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Health Care Compass FAQs

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Q: What are the next health plan annual dollar limit restrictions, and when do they take effect? 
Currently, group health plans and non-grandfathered individual plans cannot set annual dollar limits on health insurance coverage lower than $750,000. The next tier of restrictions takes effect on September 23, 2011, when annual dollar limit minimums are raised to $1.25 million; in 2014, no limits will be permissible. Plans seeking waivers for this requirement must submit an application by September 22, 2011. 

Q: When will protections for health insurance consumers with pre-existing conditions be put into place? 
For all group health plans and non-grandfathered individual plans, bans on pre-existing conditions exclusions are already in effect for children under age 19. Insurers cannot deny a child health insurance or place different limits on his or her benefit coverage because of a pre-existing health problem unless the plan is a grandfathered individual plan. In January 2014, PPACA extends these protections to consumers of all ages and all health plan types. 

Q: Do I have to cover an employee's adult child up to age 26 if the adult child has coverage options with their own employer? 
It depends on whether your health plan is grandfathered under PPACA. If the employee is covered under a grandfathered health care plan, you do not have to offer coverage until 2014 to an adult child who has their own employer-sponsored coverage option. If the employee is covered under a non-grandfathered plan, you must offer coverage to their adult children regardless of their other coverage options. 

Q: Once the W-2 reporting requirements take effect with the 2012 tax year, will employees have to pay taxes on the cost of employer-provided health care coverage reported on their W-2? 
No. The W-2 reporting provision states that employers must specifically list health care coverage costs on Form W-2; they do not have to pay taxes on these amounts. 

Q: What is being done to control health insurance rate increases over time? 
The Department of Health and Human Services (HHS) recently released final regulations requiring small and individual health plans to justify rate hikes of more than 10% to the public if the relevant state or federal officials determine that such rate increases are excessive, unjustified or unfairly discriminatory. The object of this regulation is to promote transparency and cause public opinion to drive change. Although HHS cannot prevent these rate hikes, some states have such power and HHS is providing grants to states to bolster their rate review processes. For more information, see this issue's Compass Points, and view the HHS press release and fact sheet. 

Q: Is the Form 1099 provision still going into effect in 2012? 
No. The provision of PPACA requiring employers to expand the expenses reported on Form 1099 in 2012 has been officially repealed. At this time, employers do not need to change their 1099 reporting practices to comply with PPACA. Read our article on the 1099 repeal from the April 2011 edition of Health Care Compass for more information. 

Q: What affect does health care reform have on my Health Savings Account (HSA) plan? 
Health care reform legislation increased the penalty from 10% to 20% for participants under the age of 65 who withdraw HSA funds for non-medical expenses as of January 2011. While HSA plans do not require claims substantiation to reimburse consumers for eligible items like FSAs, they still must comply with regulations on the use of tax-advantaged health accounts to purchase over-the-counter medicines and drugs, which took effect at the start of 2011. 

Q: What must I do to comply with the new nursing requirements for working mothers? 
The Patient Protection and Affordable Care Act (PPACA) amended the Fair Labor Standards Act to require employers to provide non-exempt nursing mothers with reasonable break time and a private, sanitary place to express breast milk during work for one year after giving birth. For employers, this means you must provide a location for nursing mothers other than the restroom or employee break room that is completely private. The space does not have to be completely dedicated to nursing, but must be made available solely for this purpose when needed. The law does not specifically define time requirements for the breaks as they will vary on a case-by-case basis. 

Employers do not have to compensate employees for nursing breaks unless the employee chooses to use compensated break time already provided to them. Employers with fewer than 50 employees do not have to comply with this requirement if it imposes "an undue hardship," and the requirements do not apply for exempt employees. 

This requirement is already in effect, so if you are not currently in compliance, you should take measures to do so immediately. For more information, view the lactation toolkit provided by the Corporate Voices for Working Families. 

Q: What is the maximum contribution an employer can make to an employee's Flexible Spending Account (FSA), and will that amount change when the maximum employee contribution is reduced to $2,500? 
Employees typically contribute the funding to their health FSAs, but employers may also choose to contribute funds as long as they are within the maximum dollar amount or percentage of compensation assigned to the company's FSA. Beginning January 1, 2013, total contributions to FSAs will be limited to $2,500 per year, with an annual cost of living increase applied each year after 2013. A cap has not been placed specifically on employer funding as long as it is within the $2,500. The limit only applies to health FSAs; dependent care FSAs, Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are excluded. 

Q: Our health plan currently operates on a calendar year. We are considering an amendment to the plan that would cause it to lose grandfathered status. If the amendment is adopted in mid-year, but the change doesn't become effective until the plan year beginning on January 1, 2012, at what point does the plan relinquish its grandfathered status? 
A plan will cease to be a grandfathered health plan when the amendment to plan terms becomes effective - regardless of when the amendment is adopted. Therefore, in this example, the plan would cease to be a grandfathered health plan on January 1, 2012, the first day of the first plan year for which the change is effective. 

For more information, see the most recent Department of Labor FAQs

Q: What are the "bona fide employment-based reasons" that would allow employees to be transferred from a benefit package that is being eliminated to another benefit package without the loss of grandfathered status? 
In general, a benefit package can be eliminated without a loss of grandfathered status for the new plan if it is eliminated because: 

  • The issuer is leaving the market
  • The issuer no longer offers their product to the employer - for example, the employer no longer has enough employees to satisfy minimum requirements
  • Low or declining participation makes it impractical for the plan sponsor to continue to offer the benefit package
  • It is eliminated from a multi-employer plan through the collective bargaining process
  • Any reason, if multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred


For more information, see the most recent Department of Labor FAQs

Q: How do I go about establishing an HRA for my employees? 
Most companies bring in a third-party vendor such as Ceridian to help establish and administer their HRA programs. While any individual can legally administer an HRA for their employees, dealing with tax codes, state insurance regulations and legal documentation required by the IRS, DOL and ERISA can be overwhelming to many business owners. For more information on how Ceridian can help you set up an HRA program, fill out our contact form

Q: Are over-the-counter medicines like Tylenol, Advil and cold medicine still covered under FSAs? 
As of January 1, 2011, OTC drugs are eligible purchases with health FSA funds, but only if the patient obtains a doctor's prescription and fills it through a pharmacy. This means a pharmacist is required to label and dispense the medication as they would a prescription; simply obtaining a prescription and then purchasing the medication over the counter is not sufficient. The prescription must exactly match the OTC medicine being purchased. If the prescription were written for "Tylenol," for instance, the pharmacy would have to dispense Tylenol and not a generic brand of acetaminophen pain reliever. 

Q: When can I increase my wellness plan incentives from 20% to 30% of premiums? 
The increase of the wellness program incentive limit from 20% to 30% of an employee's premium takes effect in 2014. Read the most recent Department of Labor FAQs for more information. 

Q: Do all wellness programs have to adhere to the incentive limit, or are there exceptions? 
Only outcomes-based wellness plans (those based on "an individual satisfying a standard that is related to a health factor") must adhere to this limit as outlined in HIPAA's nondiscrimination regulations. Wellness programs that do not base rewards on the achievement of a health factor (participation-based) are not considered to be discriminatory and are therefore not subject to the regulations. 

Additionally, only programs associated with a group health plan are subject to these regulations, therefore wellness benefits that are not connected to your health plans such as gym memberships, healthy food subsidies, etc., are not regulated by HIPAA. Read the most recent Department of Labor FAQs for more information. 

Q: How do I know if my wellness plan is in compliance with nondiscrimination regulations? 
HIPAA's regulations outline five criteria to determine the compliance of a wellness program that rewards based on health factors: 

  • The total incentive offered does not exceed 20% (increasing to 30% in 2014) of the total cost of employee-only coverage (or employee and dependent coverage combined if the program is offered to dependents).
  • The program must be reasonably designed to promote health or prevent disease, therefore improvements must be reasonably attainable and should not blatantly discriminate based on a health factor.
  • The program must give eligible individuals a chance to qualify for the reward at least once per year.
  • The reward must be available to all similarly situated individuals (i.e., all employees eligible for benefits, all dependents, etc.). For this purpose, a reasonable alternative standard or waiver must be made available to individuals who cannot or should not attempt to achieve the standard due to a health factor.
  • In all plan materials describing the terms of the program, this reasonable alternative standard or waiver is disclosed.


Read the most recent Department of Labor FAQs for more information. 

Q: Do I have to cover adult children on my group health plan if they have coverage options through their own employer? 
It depends. If your plan is grandfathered, you do not have to offer coverage to adult children (dependents age 19 to 26) that have coverage options through their own employer or spouse until 2014. If your plan is not grandfathered, and you offer the coverage based on a relationship to the employee, you must offer coverage to adult children regardless of their other coverage options. See the U.S. government's health care Web portal for more information. 

Will doctors write my employees prescriptions for over-the-counter (OTC) drugs and medicines so they can continue to purchase these tax-free with their consumer-directed health care spending accounts? 
It depends. News outlets have reported that in light of the new spending account OTC regulations, some doctors are refusing to write prescriptions for OTC drugs and medicines because of the possible malpractice liability, but many are writing prescriptions for medicine treating chronic conditions such as allergies. Some are charging additional fees to write prescriptions for OTC items. Some doctors will provide a prescription with just a phone call, but others are requiring an office visit. Employees must check with their medical provider for their specific policy. 

Can my employees use their health care spending account debit cards to purchase over-the-counter medicines and drugs? 
New IRS guidance regarding the use of health care spending accounts to reimburse over-the-counter drugs and medicines (OTC) states that debit cards linked to Health Care Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs) may be used to purchase OTC medicines and drugs if accompanied by a prescription and dispensed by a pharmacist under certain conditions. It is unclear right now how many pharmacies will agree to dispense OTC drugs as this may come at a significant expense to them. For more details, see our article on this topic in this issue of Health Care Compass, or view IRS Notice 2011-5. 

How will Health Savings Account (HSA) debit cards handle OTC medicines and drugs considering the amended regulations? 
The regulations do not address the use of HSA debit cards because HSAs do not require purchases to be substantiated by a third party. However, participants should retain all receipts to prove their compliance with the OTC prescription regulations in case of an IRS audit. Any purchases that do not qualify as an eligible expense under the new eligibility rules will be included in the employee's gross income and subject to a 20% additional tax. 

When does the nondiscrimination provision of PPACA take effect? 
The effective date of the nondiscrimination provision was January 1, 2011, however it has been delayed indefinitely until more implementation guidance can be provided to employers. For now, employers with a fully insured health plan will not be penalized for discriminating in favor of highly compensated individuals. Employers can expect further guidance and an adjusted effective date soon. For more information, view IRS Notice 2011-1. 

When does the automatic enrollment requirement take effect? 
The Department of Labor recently stated that employers do not yet have to comply with this provision of health care reform until further regulations are released regarding the definition of a full-time employee and other considerations. The provision would require employers with more than 200 employees to automatically enroll new full-time employees in health benefits. For more information see the most recent Department of Labor FAQs. 

Can adult children have different benefit terms than children under age 19 through our group health plan? 
Yes, if the same terms apply to all other adults on the plan. While having different benefits for different covered employees, spouses and dependents based on age normally would not be permissible, holding adult children to the same benefit terms as employees (such as a higher co-payment than under age 19 children) is permitted because it creates equality among all adults on the plan. For more information see the most recent Department of Labor FAQs. 

Will a cost-sharing ratio based on an employee's compensation disqualify my plan for grandfathered status? 
No. If this cost-sharing requirement is a fixed amount other than a copayment, such as a deductible or out-of-pocket limit, and uses the same formula that was in effect on the day that PPACA was passed (March 23, 2010), this arrangement will not cause the plan or coverage to cease to be a grandfathered health plan. For more information see the most recent Department of Labor FAQs. 

Must our consumer-driven health plans (HRA, FSA, HSA) extend coverage to adult children under age 26? 
The answer depends upon the type of account. 

Health Reimbursement Accounts are generally subject to the coverage mandate, which states that you must offer the same coverage options to similarly situated individuals. If you offer coverage to dependents under your HRA, you must extend that coverage to adult children. If your HRA does not offer coverage to any dependents, then you do not have to extend coverage to adult children. Some HRAs, such as retiree-only HRAs, are exempt from the coverage mandate. 

Health Flexible Spending Accounts (HFSAs) are exempt from the coverage mandate. However, an employer may choose to extend coverage to adult children under the HFSA of their own volition. 

Health Savings Account (HSAs) are individually owned accounts governed by a section of the Internal Revenue Code that was not changed by PPACA. So far, it appears adult children may not be covered by HSAs. 

Does the age-26 provision require employees to add their adult children to our group plan even if they do not wish to pay the additional premium associated with the coverage? 
No. Employers who offer dependent coverage must notify employees of the option to add their adult children to the employer-sponsored group health plan. Employees are not required to add their adult children to their health coverage. 

When does the W-2 reporting requirement go into effect? 
A provision of health care reform will require employers to report the aggregate cost of employer-sponsored health coverage on their employees' W-2 forms. This requirement was originally set to take effect in 2011. The IRS recently released interim relief for the requirement, stating that W-2 reporting is optional for 2011. It will be mandatory for 2012. The Treasury Department determined that relief was appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures. See this issue's feature story for more information, and click here to view the IRS notice. 

Will the W-2 reporting requirement change the pre-tax qualification of my cafeteria plan for either me or my employees? 
No. the W-2 reporting requirement will not change the pre-tax status of cafeteria plans. The tax savings associated with qualified benefits under a cafeteria plan are still applicable to both employers and employees. 

Our first plan year after the September 23, 2010 effective date for reform provisions is after January 2011. Can I delay my compliance until our 2011 open enrollment or do I have to comply as of January 1, 2011? 
It depends. Certain compliance requirements, such as the requirement for a prescription for OTC drugs, are effective January 1, 2011. The insurance reform mandates, however, are effective for the first plan year effective on or after September 23, 2010. You must be in compliance whenever your 2011 plan year starts if it doesn't begin on January 1, 2011. 

Our first plan year after the September 23, 2010 effective date for reform provisions is after January 2011. Can I delay my compliance until our 2011 open enrollment or do I have to comply as of January 1, 2011? 
It depends. Certain compliance requirements, such as the requirement for a prescription for OTC drugs, are effective January 1, 2011. The insurance reform mandates, however, are effective for the first plan year effective on or after September 23, 2010. You must be in compliance whenever your 2011 plan year starts if it doesn't begin on January 1, 2011. 

I'm concerned that my self-insured plan cannot yet afford to comply with the annual limits provision in 2011. Can I apply for a waiver to get more time, and if so, where? 
Lifetime limits on essential benefits are prohibited effective for the first plan year beginning on or after September 23, 2010. Annual limits on essential benefits are permitted, but are restricted. Plan sponsors with plans with annual limits on essential health benefits may request a waiver of these requirements from HHS. For details on the waiver process, view the HHS regulation. 

What is the scope, setting or frequency of the items or services to be covered under the preventive health services provision? 
PPACA contains new guidelines for covering preventive care services, including vaccinations and screening for a wide range of conditions such as obesity, drug and alcohol abuse, diabetes and depression. For more information, visit the prevention section of the government health care portal. 

If our employees choose to keep their current health plans in this year's open enrollment, how will their plans be affected by health care reform provisions? 
Employees and their dependents will no longer be subject to lifetime coverage limits, and if they have children under 19 with pre-existing conditions, they can no longer be denied coverage. If employees have any adult children under age 26 who were previously ineligible for your plan (and, for grandfathered plans only, have no other employment-sponsored health plan), you must now offer them dependent coverage. 

Furthermore, you cannot make significant reductions to their benefits or premium subsidies without having the plan be considered "new" (i.e., no longer grandfathered) and be required to adhere to even more consumer protections, such as providing preventive services without cost-sharing and complying with new claims and appeals requirements. 

Can employees still use their tax-advantaged health account debit card to purchase over-the-counter (OTC) medicines after December 31, 2010? 
No. As of January 15, 2011, tax-advantaged health account card issuers generally will reprogram cards to decline OTC medicines. If you have a prescription for an over-the-counter medicine, you generally must purchase it out-of-pocket and submit a reimbursement claim to your health account carrier, including the prescription from your doctor. (See "IRS Issues Guidance on OTC Medications") 

Our company has a two-month "grace period" beyond the end of the year to submit claims for any FSA expenses incurred the previous year. Will OTC medicines purchased without a prescription in 2010 be eligible for reimbursement in 2011? 

Yes. The OTC restriction on tax-advantaged health accounts applies only to purchases made after 2010; therefore any 2010 receipts for eligible OTC purchases are still eligible for reimbursement even in 2011. 

Do I have to offer coverage under all of the health benefits I offer employees to their adult children, or can I just offer a bare-bones medical plan? 
Only plans that offer coverage to dependents must adhere to the age-26 provision in the first place. For those plans who offer dependent coverage, you must offer the same benefits package to adult children (up to age 26), at the same price, that you offer to other dependents, with the exception of dental and vision plans. You are not required to offer dental and vision coverage to adult children dependents, so long as your dental or vision plan is structured as a separate plan and is not part of your group health plan. 

How could a wellness program help me through the financial burdens of health care reform? 
One of the provisions effective September 23, 2010, (or January 1, 2011, for calendar-year plans) requires health plans to cover 100 percent of preventive care costs. For plans that do not already have a similar plan design, this could be an expensive requirement if the intended effect of lowering premiums and claims costs through better overall health isn't realized as soon as possible. 

Adding a wellness program to help generate awareness of unhealthy habits can have a positive impact on your employees' lives and your company's health care costs. By giving employees access to individual health assessments and educational materials, employees are more likely to take advantage of preventative care measures, which means your workforce will discover and resolve health problems early for better overall health. For employers, this may mean higher engagement and productivity in the short-term and reduced claims and premium costs in the long-term. And, as an added benefit, your wellness-enhanced benefits package is likely to attract and retain top-performing employees. 

The last issue of Health Care Compass talked about state insurance exchanges. How can we find out when our state begins work on our insurance exchange? 
Most states have begun working on their exchanges - a new transparent and competitive insurance marketplace where individuals and small businesses can purchase qualified health benefit plans. Under PPACA, states are required to have exchanges up and running by 2014. By January 1, 2013, however, states must show they have a plan in place to offer the exchanges. Visit your state's government website for specific information on the status of your state's exchange. HHS officials have asked for ideas and comments as they begin to develop standards for these exchanges. Employers and the general public have until October 4, 2010, to respond.

How should we address workers who are concerned or even fearful about the changes taking place to their benefits because of health care reform, especially during open enrollment? 
First, acknowledge that they are not alone: It seems health care reform hasn't helped many American workers feel any more secure about their own medical care, at least according to a survey just released by the Robert Wood Johnson Foundation. Results of the survey, reported August 18, 2010, show that consumer confidence spiked in April after President Obama signed the landmark legislation, but confidence levels have since fallen back to what they were last year at the beginning of the epic congressional debate. Ironically, those who stand to benefit most from the new health care law - the uninsured, those in poor health and low-income people - also had the most pessimistic outlook about the health care system, the survey found. 

Second, let your employees know that you will be making some changes to their health-insurance plans for 2011 because of health care reform - such as extending coverage to adult children up to age 26. Also inform them of any programs you might be offering that encourage them to be more careful about health care costs and that help lower their medical expenses. Make sure you streamline your benefits information so you are only giving employees what they need to know to make decision this year. Many employees are overwhelmed with the amount and types of information they are receiving about health care reform. 

Finally, when conducting your open enrollment, supply information that will help employees understand their 2011 benefits options and take appropriate actions. Employees want clear and concise communications on coverage, cost, choices and benefit changes. You can then further support employee efforts to understand health care and by providing information and tools to help them improve their health and prepare for the changes ahead. 

Is there still time for my company to participate in the Early Retiree Reinsurance Program? 
Yes. It is estimated that more than six in ten companies have already applied for funds available under the Early Retiree Reinsurance Program, which provides temporary reimbursements to sponsors of health plans for early retiree medical claims. While there is still time to apply for part of the $5 billion in funds, the Employee Benefit Research Institute has estimated that the program will likely run out of money sometime in 2011. 

I understand PPACA provides new break-time requirements for employers with nursing mothers, but how long must the breaks be, and do they have to be paid breaks? 
The Department of Labor (DOL) has provided a new fact sheet on the break time requirement for nursing mothers in the PPACA, which took effect when the bill was signed into law, March 23, 2010. 


Only employees who are not exempt from the Fair Labor Standard Act's (FLSA) overtime pay requirements are entitled to breaks to express milk, but employers may be required by state law to provide breaks to exempt employees for these purposes. 

The DOL said employers are required to provide "reasonable break time for an employee to express breast milk for her nursing child for one year after the child's birth each time such employee has need to express the milk." The fact sheet states that what is considered a "reasonable break time" will likely vary. Employers are also required to provide "a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk." 

Also, employers are not required under the FLSA to compensate nursing mothers for breaks taken for the purpose of expressing milk. However, where employers already provide compensated breaks, an employee who uses that break time to express milk must be compensated in the same way that other employees are compensated for break time. 

When is the federal government's new Web portal expected to have more information about insurance options for small businesses and their employees? 
The U.S. Department of Health and Human Services has launched a Web portal through which small businesses, as well as individuals, and can obtain information about affordable insurance coverage options in their state. A second release of the portal on October 1, 2010, will present detailed information about eligibility, pricing and benefits once pricing engines are incorporated into the Web portal. 

Currently, the Web site offers summary information about health insurance options, including types of services, provider networks, contact phone numbers and Web site links. 

Over time, HHS will add other data to help consumers make insurance coverage decisions, such as quality and performance information, medical loss ratios, links to Web sites of associations representing state health benefits high-risk pools. 

Our company is interested in creating a wellness program based on outcomes, so we can take advantage of the incentives in PPACA. What are some of the first steps we should consider? 
Outcome-based programs currently offer incentives in the form of rewards of up to 20 percent of employees' total health care premiums if they are doing everything asked of them to improve their health and reduce medical costs. 

It's important to know that implementing a wellness program takes time, effort and commitment, and they don't always show success immediately. But they are worth it in the long run. 

  • It's essential to have complete buy-in from all levels of senior management. Organizational change comes from the top down.
  • Identify a wellness executive sponsor for the program and a wellness team. Have them research wellness programs, develop a clear consistent message for your company and drive employee engagement.
  • Solicit employee feedback. What do employees care about? What are they worried about? What kinds of health programs interest them? What will motivate them?
  • If possible, conduct health screenings and surveys. A Health Risk Appraisal that looks at an individual's health status and lifestyle is often used.
  • Educate employees. Tell them of the health risks they face and how they can prevent those risks
  • At first, employees may be worried about sharing their health data or taking part in the program. But if you can show proof the program is working, you can gradually overcome those fears.


Our company is preparing for open enrollment. Is there a list of new regulations we need to review to understand our requirements? 
You're correct in that quite a few interim final rules have been issued since the adoption of the Patient Protection and Affordable Care Act on March 23, 2009, and the Health Care and Education Reconciliation Act on March 30, 2009. Whether your plan must meet the requirements set forth in them depends on a number of factors, however. Grandfathered plans are exempt from such things as annual and lifetime limits and preventive care coverage, for instance, while insured collectively bargained plans are allowed to defer implementation of some requirements until the end of an existing agreement if it was in effect on March 23, 2010. 

The regulations you need to review to understand your requirements are: 

  • April 27, 2010: Adult Children Health Benefits Tax Free
  • May 10, 2010: Adult Children Coverage
  • June 4, 2010: Early Retiree Reimbursement Program
  • June 14, 2010: Grandfathering Rules
  • June 28, 2010: Pre-existing Condition Exclusions, Annual/Lifetime Limits, Rescissions and Patients' Rights
  • July 14, 2010: Preventive Care Coverage
  • July 22, 2010: Appeals, External review Process


For more information, visit the Office of Consumer Information and Insurance Oversight's website. 

Can you provide any information on the PPACA requirement to show the value of employer-provided health coverage on IRS Form W-2? 
There have been no recent developments or federal guidance related to health care reporting on the W-2. 
In an effort to make the cost of employer-sponsored health coverage more transparent to employees, PPACA requires an employer to disclose on an employee's Form W-2 for 2011 the "value" of an employee's health coverage sponsored by the employer. The requirement is for information reporting only; there is no impact to employee earnings or tax withholding. 

While the law requires employers to use the rules for COBRA continuation coverage in determining the value of employer-sponsored health coverage, it is not yet clear whether actual premium costs - or a more complex actuarial valuation of benefit costs - will be defined as the valuation method for W-2 reporting. The U.S. Department of Treasury has been working on new COBRA valuation methodologies to quantify benefit costs. It's likely that the IRS would prefer to complete the new COBRA guidance as a basis for the PPACA W-2 reporting requirements. 

The Internal Revenue Service stated on a recent call with payroll industry leaders that changes to the 2011 Form W-2 specifications and instructions will be forthcoming pending guidance from counsel. But it declined to offer a target date for providing guidance specific to the PPACA health care reform reporting requirement. Although Box 12 on the W-2 is typically used for information reporting, the IRS gave no indication that it will -- or will not -- be used for reporting health care costs. 

Employers will likely want to start tracking and accumulating the value of employer-sponsored health care as of January 1, 2011, in order to be ready to report correctly for the full calendar year. 

Our health plan made changes before new regulations concerning grandfathering were issued back on June 14, 2010. Is there a way we can maintain grandfathered status? 
For plans that have already made changes prior to the issuance of these new regulations, the regulations included the following grandfather transition rules: 

  • Generally, changes adopted before March 23, 2010, will not cause a plan or policy to lose its grandfathered status, even if they take effect after that date. Such changes must have been adopted under a legally binding contract, insurance filing or written plan amendment in order for a plan or policy to benefit from this rule.
  • For changes adopted after March 23, 2010, but before June 14, 2010, that "modestly exceed" the guidelines established by the new regulations, the regulatory agencies will consider "good-faith efforts" to comply with a reasonable interpretation of PPACA in deciding whether such changes have caused the policy or plan to lose grandfathered status.
  • For changes adopted after March 23, 2010, but before June 14, 2010, that are contrary to the guidelines established by the new regulations, the insurer or plan sponsor may revoke such change by the first plan year beginning on or after September 23, 2010, (by January 1, 2011, for calendar year plans) and not lose grandfather status. Grandfathered status will be lost, however, if these changes are not timely revoked or modified.


How is our company's Health Reimbursement Arrangement (HRA) affected by the age-26 coverage mandate? 
Under PPACA, group health plans that cover dependents must extend that coverage to "adult children" until age 26. Since an HRA is considered a group health plan in this context, this coverage mandate will apply as of the first plan year beginning on or after September 23, 2010. 

Each employer sponsoring an HRA should determine whether this coverage mandate applies to its HRA plan, since there are exceptions for stand-alone vision or dental and retiree-only plans and others. Employers may decide to increase their contribution amounts to correspond to the additional individuals to be covered by the HRA. 

Also, plan documents and communications should be updated prior to the applicable effective date. If you use Ceridian's HRA services, these materials will be provided in coordination with your renewal. 

How does the change regarding over-the-counter drug expenses affect our Health Reimbursement Arrangement (HRA)? 
Just like health care Flexible Spending Accounts, starting on January 1, 2011, over-the-counter drug expenses require a prescription to be reimbursed from an HRA. 

Communication of this change will be critical to employee satisfaction, since additional documentation will be required and HRA debit cards will not approve OTC drug purchases. If you use Ceridian's HRA services, we will provide communication materials during the plan renewal. 

If our health FSA program includes a grace period, can our employees continue to receive reimbursements for over-the-counter medical expenses incurred after December 31, 2010, without additional documentation? 
No. For OTC medical expenses incurred after December 31, 2010, including expenses incurred during any grace period for the 2010 plan year (typically, January 1, 2011, to March 15, 2011), reimbursements are allowed only if the medicine or drug is prescribed (except for insulin, which will continue to be covered without a prescription). This rule applies to both calendar year and non-calendar year plans and there is no "grandfathering" of existing plans. 

Regarding the adult child coverage requirements, are health plans now required to cover families of employees? Do the spouse and any children of the adult child also need to be covered? 
Health care reform does not require an employer-sponsored health plan to cover dependents. However, if a health plan covers dependent children, then it must provide coverage to adult children to age 26. Also, health plans do not need to provide coverage to the spouse or children of covered adult children. 

How does our company know if our insurer has agreed to offer coverage to adult children before the effective date? 
A list of insurers that have agreed to provide coverage to adult children who graduate or age off their parents' insurance before the required implementation date is available from the Employee Benefits Security Administration by clicking here

Does an adult child currently on a plan through COBRA now have the ability to receive coverage under the health plan at the normal rates? 
Health plans that provide dependent coverage must now provide coverage for adult children until age 26 for plan years beginning on or after September 23, 2010. If an eligible employee's adult child is currently covered under COBRA, the health plan will have to allow the employee to add the adult child to the employee's coverage starting on the first day of the next plan year. A 30-day special enrollment period must be provided and begin no later than the first day of the next plan year beginning on or after September 23, 2010. This special enrollment period can coincide with the normal open enrollment period to satisfy this requirement. 

How does the prohibition against cost-sharing for preventive health work? If our health plan covers 100 percent of the expenses for immunizations and preventive health services, can employees still be charged office visit co-pays? 
Under the language in the statute, charging a co-pay for an office visit in which the only services provided are immunizations and preventive health services would no longer be allowed. However, cost-sharing requirements can be imposed on preventive services employees receive from out-of-network providers, when a recommended preventive service is billed as a separate charge, and when treatment resulting from a preventive service is not itself a recommended preventive service. The departments of Labor and Health and Human Services have recently released preliminary guidance regarding preventive care requirements PPACA. For more government information, please click here: www.healthcare.gov.

Is a health plan now required to allow a participant or beneficiary the choice of any primary care provider that he or she wants? 
No. Under the new law, a health plan that requires or provides for the designation of a participating primary care provider is required to allow individuals covered under the health plan to designate any participating primary care provider who is available to accept such individual. An individual can only designate a participating physician who also is willing to accept the individual as a patient. 

Is our health insurer now required to provide summary plan descriptions, and if so, when does that go into effect? 
PPACA does not require that health insurers provide summary plan descriptions (SPDs). However, beginning March 23, 2012, group health plans and health insurers will be required to provide uniform summaries of health benefits and coverage that are limited to no more than four pages, using at least 12-point font, and use language understandable by the average participant. Also, notice must be provided 60 days prior to the effective date of any material modification to the plan. 

When applying for a small employer tax credit, what is considered a full-time employee? It seems it's defined differently in different parts of the law. 
To be eligible for the small employer health insurance tax credit, which is effective this year, an employer must have fewer than 25 full-time equivalent employees. The number of full-time equivalent employees equals the total number of hours for which wages were paid to employees during the tax year, divided by 2,080. If an employee works for more than 2,080 hours, however, then only 2,080 hours of service are considered in the calculation. 

Also, leased workers are considered employees, but the following are not considered employees: self-employed individuals, 2-percent shareholders of an S corporation, 5-percent owners of the employer, and those who are related to these individuals or who are members of the same household as these individuals. Also, seasonal workers are not considered employees unless they work for the employer for more than 120 days during the taxable year. 

The government may issue more guidance on the definition of full-time employee as new rules continue to be released. 

 

New W-2 reporting requirements under health care reform

Starting with taxable years beginning after 2010, all companies must report the cost of employer-sponsored health coverage to their employees on Form W-2. And beginning in 2012, employers will have to provide plan participants with a new summary of benefits. 

Although employers do have some time to prepare, these requirements under the Patient Protection and Affordable Care Act (PPACA) begin affecting businesses immediately. Regulatory guidance still has not been provided on this new requirement. However, below we provide answers to some of the most frequently asked questions. 

What is the new reporting requirement and what does it say? 
Section 9002 of PPACA requires employers to disclose the aggregate cost of "applicable employer-sponsored coverage" on each employee's Form W-2. The aggregate cost includes both employee and employer contributions. 

How is "applicable employer-sponsored coverage" defined? 
Generally, "applicable employer-sponsored coverage" includes health care plans such as major medical coverage, Health Reimbursement Arrangements, employer-provided Medicare Advantage plans and Medicare supplemental coverage. It also includes the value of on-site medical clinics and so-called "mini-medical" or limited benefit plans and employer contributions to health Flexible Spending Accounts (FSAs) and Health Savings Accounts. 

Are there certain types of employer-sponsored coverage that are excluded? 
Yes. Employee contributions to health FSAs, life insurance or disability insurance, long-term care coverage, and stand-alone dental and vision insured plans are excluded from reporting. Workers' compensation insurance is also excluded and, if paid for with employee after-tax dollars, hospital indemnity or other fixed indemnity insurance, as well as coverage only for a specific disease or illness. 

How does an employer determine the aggregate cost of coverage? 
The provision requires the employer to determine the value of employer-sponsored coverage under rules similar to those that apply when determining COBRA continuation coverage premiums, including the special rules that apply for self-insured arrangements. For insured plans, the premium will likely be the aggregate cost. More federal guidance is expected on this. 

When must the first Form W-2 include the new reporting information? 
The new Form W-2 requirement is effective for taxable years beginning after 2010. This means that the first Form W-2 that needs to include the aggregate cost of employer-sponsored health coverage will be the 2011 Form W-2, due in January 2012. Employers may need to provide W-2s before January 2012 for employees terminating employment before the end of the year. 

 

Grandfathered plans

Will grandfathering freeze employers' health plans in place, making it difficult for them to respond to rising health care costs and other changes? 
No. Grandfathered plans have some flexibility to make changes as long as they don't significantly reduce benefits, increase out-of-pocket spending or increase cost-sharing for consumers. Among other things, plans will still be able to: 

  • Make some changes in the benefits offered
  • Increase deductibles and other out-of-pocket costs (within fairly strict limits)
  • Continue to enroll new employees and dependents


Which insurance plans and policies are eligible for grandfather status? 
The health care reform law exempted -- or "grandfathered" -- employer-sponsored health care plans in effect on March 23, 2010. Whether a plan or policy is considered the "same" as it was on that date depends on the changes it makes from that point on. Grandfathered health plans will be able to make routine changes to their policies and maintain their status. These routine changes include cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, voluntarily adopting new consumer protections under the new law, or making changes to comply with state or other federal laws. Premium changes are not taken into account when determining whether a plan is grandfathered. 

For more government information on what changes will cause employers and insurance plans to lose their grandfather status, please click here

 

The Age-26 provision

Does the child have to be a tax dependent in order to stay on the plan? 
No. Adult children can stay on their parents' plan to age 26, regardless of their status as a tax dependent of their parent. 

What if an employee's dependent turned 25 years old in March 2010 and was terminated from the plan. Can the employee re-enroll the dependent prior to the beginning of the next plan year? 
Beginning with plan years starting on or after September 23, 2010, adult children can receive coverage under their parent's plan and stay on the plan up to age 26. While there are some early adopters of this rule, this change does not automatically create an additional opportunity for enrollment prior to the next plan year. 

 

Early Retiree Reinsurance Program

Can we only use reimbursements from the Early Retiree Reinsurance Program to offset retirees' costs? 
Plan sponsors can use reimbursements to offset retirees' costs -- for example, lowering required contributions and cost-sharing requirements -- as well as to offset future increases in plan costs for the plan sponsor. They can use reimbursements for both active employees and early retirees when covered under the same group health plans. 

Can we earmark reimbursements for wellness programs for active employees and retirees? 
Yes. Employers can designate reimbursements received from the program for use in wellness programs for both active employees and early retirees within the same plan. 

Is there a way to tell how many early retirees we should have under our plans before it makes sense to apply? 
Plans will need to analyze their paid claims above $15,000 for early retirees and make a decision based on what reimbursements they can expect from the program and the cost of administering the program. 

Regarding the early retire reinsurance program, when will the applications be available and where will HHS post them? 
You may view a draft of the document by clicking www.reginfo.gov. HHS stated it intends to have a final application available by the end of June. Also, the new Office of Consumer Information and Insurance Oversight within HHS is expected to publish information regarding the reinsurance applications.

Does HHS require application fees to participate in the early retiree reinsurance program? 
No.  There are no application fees. 

Regarding lifetime dollar limits, are stand-alone retiree plans subject to the ban on these limits? 
Until regulations are issued, it is unclear whether the ban on lifetime limits will apply to stand-alone retiree plans. Retiree-only plans hoped to be able to continue to rely on an exemption under HIPAA for plans with less than two participants who are current employees as the basis for concluding that they are not subject to HIPAA's mandates. But that has been called into question following PPACA. We expect guidance on this issue. 

We know the IRS will no longer consider over-the-counter (OTC) medications without a "prescription" as qualified medical expenses that can be paid out of health accounts (FSAs, HRAs, HSAs) beginning on January 1, 2011.  Have there been any other changes to health accounts or what the IRS considers qualified medical expenses? 
The law has not changed the allowable qualified medical expenses people can pay using FSAs, HRAs, and HSAs other than excluding OTC medications without prescriptions.  People can continue to pay for all other qualified medical expenses through these health accounts. While not applicable for next year, the law does impose a limit on FSA contributions beginning in 2013. Employees will only be permitted to contribute up to $2,500 through salary reductions. 

In regard to extending coverage to adult dependents under age 26, can employers require adult children to complete enrollment applications? 
If employers require all children to complete enrollment applications (even minor children), they can then require that adult children also complete applications. Plans cannot vary the terms of coverage for any dependents, except for children ages 26 and older). Plans should offer adult dependents coverage on the same basis as all other dependents with the same enrollment process. 

We have planned the special enrollment for adult dependents during our 2011 annual open enrollment period that runs for 2 weeks.  Do we have to allow a 30-day enrollment window for the special enrollment? 
Yes. The special enrollment for dependent children must run 30 consecutive days, including written notice of the opportunity to enroll. When plans have annual open enrollment periods less than the required 30 days, they will need to extend the period for eligible dependents and their parents. The special enrollment period can run concurrently with annual open enrollment and employers can distribute notices with other open enrollment materials provided the notice of the opportunity to enroll is prominent in the enrollment materials. 

We currently do not cover stepchildren that do not live in the house with our employees.  Will we have to allow these children the opportunity to enroll in the plan? 
Yes. The regulations do not allow plans to base dependent eligibility on any of the following criteria: 

  • Age of the child (for children under 26 years old)
  • Whether or not children are tax dependents
  • Student status
  • Marital status
  • Employment status
  • Residency (with the plan participant or any other person)
  • Financial dependency (on the plan participant or any other person) or any combination of these factors


PPACA requires employee benefit plans and issuers that offer dependent coverage to children to make the coverage available until the adult child reaches the age of 26. In the questions and answers below, we take a closer look at this provision through the recent guidance provided by the U.S. Department of Labor, Employee Benefits Security Administration. 

Are employers required to immediately enroll eligible adult children in their parents' plan? 
No. The law states that the extension of dependent coverage for children is effective for plan years beginning on or after six months after the enactment of the law - which means plan years beginning on or after September 23, 2010. However, the Administration has urged insurance companies and employers to prevent a gap in coverage for young adults aging off of their parents' policy prior to this effective date. Many insurers have volunteered to do so. We urge you to check with your insurance company or employer to see if they are offering this coverage option earlier than the legal deadline. 

Will adult children be given a special chance to enroll after September 23, 2010? 
Yes. For plan or policy years beginning on or after September 23, 2010, plans and issuers must give children who qualify an opportunity to enroll that continues for at least 30 days, regardless of whether the plan or coverage offers an open enrollment period. This enrollment opportunity and a written notice must be provided not later than the first day of the first plan or policy year beginning on or after September 23, 2010. 

Can plans or issuers who offer dependent coverage continue to impose limits on who qualifies based upon financial dependency, marital status, enrollment in school, residency or other factors? 
Plans and issuers that offer dependent coverage may base eligibility for dependent coverage only in terms of the relationship between a child and the participant, not on any other factor. 

It seems as if plans and insurers can terminate dependent coverage after a child turns 26, but employers are allowed to exclude from the employee's income the value of any employer-provided health coverage through the end of the calendar year in which the child turns age 26. Please explain. 
Under the law, the requirement to make dependent coverage available applies only up to the date that the child turns 26. However, the value of the coverage can continue to be excluded from the employee's income for the full tax year (generally the calendar year) in which the child had turned 26 -- but only if the "child" is the son, daughter, stepchild, adopted child or foster child of the participant. 


For example, if a participant's son turns 26 in March but is covered under the employer plan of his parent through December 31 (the end of most people's taxable year), the value of the health care coverage through December 31 is excluded from the employee's income for tax purposes. If the child stops coverage before December 31, then the premiums paid by the employee up to the time the coverage was stopped will be excluded from the employee's income. The employee would be taxed, however, for a domestic partner's child's coverage regardless of the child's age. 

For more information about implementation of PPACA, please visit www.dol.gov/ebsa/healthreform/

The following frequently asked questions were submitted by participants attending Ceridian's April 6, 2010, Web forum, "Health Care Reform: Impact on 2011 Benefit Plans ... and Beyond." Jim O'Connell, Ceridian's consultant on legislative affairs and the event's presenter, provides the answers below. Additional FAQs from the event will be presented in future issues of Health Care Compass. To listen to a replay of the Web event, click here. 

Does auto-enrollment apply only to new hires or to all employees that are not enrolled currently? 
The law requires employers with more than 200 employees to automatically enroll new full-time workers in one of the company's health plan. Employers must provide employees with adequate notice regarding auto-enrollment and the opportunity to opt out of such coverage. Employers will have to wait until HHS publishes regulations to establish when the provision will become effective. Many believe that auto-enrollment will start in 2014 with the other employer requirements. 

What determines the valuation of the benefits for W-2 reporting? 
A long-held congressional perspective is that employees do not recognize the true value of their health care benefits. Beginning in 2011 (for W-2 forms to be provided to employees in January 2012), employee W-2 forms must show the value of their employer-provided health coverage. Employers will be required to use the COBRA valuation methodology to determine their plan's value. To be sure, employers will need to have a mechanism in place starting in January 2011 to be able to accumulate monthly values for employer-provided health coverage. 
Similarly, new requirements scheduled to go into effect in 2014 will have additional reporting and notification requirements, particularly with regard to health insurance coverage information for full-time employees. For instance, starting in 2014, employers will be required to provide a "minimum essential coverage" certification, the number and names of its full-time employees, information about health plan waiting periods, lowest cost health care options, monthly premiums, and so forth. 

Which employers are subject to the play or pay mandate under health care reform legislation and how does the legislation define "full-time" employees? 
The law says the requirements apply to "large" employers, and then defines "large" as an employer with 50 or more full-time equivalent employees. 

A "full-time employee" works 30 or more hours per week. 

For children up to 26 years old, is the full-time student status still a requirement to remain on the parents' health care plan? Must their parents still claim them as a dependent for tax purposes? If they were previously removed from the plan, must they be added back on? 
The provision specifies that a health plan that offers dependent coverage must provide coverage for an adult child until age 26, unless that child is eligible to be covered under another plan. Therefore, full-time student status and IRS dependent status are not required. If an adult child was removed from the health plan previously and is not eligible for other coverage, he or she arguably should be given the opportunity to re-enroll. The provision extends coverage only to the adult child, not to the child's spouse or to their children, if any. 

This provision is effective for all employers starting with the first plan year after September 23, 2010. Grandfathered plans are subject to this requirement. 

What does it mean for a health care plan to be "grandfathered" under the new law and what is required? 
Government guidance is still forthcoming on this provision. The health care reform law exempted -- or "grandfathered" -- employer health care plans in effect on March 23, 2010, from most, but not all, new requirements. The grandfather provision is not clearly articulated in the final language of the law, but we know that these plans appear to be exempt for an indefinite period of time. It is not clear to what extent the grandfather provision allows employers to make changes to their plans without jeopardizing their grandfather status. It looks like the provision also allows for such plans to take on new enrollees, new hires and perform similar plan maintenance, without undercutting their grandfather status. But with so sweeping a grandfather provision, it is possible that the U.S. Department of Health and Human Services will issue regulations that could chip away at the flexibility of grandfathered plans. 

Can you explain the "play or pay" provisions, including which employers are subject to them and the penalties for noncompliance? 
The employer "play or pay" mandate provisions will not take effect until 2014, so employers have some breathing room to understand how this provision will be eventually implemented. 

For employers with 50 or more full-time employees that do not offer employees minimum essential coverage, and at least one of the employer's full-time employees gets subsidized health coverage through a health insurance exchange, a "Free Rider" penalty of $2,000 per full-time employee (after subtracting the first 30 full-time employees) will be imposed on the employer. 

For employers with 50 or more full-time employees that do offer minimum essential coverage, but the coverage is inadequate or unaffordable for the employees, the law penalizes them with the lesser of the following: 

  • $2,000 per full-time employee (after subtracting the first 30 full-time employees
  • $3,000 per full-time employee receiving subsidized health coverage through an exchange


The health coverage is considered inadequate if the plan's share of costs has less than a 60 percent actuarial value (actuarial value is based on the portion of allowed costs paid by the plan, not on premiums). The coverage is considered unaffordable if the employee's required premium is greater than 9.5 percent of the modified adjusted gross income of the employee's household. 

Grandfathered plans are also subject to this requirement.