequently, plans require patients to pay a fixed-dollar amount for doctor’s office visits and other services. Compared with the copayments in effect on March 23, 2010, grandfathered plans will be able to increase those co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points.  For example, if a plan raises its copayment from $30 to $50 over the next 2 years, it will lose its grandfathered status.
• Cannot Significantly Raise Deductibles.  Many plans require patients to pay the first bills they receive each year (for example, the first $500, $1,000, or $1,500 a year). Compared with the deductible required as of March 23, 2010, grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points.  In recent years, medical costs have risen an average of 4-to-5% so this formula would allow deductibles to go up, for example, by 19-20% between 2010 and 2011, or by 23-25% between 2010 and 2012.  For a family with a $1,000 annual deductible, this would mean if they had a hike of $190 or $200 from 2010 to 2011, their plan could then increase the deductible again by another $50 the following year. 
• Cannot Significantly Lower Employer Contributions.  Many employers pay a portion of their employees’ premium for insurance and this is usually deducted from their paychecks. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).
• Cannot Add or Tighten an Annual Limit on What the Insurer Pays.  Some insurers cap the amount that they will pay for covered services each year.  If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010.  Moreover, plans that do not have an annual dollar limit cannot add a new one unless they are replacing a lifetime dollar limit with an annual dollar limit that is at least as high as the lifetime limit (which is more protective of high-cost enrollees). 
• Cannot Change Insurance Companies.  If an employer decides to buy insurance for its workers from a different insurance company, this new insurer will not be considered a grandfathered plan.  This does not apply when employers that self insure their coverage switch plan administrators or to collective bargaining agreements. This last limitation is the most problematic for small businesses as carriers that use community rating models tend to shift their competitiveness from year to year.

Based on the restrictions above, we anticipate that a majority of employers will lose their grandfather status within the next three years.

A rebroadcast of our presentation on the impact of Grandfathered plans is available by clicking: View Grandfathered Plans Webinar

Click here for our Health Care Reform- Grandfather Rules Newsletter