A Question about HSAs!

Q: One of the guys at work heard that when Reform passes, we won’t be able to buy OTC drugs, band-aids, etc. with our HSA acct. do you know if this is true?

A: Sounds like you're talking about OTC drugs no longer being eligible for reimbursement beginning w/ 2011 tax year. There’s specific paragraphs for HSAs, Archer MSAs, FSAs and HRAs. But they all say you can expense the “amount paid for medicine or a drug only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available without a prescription) or is insulin.” So it’s clear Tylenol is out, but band-aids may very well still be eligible. All this is pending release of final IRS regs.

Hope this helps and as always we will offer further clarity as we get it!

Grandfathering - Is it Worth It?

We've been asked by many clients recently how far they can go in changing their plans and still remain in grandfathered status or, for that matter, what's the big deal about being grandfathered? At TrueNorth we have put together a formula to help you calculate the maximum changes that can be made so that you stay in grandfathered status. Call a specialist today for more information: 800-798-4080.

Regulations Issued on Lifetime and Annual Limits

Close on the heels of their regulations concerning grandfathered plans, the Departments of Labor, Health and Human Services (HHS), and Treasury have now released interim final regulations relating to preexisting condition exclusions, lifetime and annual limits, rescissions, and other patient protections under the Affordable Care Act (the “Act”).

So, what does this mean for you and your company? We stopped by local TrueNorth Employee Specialist's, Bob Mreen, desk this morning and asked.

It’s expected insurance carriers will address these requirements by amending client’s fully insured policies at the appropriate time, so little, if any, action is required by an employer group. Self funded groups, however, must initiate their own plan changes in order to remain compliant.

It might also be worth mentioning that there are no provisions in the legislation that limit an insurance carrier’s rate adjustments for these mandates.

See the below "legislative update" for the nitty-gritty information on the regulations.

Lifetime Limits
Under the Act, a group health plan may not establish any lifetime limit on the dollar amount of "essential health benefits" provided to any individual. This requirement is effective for plan years beginning on or after September 23, 2010. It applies to both grandfathered and non-grandfathered plans, although not to health FSAs or health savings accounts.

According to the Act, essential health benefits include, at a minimum, items and services in the following categories: ambulatory patient services; emergency services; hospitalization, maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. Interestingly, the regulations provide no further guidance on the definition of "essential health benefits" -- except to say that, until HHS issues such guidance, the regulatory agencies will take into account good-faith efforts to comply with the "guidelines" set forth in the Act.

A group health plan may still impose lifetime limits on non-essential health benefits. Thus, the key will be to determine which benefits are "essential." For example, would treatment for autism be considered a "mental health service"? If so, it would be an essential health benefit.

Annual Limits
With respect to plan years beginning before January 1, 2014, a group health plan, including a grandfathered plan, may establish a "restricted" annual limit on the dollar amount of essential health benefits for any individual. The new regulations define "restricted" by providing for a three-year phase-out of annual limits. Under this phase-out, the annual limit may not be less than:

• $750,000 for any plan year beginning on or after September 23, 2010, but before September 23, 2011;
• $1.25 million for any plan year beginning on or after September 23, 2011, but before September 23, 2012; and
• $2 million for any plan year beginning on or after September 23, 2012, but before January 1, 2014.

For plan years beginning on or after January 1, 2014, a plan may not impose any annual limit on essential health benefits.

When determining whether an individual has reached one of these annual limits, only essential health benefits may be taken into account. The regulations make clear that a plan is free to lower its current annual limit to these levels. However, as discussed in our recent Alert on grandfathered plans, lowering a plan's annual limit (or imposing such a limit for the first time) may result in the plan's loss of grandfathered status.

Limited Benefit or "Mini-Med" Plans
Subsequent to the Act becoming law, many in the industry have wondered about the fate of limited benefit (or "mini-med") plans. Such plans typically provide benefits that are capped at relatively low annual amounts. As a result, many benefits consultants and advisors have speculated that such plans would cease to exist once the Act's restrictions on lifetime and annual limits take effect.

Surprisingly, however, the regulations provide that HHS may establish a program (for years prior to 2014) under which the minimum annual limit requirement will be waived if establishing such a limit would result in either a significant decrease in access to benefits or significantly increased premiums. This program may provide temporary relief for mini-med plans. HHS is expected to issue additional guidance on this waiver process in the near future.

Notice of Special Enrollment Opportunity
All group health plans must provide written notice to any individual who has already effectively lost coverage because he or she reached a lifetime limit on benefits. This notice must be provided no later than the first day of the first plan year beginning on or after September 23, 2010. It must explain that the lifetime limit no longer applies and that the individual -- assuming he or she is still otherwise eligible -- has a 30-day special enrollment period in which to enroll in any benefit option under the plan that is available to similarly situated employees.

This notice may be included with other enrollment materials, and notice to an employee will satisfy the notice requirement for the employee's dependents, as well. Model language for this notice has just been issued by the Department of Labor and is available on the EBSA website.

PPACA Update

Last week, the departments of Health and Human Services, Labor, and Treasury published a new Interim Final Rule addressing several provisions of the Patient Protection and Affordable Care Act (PPACA) [75 Fed. Reg. 37188 (June 28, 2010)].

To assist you in understanding these regulations, we are pleased to provide the attached Summary Analysis prepared by the Groom Law Group in affiliation with the National Association of Health Underwriters (NAHU).

You Asked, We Answered.

You asked, we answered. Following our recent webinars we received a few questions, see below and please let us know if we can answer more for you.

Q: I remember first hearing about a penalty for employees who didn’t have a good enough (hard to define again) plan and when the employees choose to go into the state program or risk pool that we (employer) could have a monthly penalty because of this, do you remember anything on that?

A: I think you’re first referring to the individual mandate and then to potential employer penalties. Some comments that might be helpful:

Individual mandate: All US citizens and legal residents will be required to have insurance coverage starting 1/1/14. Being enrolled in either an employer plan, a plan offered in the state exchange, Medicare or Medicaid will satisfy this requirement. If a person chooses to not get coverage through one of these programs, they’ll be assessed a penalty. Many folks familiar with the current costs for insurance feel the 2014 penalty and maybe even the 2015 penalty aren’t large enough to encourage enrollment. It could be difficult to find an insurance plan that costs a person only $95 a month, so it’s suspected some folks will simply pay the penalty instead of the higher insurance premium. After all, if they do get sick, they can simply join a plan at that time with no consequences since there will no longer be any pre-existing condition exclusion. While it’s tough to argue with the concept from a financing perspective, we suspect the numbers will be tweaked upward as we get closer to 2014.

Employer penalties: First off, note that these penalties apply only to employers with more than 50 FTEs. Also, the penalties are assessed on a monthly basis, since each employee (and perhaps each dependent) can jump from any available employer or exchange plan to another each month.

If an employer chooses to not provide a health insurance program and any employee gets coverage through a state exchange, the employer will pay an annual, non-deductible penalty of $167 per month for each employee (not counting the first 30 FTEs). The likelihood of an employee getting coverage through an exchange is enhanced by tax credits for individuals and families with incomes less than 400% of the Federal Poverty Level (FPL). 400% of the 2010 FPL for a family of 4 is about $88,000, so it’s likely that many folks will qualify for some level of that tax credit.

If an employer does choose to offer their own medical plan, they may still be subject to penalties if any employee elects to purchase their coverage through the exchange rather than through the employer’s plan. Tax credits are available to employees with family incomes less than 400% of FPL or if the employee must contribute more than 9.5% of their family income toward the employer’s insurance plan, increasing the likelihood of an employee opting for coverage through the exchange. The monthly employer penalty is the lesser of $250 for each employee receiving a tax credit or $167 for each FTE (again, not counting the first 30).

Lots of numbers and possibilities here and unfortunately there’s no straightforward, simple explanation of how it’s supposed to work. All of this is still more than 3 years (and a national election) away, so I wouldn’t count on things staying the way the current law is written. Still, I hope I’ve been able to give you a sense of what could happen. If you have any other questions on this, please don’t hesitate to let us know.

Q: Starting in 2011—next year— will the W-2 tax form sent by your employer be
increased to show the value of whatever health insurance you are provided? Will you be required to pay taxes on a larger sum of money than you actually received?

A: I’ve seen this before and it falls into the urban myth category. While there was some discussion early on in the reform debate about removing the tax-exempt status of employer-sponsored benefits in order to generate revenue, it was quickly squashed by many interests (most notably unions). I’m not sure the best way to counter bad information other than to ask the author to show me where in the law it says what they claim – if nothing else, it sends the author away while they look for something that doesn’t exist! Provided you’re not much of a conspiracy theorist, you can go to http://www.whitehouse.gov/blog/2010/05/25/health-reform-your-taxes-and-rumor-mill and see the official administration response. Hope this helps!

Q: Have you heard anything on the small group tax credit for wellness that is part of the health reform bill?

A: This one I’ve dealt with before. There’s no such “tax credit for wellness” in federal law, but there’s some states that provide for it (I know Indiana does it). I’d bet the confusion comes from trying to combine different elements from the law:

1. Small employer tax credit for premium payments that start in 2010 tax year;
2. Small employer wellness grants: start in 2011; $200 million in grants over 5 years; employers w/ fewer than 100 employees; available only for new wellness programs launched after 3/23/10; grant applications yet to be published;
3. Starting in 2014, premium differentials can increase to 30% for members who participate in wellness programs (applies to all employer plans). HHS Sec is given discretionary authority to increase this to a 50% differential.
   

Hope this helps and please don't hesitate to keep the questions coming.