Changes You Must Make to Your Benefit Plans Now!

Health Care Reform and Your Benefit Plans: Things You Must Do Now!

Although charts that list changes to be made over the next 8 years abound, this bulletin will concentrate on the employer changes to benefit plans that need to be made very soon for plan years starting in October 2010 through January 1, 2011.

Time is of the Essence - Several provisions of health care reform need to be addressed by all employers and group health plan sponsors for implementation effective with the first plan year beginning on or after September 23, 2010. This means that, generally, group health plans will have to comply with some of the requirements of health care reform as early as October 1, 2010. However, most employers, as group health plan sponsors, maintain calendar year plans to which some changes enacted by health care reform become effective as early as January 1, 2011. Because benefit plan design must be finalized, enrollment materials must be prepared and distributed and open enrollment concluded well in advance of the first day of the plan year, it is vital that the following provisions are addressed in the upcoming months. Guidance is expected to be issued before the effective dates of these provisions.

Advance Notice of Benefit Changes - Group health plan participants must be notified 60 days in advance of any material changes in plan terms - by November 1, 2010, for the plan year beginning January 1, 2011. Material changes include changes to covered services, as well as deductibles and co-payments.

Since most material changes are made at the beginning of a plan year, this will impact the content and timing of annual enrollment materials. While it is likely that most employers and group health plan sponsors will want to coordinate the required notice with their annual enrollment periods, the statute does not establish standards or requirements for the annual enrollment process. Inasmuch as the new advance notice requirement is in addition to existing ERISA disclosure requirements, employers and group health plans sponsors may also want to ensure that the required notice meets ERISA requirements for a summary of material modifications in order to avoid duplication of efforts later. The penalty for a willful failure to comply with this provision can be as high as $1,000 per day per failure, and will be imposed in the case of insured plans, on insurers, or, in the case of self-insured plans, the plan sponsor or administrator.

This is a particular worrisome provision and thus we mention it first. Normally, insurance companies have been slow in getting out renewal notices with rate changes and plan design changes, e.g., material changes. However, without some relief, all planning has to be done and communicated to your employees by November 1, 2010, for calendar year benefit plans. For cafeteria plans it is a short list and we know what needs to be done. For other benefit plans, sponsored by insurance companies some changes are not known this early in the year - claims experience as an example - it could be a very busy fall indeed! Below is a partial list of some of he changes that need to be made to Benefit Plans before January 1, 2010.

This following list does not apply to plans that qualify as Grandfathered Plans[1]:

· Non-discrimination Rules for Fully Insured Plans - Insured plans can no longer contribute unequal amounts or have different benefits for different employee groups without passing discrimination testing. Same testing as self-insured plans.

· Preventative Care Screening - Must be provided within guidelines without cost-sharing.

· Emergency Services - Must be provided with prior authorization or out-of-network cost sharing.

· Plans that Require PCP/Gatekeeper - Must allow individual to designate any available PCP; must permit pediatrician as PCP; must provide direct access to OB/GYN.

· Clinical Trials - Cannot deny coverage.

· Plans must provide for Internal/External Reviews

The following list applies equally to both Grandfathered and Non-Grandfathered Plans:

· Pre-Existing Conditions - Not permitted for children under 19.

· Maximum Lifetime Benefit - Not allowed.

· Annual Limits - Allowed on "essential benefits" only if specifically permitted by regulation.

· Dependent Coverage to Age 26 - Even for married non-dependent children, college no longer a factor.

· Rescission of Coverage - Must have prior notice; plan needs to have provision for allowing rescission for fraud or misrepresentation.

· IRS Reporting - Employer must report value of each employee's health coverage on W-2 beginning for plan year Jan. 1, 2011 (depends on issuance of regulations).

Changes to Flexible Benefit Plans:

Over-the counter drugs and medicines

The only large change to Flexible Benefit Plans (FSAs, HSAs, HRAs and MERPs) is the exclusion of over-the-counter drugs and medicines. This, in effect, takes us back to 2002 before the IRS ruled that these expenses were eligible. The good news here is that they are still eligible with a prescription. There may be some planning devices that will help to offset the out right loss of some of these items. The effect on plans should be negligible. A survey was taken in 2002 before the advent of over-the-counter drugs and medicines being an approved expense to see what employees were leaving in Flexible Spending Accounts under the use it or lose it rule. The survey found that less than 10% of flex participants left any money at all in these accounts and the amount left was less than $30.

Some other possible changes will be some of the requirements for insured and self-insured plans. Age 26 for dependent children, for example, might be required for the medical flex account. Again, these changes that are material (OTC drugs and medicines) must be communicated to calendar year plans by November 1st.

In summary, these are just the immediate changes in compliance for benefit plans. Our benefit world has been turned upside down. The old Chinese blessing, "May you live in interesting times" seems to apply here. Our recommendation has always been in planning your benefits to live one year at a time. Certainly, there can, and I think will be, some changes in some of this as our legislators change over the years and the IRS and HHS get around to writing interpretive regulations. As always, we will strive to keep you posted as things develop.

[1] Plans in effect as of 3-23-2010 -it is still not clear whether or not any (or what kind of) plan modifications will effect Grandfathered status