IRS Releases Draft Form W-2

The IRs today released Notice 2010-69 that indicates the W-2 reporting of the cost of medical coverage will not be mandatory for tax year 2011.  Section 9002 of the Affordable Care Act originally required this information be provided to all employees on their 2011 W-2 statements.  The Treasury Department and the IRS, in labeling this decision as “interim relief to employers”, indicated they anticipate issuing guidance on the reporting requirement before the end of this year.  Click here to view the entire Notice.

Clarification: A New 3.8% Tax on Unearned Investment Income

We have gotten a few questions regarding this topic in the last few weeks and thought we'd address it here.  Take it away, Bob!

The health care reform legislation does indeed contain a new 3.8% tax on unearned investment income. However, that tax applies only to individuals who earn $200,000 or more ($250,000 for families) and applies to tax years beginning after December 31, 2012.

Misinformation surrounds how the tax will apply to the sale of a home. For the tax to have any impact the $200,000/$250,000 income threshold must be exceeded (thereby excluding the vast majority of Americans). Then the tax would apply only to the taxable net profit from the sale of a home. For example, let’s say you bought a home for $150,000 ten years ago and since then you made improvements equal to $150,000 (new kitchen, new roof, etc.). Now your cost basis is $300,000. There is currently a $250,000 exclusion for a single taxpayer ($500,000 for a married couple) for the taxability of profit on the sale of a home (if you lived in the house for a minimum period – generally 24 months out of the last 5 years). So, in this example, you could sell the home for up to $550,000 (single taxpayer) or $800,000 (married) and have no taxable profit and thus the 3.8% tax would not apply.

Perhaps the two most controversial aspects of this section of ACA is that the income thresholds are not indexed (so that over time more folks will be impacted by the tax) and that the revenue generated by this “Medicare contribution” will not be applied directly to Medicare (but will instead fund the overall healthcare reform program).

For what it's worth, here’s what the law says:
www.ncsl.org/documents/health/ppaca-consolidated.pdf

Essential Benefits Digging Out a Definition!

We have had a number of questions concerning the definition of "essential benefits."  So, here we go, let's see if we can dig out an "official definition."

The broad definition in the law is:

(1) IN GENERAL.—Subject to paragraph (2), the Secretary shall define the essential health benefits, except that such benefits shall include at least the following general categories and the items and services covered within the categories:

• (A) Ambulatory patient services.
• (B) Emergency services.
• (C) Hospitalization.
• (D) Maternity and newborn care.
• (E) Mental health and substance use disorder services, including behavioral health treatment.
• (F) Prescription drugs.
• (G) Rehabilitative and habilitative services and devices.
• (H) Laboratory services.
• (I) Preventive and wellness services and chronic disease management.
• (J) Pediatric services, including oral and vision care

But - as we know from taking this health care reform trip together - the devil’s particularly in the details – all these expense categories are contained in nearly all group plans, but there are many exclusions and limitations that aren’t addressed in the law. The law allows such limitations to be incorporated into the definition via a 5-step process:

1. The Secretary of DOL surveys employer-sponsored coverage to determine the benefits typically covered by employers and reports the survey results to the Secretary of HHS.
2. The HHS Secretary will then prepare a draft which benefits are essential.
3. The Chief Actuary of CMS must certify that the selected benefits equals the scope of those provided under a typical employer plan (a rather circular process that’s meant to keep things honest).
4. The HHS Secretary will then provide an opportunity for public comment on the definitions (a process that could last many months or be shortened considerably by the methods the Secretary has used for comments regarding the dependents to age 26 regulations [3 months] or grandfathering [2 months]).
5. The final definition is implemented. Periodic reviews of those definitions are mandated.

I see two broad results of this process:

• Employer healthcare benefits will be largely commoditized (a la group life and disability products).
• Protracted scrambling by special interest groups to get their services/products certified by the government as “essential” even though they may increase costs – think airbags for cars.

Many plans are facing a renewal that hinges on the definition of essential benefits. The regulators have ruled that plans that implement their own definition “in good faith” prior to the release of the final regulations will not be subject to sanctions.

Interim Guidance on External Review Procedures

AGENCIES ISSUE INTERIM GUIDANCE ON EXTERNAL REVIEW PROCEDURES

 

When the agencies responsible for administering the new claims and appeals procedures mandated under the Affordable Care Act issued their first round of guidance on this subject, they noted that additional guidance on the Act's new external review procedures would be coming out soon. That guidance has now been issued. It includes the following elements:

• Interim guidance for conducting external reviews by insured health plans;
• Interim procedures to be followed by self-funded, ERISA plans; and
• Model notices to be used in communicating denials after both internal and external reviews.

Note that none of these new claims and appeals procedures will apply to "grandfathered" plans.

Interim Guidelines for Insured Plans

As explained in the agencies' earlier guidance, an insured plan must comply with either a state's external review procedures (if any) or with federal standards that have yet to be determined. The Department of Health and Human Services (HHS) will be posting those federal standards on its website in the near future. In the case of an insured plan, the insurance carrier has the primary responsibility for complying with these external review standards.

 

Interim Procedures for Self-Funded Plans

During an interim period (commencing with the first plan year beginning on or after September 23, 2010, and ending when future guidance is issued), non-grandfathered, self-funded ERISA plans have two options for complying with this new external review requirement. First, they may voluntarily comply with a state's external review procedures (assuming a state makes those procedures available to self-funded plans). Alternatively, they may implement procedures outlined by the Department of Labor (DOL) in its Technical Release 2010-01.

 

These procedures are based on the "Uniform Health Carrier External Review Model Act," as promulgated by the National Association of Insurance Commissioners. They allow a claimant to request an external review after the denial of an internal appeal. Moreover, if the requirements for an expedited external review are satisfied, such a review may be available after the denial of a claim. Although plans must offer this external review option, a claimant need not take advantage of the option before seeking judicial review.

 

The Technical Release describes somewhat different procedures for "standard" and "expedited" external reviews. In general, an expedited external review is available if a claimant's medical condition is such that the timeframes for either an internal appeal of a denied claim or a standard external review would seriously jeopardize the claimant's life, health, or ability to regain maximum function. Not surprisingly, the timeframes for taking action under an expedited external review are generally shorter than those that apply to a standard external review.

 

Standard External Review Procedures

A claimant must be given up to four months to request an external review of the denial of an internal appeal. Once a plan receives such a request, it has only five days in which to determine whether an external review is available to the claimant and, if so, whether the claimant's request for such a review is complete. After making that determination, the plan has only one day in which to notify the claimant if an external review is not available or if the request is incomplete.

 

If a request for an external review is complete (and the claimant is entitled to exercise that option), the plan must promptly assign the request to an accredited independent review organization (IRO). Moreover, to avoid bias and assure independence of the IRO, a plan must contract with at least three different IROs. Requests for external reviews must then be assigned to these IROs either randomly or on a rotating basis.

 

Within five days after assigning a request to an IRO, the plan must provide the IRO with all of the documents and information the plan considered in denying the claim or appeal. If a plan fails to meet this deadline, the IRO may terminate the external review and simply reverse the plan's decision. For this reason, a plan's timely submission of documents and information will be vital.

 

The IRO must then act in accordance with the terms of its agreement with the plan. The Technical Release spells out a number of provisions that must be incorporated into such an agreement. For instance, an IRO must notify the claimant within ten business days of receiving a request for review, must promptly forward to the plan any additional information submitted by the claimant, and must notify both the claimant and the plan of the IRO's final decision within 45 days of receiving the request for review.

 

If an IRO reverses a plan's decision, the plan must immediately provide the requested coverage or pay the claims at issue.

 

Expedited External Review Procedures

Should the circumstances entitle a claimant to an "expedited" external review, that review may take place contemporaneously with any internal appeal. Upon receiving a request for an expedited external review, a plan must "immediately" determine whether the request meets the standards for such a review and then "immediately" notify the claimant of its determination on this point.

 

If the request is eligible for expedited review, the plan must transmit all of the necessary documents and information to the IRO "electronically or by telephone or facsimile or any other available expeditious method." The IRO must then make its determination "as expeditiously as the claimant's medical condition or circumstances require, but in no event more than seventy-two hours after the IRO receives the request for an expedited external review."

 

Model Notices

As a part of this recent guidance, the agencies responsible for administering these procedures have also issued three different model notices. These are captioned as follows:

• Model Notice of Adverse Benefit Determination
• Model Notice of Final Internal Adverse Benefit Determination
• Model Notice of Final External Review Decision

Plans and insurers may want to start using these model notices. In any event, they should probably modify any notices currently in use to ensure that they provide all of the information contained in these models.

 

The agencies also note that they will soon be issuing model language to be inserted into summary plan descriptions as a way of describing both the new internal claims and appeals procedures and the external review procedures addressed in this latest guidance. That model language will be posted on both the DOL and HHS websites. Non-grandfathered plans that are subject to these new rules will want to watch for this language and then incorporate it into their SPDs by the time the new rules take effect

UBA Survey Results

With responses from 17,113 health plans sponsored by 11,413 employers nationwide, the 2010 UBA Health Plan Survey is the nation’s largest and most comprehensive survey of plan design and plan costs. As the largest survey of its kind, the UBA Health Plan Survey defines benchmarks by a greater number of specific industries, regions, and employer size categories than is available from any other resource. The 2009 UBA Employer Benefit Perspectives (which delineates employers' positions and opinions on Employee Communications, Personal Health Management and Scope of Benefits Offered) and the 2010 UBA Employer Opinion Survey (Including the Special Supplement on Health Care Reform) serve as companion pieces to the 2010 UBA Health Plan Survey.

For more information please visit:
http://www.ubabenefits.com/Portals/29/UBA_HPS_2010.swf

A Health Care Reform Checklist

Ahh - Isn't keeping up with all of these regulations fun? We got a checklist one of our partners - ZyWave - this week and thought we'd share it here.

Compliance Checklist

Grandfathered Plan Status

• Determine if you have a grandfathered plan.
• A grandfathered plan is one that was in existence when health care reform was enacted on March 23, 2010.
• Grandfathered plans are exempt from some of the health care reform requirements.
• If you make certain changes to your plan that go beyond permitted guidelines, your plan is no longer grandfathered.

Plan Amendments – All Plans
Plan sponsors should take the following actions prior to the first day of the plan year beginning on or after September 23, 2010 (unless a different effective date is noted):

• Amend plans to cover dependents up to age 26.
• If your plan is grandfathered, it is not required to cover adult children who are eligible for coverage sponsored by their employer for plan years beginning on or before January 1, 2014.

• Amend plans to eliminate lifetime limits on essential benefits and to provide that individuals who previously reached the lifetime limit under the plan and who are otherwise eligible for coverage may re-enroll in the plan and will not be affected by the lifetime limit.

• Amend plans to either eliminate or restrict annual limits on essential benefits.
• Annual limits are being phased out over the next three years.
• For plan years beginning on or after September 23, 2010, a plan may impose a minimum annual limit of $750,000.
• For plan years beginning on or after September 23, 2011, a plan may impose a minimum annual limit of $1.25 million.
• For plan years beginning on or after September 23, 2012 (but before January 1, 2014), a plan may impose a minimum annual limit of $2 million.

• Amend plans to eliminate pre-existing condition exclusions for children under age 19.
• Pre-existing condition exclusions will be eliminated altogether for plan years beginning on or after January 1, 2014.

• Amend plans that include tax-advantaged medical accounts, such as FSAs, HSAs, HRAs or Archer MSAs, to reflect new requirements.
• Plans that permit reimbursement of over-the-counter medicine or drugs must be amended prior to January 1, 2011 to provide that these expenses are reimbursable only with a doctor’s prescription (except for insulin) if they are incurred after December 31, 2010.
• Plans that cover expenses of dependents must be amended to be consistent with any dependent eligibility changes related to the age 26 rule.

• Amend plans to incorporate new rules regarding rescissions.
• A rescission is a termination of coverage that has a retroactive effect. However, a retroactive cancellation is not a rescission to the extent it is caused by a failure to pay premiums.
• Rescissions are only permitted in cases of fraud or intentional misrepresentation of a material fact.

Plan Amendments – Non-Grandfathered Plans Only
Plan sponsors of non-grandfathered plans should also take the following actions prior to the first day of the plan year beginning on or after September 23, 2010:

• Amend plans to cover recommended preventive services with no cost-sharing requirements.

• Establish an effective claims appeal process by amending current claims procedures to incorporate new definitions and requirements.
• Revise definition of adverse benefit determination.
• Update deadline for notice regarding urgent care claims.
• Adopt procedures to provide full and fair review and avoid conflicts of interest.
• Provide culturally and linguistically appropriate notices regarding the process and options for assistance.
• Ensure plan is following appropriate external review process.

• Amend fully-insured plans to eliminate impermissible discrimination in favor of highly compensated employees.
• Plans may not longer discriminate with respect to eligibility or benefits.

• Amend plans to include patient protections.
• If the plan requires participants to choose a primary care provider, allow participant to choose any available participating primary care provider or pediatrician.
• Permit participants to obtain OB/GYN care without a pre-authorization or referral.
• Eliminate pre-authorization requirement for emergency services.
• Eliminate increase coinsurance or copayment requirements for out-of-network emergency services.

Special Enrollment Opportunities

• Provide a 30-day special enrollment opportunity (and notice) to adult children eligible for coverage under the age 26 rule.
• The enrollment opportunity (and notice) must be provided no later than the first day of the first plan year beginning on or after September 23, 2010.
• The coverage must begin no later than the first day of the first plan year beginning on or after September 23, 2010.

• Provide a 30-day special enrollment opportunity (and notice) to individuals who have reached the lifetime limit under the plan but are otherwise eligible for coverage.
• The enrollment opportunity (and notice) must be provided no later than the first day of the first plan year beginning on or after September 23, 2010.
• The coverage must begin no later than the first day of the first plan year beginning on or after September 23, 2010.

Participant Notices
If you have a grandfathered plan, you must include information about the plan’s grandfathered status in plan materials describing the coverage under the plan, such as summary plan descriptions (SPDs) and open enrollment materials. This information must inform participants that the plan is not subject to some of the consumer protections of the health care reform law. Model language is available regarding this requirement.

There are a number of other health care reform provisions that require notices to be provided to plan participants. Model notices are available for some of these notices at www.dol.gov/ebsa/healthreform/.

Employers should make sure they are prepared to provide the following notices prior to the first plan year beginning on or after September 23, 2010 (unless another deadline is noted). To be thorough, plans should include these notices in their SPDs, as applicable.

• Notice that eligibility for dependent coverage has been extended for children up to age 26 (including any restrictions for grandfathered plans) and that a special enrollment period is available for eligible dependents. A model notice is available.
• Notice to participants affected by a lifetime limit (including former participants that are otherwise eligible for coverage) that the lifetime limit no longer applies to them and they are eligible for a special enrollment opportunity if they are no longer enrolled in the plan. A model notice is available.
• Notice to participants in non-grandfathered plans regarding the patient protections that are available. A model notice is available.
• Prior to January 1, 2011, notice should be provided to employees that over-the-counter medication and drugs (except insulin) may only be reimbursed through medical account plans with a prescription.

Going forward, plans will be required to provide certain notices to plan participants, including the following:

• Written notice of any rescission must be provided at least 30 days in advance.
• Non-grandfathered plans must provide a culturally and linguistically appropriate notice to participants regarding the new appeals process and their options for assistance.

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!