What the Supreme Court Decision Upholding the Affordable Care Act Means to Employers: Full Steam Ahead!

In a landmark and controversial decision on June 28, 2012, the U.S. Supreme Court upheld the guts of the Patient Protection and Affordable Care Act of 2010 (ACA). While the decision does not end the debate, and discussions about healthcare cost and coverage will continue to be a focus for state and federal policymakers, the Court’s ruling means full steam ahead for employers sponsoring group health plans. An employer’s timely implementation and compliance with ACA is critical to avoid significant monetary penalties and potential lawsuits and audits from participants and the oversight federal agencies. This client alert serves as a refresher of the requirements that employers should have already implemented and the key provisions that employers will face in the very near future.

The Past

Since 2010, employers have expanded their group health plan coverage to comply with the new market reform provisions of ACA. The level of such enhancements depends on the grandfathered status of the group health plan; those with it, had to make some, but not all, of the market reform provisions, and those without grandfathered status need to comply with all of the market reform provisions. Below is a short summary of these past provisions impacting group health plans.

For Grandfathered and Non-Grandfathered Plans

• Adult children covered until age 26 (effective for calendar year plans on January 1, 2011) (noting a grandfathered plan can exclude adult children with “other available coverage” until January 1, 2014);
• Removal of lifetime and annual dollar limits with respect to essential health benefits (effective for calendar year plans on January 1, 2011) (special rules allow for a phase out of the annual dollar limits over three-year period phasing out January 1, 2014);
• No rescission of coverage (i.e., cannot cancel coverage on a retroactive basis) except in cases where the individual performs an act, practice or omission that constitutes fraud or makes an intentional misrepresentation of material fact (but prospective cancellation are still permitted) (effective for calendar year plans on January 1, 2011);
• Cannot impose preexisting condition exclusions on dependent children who are under age 19 effective for calendar year plans on January 1, 2011, and for all other individuals effective January 1, 2014; and
• Effective January 1, 2011 (regardless of plan year), over-the-counter medications (other than insulin and those prescribed by a physician) can no longer be reimbursed from a health flexible spending account or a health reimbursement arrangement, and penalties increased for nonqualified distributions from health savings accounts and Archer Medical Savings Accounts to a 20 percent excise tax (including reimbursements for over-the-counter medications (other than insulin and those prescribed by a physician).

For Non-Grandfathered Plans

• Must provide coverage for all “recommended preventive services” without imposing any cost-sharing requirements (e.g., deductibles, coinsurance or copayments) (effective for calendar year plans on January 1, 2011);
• Comply with patient protection rights, including right to designate primary care provider, pediatricians, or obstetrics or gynecology health care professionals without referrals and right to access emergency room services without prior authorization, network restrictions or higher cost-sharing for out-of-network requirements (effective for calendar year plans on January 1, 2011); and
• New enhanced appeals procedures and external review requirements (generally effective for calendar year plans on January 1, 2011.

No Rest for the Weary

Despite the herculean effort thus far, employers and their group health plans (including those with grandfathered or non-grandfathered status, except as otherwise noted) have a number of additional ACA requirements to implement in the very near future; the key ones are described below.

• Provide a Summary of Benefits and Coverage (SBC) to all participants and all eligible employees. The SBC generally will need to be furnished during Fall open enrollment period and subsequently at various times set forth by regulation. For additional information on the SBC requirements, including specific compliance dates, please visit www.dykema.com or give us a call.
• Report the cost of group health coverage on employees’ 2012 Form W-2 that must be issued by employers no later than January 31, 2013.
• Pay the Patient-Centered Outcomes Research Institute (PCORI) fee. The PCORI fee is intended to fund, on a short-term basis, comparative effectiveness research. The fee is $1 per covered life per plan year beginning on or after October 1, 2012, and then increased to $2 (indexed) each plan year thereafter until the entire fee is phased out October 1, 2019. The fee is paid to the IRS on Form 720 by the employer if the plan is self-funded and by the insurance issuer if the plan is fully-insured.
• Administer and pay any rebates received from health insurance issuers pursuant the Medical Loss Ratio rules beginning in 2012. Employers will need to determine, among other things, what portion, if any, of the rebate may be “plan assets” under ERISA and subject to the fiduciary requirements under ERISA. The Department of Labor has issued a technical release providing guidance on this issue. For non-federal governmental plans, the Department of Health and Human Services has issued separate guidance.  
• For plan year’s beginning on or after August 1, 2012, non-grandfathered group health plans must provide certain preventive care and screening for women without cost-sharing. These preventive services include:
• • Well-women visits
  • Screening for gestational diabetes
  • HPV DNA testing
  • Counseling and screening for HIV
  • Counseling for sexually transmitted infections
  • Contraceptive methods and counseling
  • Breastfeeding support, supplies and counseling
  • Screening and counseling for interpersonal and domestic violence
• Limit employee contributions to healthcare flexible spending accounts to $2,500 or less for plan years beginning on or after January 1, 2013.
• Provide all new hires and current employees with a written notice about the availability of the state health benefit exchanges by March 1, 2013.
• Beginning in 2013, subtract Medicare Part D subsidies received by an employer for its retiree prescription coverage when determining the employer’s deductible expenses for such program.
• Not impose a waiting period that exceeds 90 days effective for plan years beginning on or after January 1, 2014.
• Eliminate any preexisting condition exclusions and completely remove the phase-out annual dollar limitations on essential health benefits (effective for plan years beginning on or after January 1, 2014).
• Limit the out-of-pocket maximums (OPM) for non-grandfathered group health plans (these levels are consistent with HSA-compatible HDHP limits as indexed for inflation (currently $6,050 for single and $12,100 for family)). Similarly, the deductibles for non-grandfathered group health plan cannot exceed $2,000 for single coverage and $4,000 for any other coverage. These caps are effective for plan years beginning on or after January 1, 2014.
• Certain employers must report information to the IRS about the group health plan (e.g. design, enrollment, coverage) for calendar years beginning January 1, 2014.
• Effective on and after January 1, 2014, pay a penalty tax to the IRS if certain employers fail to offer health care coverage at specified levels to full-time employees or at a cost that is deemed not affordable. The oversight agencies will issue additional guidance. . .stay tuned.
  
• The State-based exchanges become available in 2014 to individuals and certain “small employers” (generally those employers that have, on average, at least one but not more than 100 employees during the preceding plan year).
• As part of the State-based Exchanges, each state will develop a temporary reinsurance program for the individual market. To help fund this temporary reinsurance program, health insurance issuers and third party administrators for self-funded group health plans must begin to make payments during 2014, 2015 and 2016 to help support this temporary reinsurance program.
• Cover routine patient cost associated with participation in clinical trials for non-grandfathered plans effective for plan years beginning on or after January 1, 2014.
• If an employer maintains a health standard-based wellness program, the employer may decide to increase the amount of the reward offered or surcharge imposed under such program from 20 percent to 30 percent of the premium cost for self-only coverage, beginning in 2014.
• Beginning in 2017, States may allow large employer to participate in the State-based exchange.
• Beginning in 2018, the 40 percent nondeductible excise tax (Cadillac tax) on high-cost health coverage will go into effect.

Conclusion

Employers need to continue their timely efforts to implement these complex requirements. This effort requires not only imminent changes to your group health plans, but thoughtful consideration and planning on long-term strategies to achieving cost-effective and quality health care for employees. Please contact Amy Christen at 248-203-0760, Gabe Marinaro at 313-568-6874, the authors of this alert, or your Dykema attorney if you have questions regarding the Supreme Court’s decision or other general questions about the Affordable Care Act.

A Note From Dykema’s Government Policy Practice. While the U.S. Supreme Court has ruled the majority of the Affordable Care Act constitutional, the decision has precipitated much discussion and speculation of how the 113th Congress and, potentially a new president, could follow through with efforts to repeal and replace the law. The determination by the Supreme Court of the individual mandate as a tax has renewed debate over the costs and benefits of the legislation and raised the possibility that a Republican-controlled Congress could use the process of reconciliation, which only requires a simple majority, to dismantle the Affordable Care Act. At this point, further legislative activity regarding comprehensive health care reform will likely be determined by the outcome of the elections in November. For additional information on this topic, please contact a member of our Government Policy practice in Washington, D.C.

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_{¹Group health plans that were in existence on March 23, 2010 generally have grandfathered status as long as the plan does not make significant changes to its cost sharing structure and coverage provisions and the plan complies with participant notification and record retention requirements.} 

_{As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2012 Dykema Gossett PLLC.}