Health Care Reform Update

Guidance on W-2 Reporting of Aggregate Cost of Health Coverage

For the 2012 calendar year, most employers must begin reporting the cost of employer-provided group health care coverage on their employees’ Form W-2. The IRS issued guidance earlier this year in IRS Notice 2011-28 on these new reporting obligations, which are briefly described below.

With certain exceptions, private, public and church employers are subject to these new reporting obligations. Excepted employers include those required to file fewer than 250 W-2s for the preceding calendar year (which exemption will continue to apply at least until 2014 or until further guidance provides otherwise), federally recognized Indian tribal governments, or employers that contribute only to a multiemployer welfare plan. Employers subject to the new requirement will need to include the cost of such group health care coverage on the 2012 Form W-2s (required to be furnished to employees in January 2013). The new reporting obligation is meant to inform employees of the cost of their health care coverage; it does not make otherwise excludable employer-provided health care coverage
taxable to employees.

An employer should report the aggregate cost of any group health benefits made available to employees but may exclude the cost of certain types of health benefits, which currently include stand-alone dental and/or vision benefits, long-term care benefits, amounts contributed to health savings accounts or flexible spending accounts (with certain exceptions), health reimbursement arrangements, or coverage for accident and/or disability income insurance. While the guidance provides four different methods to calculate the cost to be reported, the cost generally will be equal to the premium amount charged under a fully insured plan, or 100 percent of the COBRA premium rate (i.e., without the 2 percent COBRA administrative fee) for self-funded plans, either of which will include both the employer and employee contributions toward the cost of coverage (regardless of whether they are made on a pre-tax or after-tax basis).

Employers that fail to comply with the new reporting obligation will be subject to a penalty of $200 per Form W-2, capped at $3 million per employer. Employers subject to these new reporting requirements should begin working with their payroll department or providers to set up the infrastructure for calculating the reportable cost of their group health care coverage.

Recommended Preventive Services Expanded to Include Additional Preventive Services for Women

Health Care Reform requires non-grandfathered group health plans to provide recommended preventive services at no cost to participants. These items and services have been recently updated by the Health Resources and Services Administration (HRSA) to include the following additional preventive services for women:

Well-women visits	Counseling and screening for HIV
Screening for gestational diabetes	Contraceptive methods and counseling
HPV DNA testing	Breastfeeding support, supplies and counseling
Counseling for sexually transmitted infections	Screening and counseling for interpersonal and domestic violence

These expanded preventive services for women must be added for non-grandfathered calendar year plans beginning with the 2013 calendar year and for non-calendar year plans, by August 1, 2012 (unless otherwise exempted by HRSA guidance).

Request for Waiver from Complying with Health Care Reform’s Restriction on Annual Dollar Limits on Essential Health Benefits

Health Care Reform restricts until 2014, and then bans after 2014, a group health plan from imposing annual dollar limits on essential health benefits provided to participants. The agencies recognized, however, that requiring certain types of health plans (e.g., mini-med plans) to comply with the new rules could cause the premiums for such plans to increase significantly, forcing employers to drop coverage and leaving some workers without even the minimal insurance coverage they have today. As a result, CMS (through its Center for Consumer Information and Insurance Oversight ("CCIIO") accepted formal waiver requests from certain health plans to be exempt from the restrictions on annual dollar limits at least through 2014. CCIIO recently revised its guidance on the waiver-request process for plans that have already received a waiver and want to renew it for plan or policy years beginning before January 1, 2014. The new guidance extends the duration of waivers granted through 2013, but only if applicants submit annual information about their plan and comply with requirements to ensure that their enrollees understand the limits of their coverage. Existing waiver recipients must apply to extend their current waiver, and all applications must be submitted by September 22, 2011. After that date, applications for an extension will no longer be considered. Any plans that have not yet applied for a waiver also must apply by September 22, 2011.

Pursuant to federal regulations, certain types of health reimbursement arrangements (“HRAs”) may continue to impose annual dollar limits on essential health benefits (even without applying for a waiver). These HRAs include an arrangement that reimburses active employees solely for deductible expenses incurred under an employer’s major medical plan, or an arrangement that reimburses the eligible medical expenses of only retired employees. This means that an HRA linked to an employer’s major medical plan or a standalone retiree HRA are not subject to Health Care Reform’s restrictions/ban on imposing annual dollar limits on essential health benefits. Until recently, a stand-alone HRA maintained to reimburse active employees for any eligible medical expenses (without limiting such reimbursements to deductible expenses incurred under the employer’s major medical plan) appeared to be subject to the new annual dollar restrictions under Health Care Reform; thus, an employer could maintain such a general-purpose HRA only if it was willing to comply with such new rules (i.e., increase and then completely remove by 2014 the annual dollar limit) or if it applied with CCIIO for a formal waiver to be exempt from such rules. Thankfully, CCIIO published supplemental guidance on August 19, 2011, that exempts HRAs that are subject to the restricted annual limits as a class from having to apply individually for a waiver. To take advantage of this class exemption, which remains effective until January 1, 2014, the HRA must have been in effect prior to September 23, 2010, and must continue to comply with the record retention and annual notice requirements to participants, as set forth in the guidance issued by CCIIO (click here for a model notice unique to HRAs and applicable requirements and deadlines in connection with the model notice). The annual notice must be provided to newly eligible participants and subscribers at the beginning of the plan year. If the plan year has already begun and the annual notice has not been issued, it must be provided within 60 days of the publication of the supplemental guidance, or October 18, 2011.

Amendments to Internal Claims Procedures and External Review Rules

Health Care Reform established additional internal claims review procedures and created new external review and other rights for nongrandfathered health plans. The agencies originally issued interim final regulations regarding such claims review procedures in July 2010, which guidance has been recently amended in a number of respects, including:

• Removal of the 24 hour decision-making deadline for pre-service urgent care claims and reverting back to the original 72 hour rule in the DOL claims procedures regulation.
• No longer requiring that the diagnosis and treatment codes automatically be included as part of a notice of adverse benefit determination and, instead, simply inform claimants of the opportunity to request the diagnosis and treatment codes.
• Creating an exception to the claimant’s ability to seek immediate external review or court action if the new internal procedures are not followed when the violation is de minimis, nonprejudicial, attributable to good cause or matters beyond the plan’s or issuer’s control, in the context of an ongoing good-faith exchange of information, and not reflective of a pattern or practice of noncompliance.
• Modifying when and how plan communications must be provided in a different language in a culturally and linguistically appropriate manner.

The amendments also included a number of other clarifications and transition rules. Employers should modify their non-grandfathered health plan documents (including a wrap welfare plan document and summary plan descriptions) and work with their insurance carriers or claims administrators to operationally comply with these expanded claims review procedures.

Summary of Benefits and Coverage—Proposed Regulations Issued

Health Care Reform requires all group health plans and health insurance issuers to furnish a uniform summary of benefits and coverage ("SBC") to plan participants by March 23, 2012. The SBC is meant to describe the benefits and coverage of each available health coverage option in a concise and uniform format so that employees can easily compare, contrast and understand the options being offered to them.

Proposed SBC regulations have been recently issued by the federal agencies. These regulations include guidance on who is responsible for providing the SBC, who receives it, the deadline for furnishing it and how it must be provided, and includes SBC templates, instructions and related materials (click here for more information). Note that a group health plan’s obligation to furnish an SBC to plan participants is in addition to ERISA’s requirements regarding the provision to plan participants of a summary plan description and summaries of material modification.

Employers should coordinate with their insurance carriers for fully insured plans and/or third-party administrators for self-funded plans to ensure that their group health plans are prepared to meet these SBC requirements in March 2012.

Please contact Amy Christen at 248-203-0760 author of this alert, or your Dykema relationship attorney if you have questions regarding these recent Health Care Reform updates or other general questions about Health Care Reform.

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