What with all the changes (18 new regs so far, and that’s just the start) emanating from the Affordable Care Act (!), here is a handy checklist for employers both large and small to review. There are a blizzard of new required disclosure notices, any one of which can put you in harms way if you miss one. Especially important are the grandfathered plans notice disclosures, which, based on my reading of things, will invalidate your grandfathered plan status if you miss the required employee disclosure. My recommendation would be to do this yearly, either at renewal or right now, at end of year.

Model language is important, too: this article includes links for the language that’s been “approved”.

Obviously, the big news this morning is the “individual mandate” decision rendered by Federal District Judge Hudson in Commonwealth of Virginia v. Sebellius, et al. Judge Hudson ruled that the individual mandate exceeded Congress’ Commerce Clause power and was, therefore, unconstitutional.

First, we have opponents of Obamacare chortling that the end is near, and secondly, we have Sen. Dick Durbin (D-IL) saying that (as if it were a baseball game) the Dems are up 2-1.

Neither is accurate, and both are misleading.

Opponents of Obamacare have seemingly forgotten that the individual mandate, the centerpiece of Virginia’s lawsuit against PPACA, was largely created and added to the legislation as an inducement to health insurers. Without it, due to adverse selection, health insurance companies will be destroyed in relatively short order. (I don’t believe that anyone even casually schooled in basic insurance principles, or simple economics, would disagree with that statement.)

Unfortunately, Judge Hudson severed the individual mandate from the Act, rather than rule that, given the unconstitutional nature of the individual mandate, the entire act was unconstitutional. While not without precedent, it is troubling, since the Act was passed without a severability clause, a small but important piece of legal boilerplate that says, essentially, if any part of this legislation is struck down, the rest remains. This means that, as of this moment, the funding mechanism for Obamacare has essentially been tossed, along with any “directly-dependent provisions”, but not the rest of Obamacare.

The thrust of the individual mandate argument demands that the entire Act be deemed unconstitutional. Assuming severability, the portions of the Act remaining will still be law, and that is an even bigger recipe for disaster (as if things could get any worse!).

Cut to the chase: This decision will ultimately be taken up by the Supreme Court, and could bypass the traditional appellate review. As the Virginia Attorney General said at one point this morning, “I’m sure it will be a 5-4 decision… I’m not sure which 5-4”. Justice Kennedy, anyone?

As to the  2-1 scorecard, Sen. Durbin is spinning the news for political purposes, of course. At least one of the other lawsuits wasn’t based on the same narrow criteria – Thomas More Law Center brought suit strictly on federally-funded abortion issues, while the suit involving Liberty College focused on the same individual mandate, albeit with the supporting argument that premiums would be used to pay for abortions. The reality is that the “score”, if you want to look at it that way, is really 1-1-1 (and I’m being charitable).

All of this pales in comparison to the 20 state lawsuit, filed in a Florida federal court (of which Colorado is a participant), suing the federal government over PPACA. That is where, in this observers’ opinion, the real action will be. For all I know, the Virginia case could seemingly be combined with the bigger, 20 state action when reviewed by the Supremes.

See comments by the Colorado AG on the Virginia ruling. Also, here.

Additional comments here, and here. And a legal opinion, here.

Employers may want to carefully review their fully-insured group health insurance plans given the changes wrought by The Patient Protection and Affordable Care Act (PPACA).

A fully insured health insurance plan sold on or after September 23, 2010 is not “grandfathered” under the current grandfather regulations, and is immediately subject to IRS Code Sec. 105(h) rules, which prohibit employers from discriminating in favor of highly compensated individuals, relative to other employees in eligibility and benefits under a group health plan. Non-grandfathered class/carve-out plans that only cover a class of employees, or cover such a class at a higher benefit level than another class, are prohibited under these new rules, and are subject to a $100 per day per failure penalty.

Plans sold after March 23, 2010 and before September 23, 2010, are also non-grandfathered, and are subject to the new 105(h) rules on the first day of its next plan year.

Lastly, a fully insured plan that was grandfathered on March 23, 2010, and subsequently loses its grandfathered status due to changes in the plan will be subject to 105(h) rules when the grandfathered status is lost, and may not be in compliance with the 105(h) rules.

So, what is a grandfathered plan? I thought you’d never ask! If coverage was provided by a group health plan in which an individual was enrolled on March 23, 2010, the coverage is grandfathered. To keep grandfathered status, the health plan must continuously enroll someone from March 23, 2010, onward (the plan must continuously cover someone since March 23, 2010).

There are a number of rules which affect a grandfathered health plans status; any one of these rules serve as a means to lose grandfathered status. Plan modifications to grandfathered health plans could cause loss of status; these modifications could include benefit eliminations, an increase in coinsurance percentage, increased cost-sharing, increased deductibles,  increased copayments, a decrease in an employers’ contribution by more than 5%, or any change in overall annual dollar limits.

(While it was originally ruled that changing a group health plan carrier would trigger loss-of-grandfathered status, federal regulators recently ruled that an employer may change carriers if the new plan is similar enough to the old plan to qualify for grandfathered status.)

A fully insured group health plan with a class/carve-out must maintain it’s grandfathered status or be in violation of the nondiscrimination rules under 105(h). For some employers, this is critical. Luckily, grandfathered health plans will be able to make routine changes to their policies and maintain their status. For instance, making modest adjustments to existing benefits, adopting new consumer protections under the new law, or making changes to comply with state and federal laws are allowed. Premium changes are not taken into account when determining whether or not a plan is grandfathered.

Caution: To maintain status as a grandfathered health plan, a plan or health insurance coverage must include a statement, in ANY plan materials provided to a participant, subscriber, or beneficiary describing the benefits provided under the plan or health insurance coverage, that the plan or coverage believes it is a grandfathered plan within the meaning of Section 1251, PPACA. Model language satisfying this disclosure requirement is available on-line. Employers need to be certain this information is distributed, or risk loss of their grandfathered status due to non-disclosure. Don’t assume that your health insurer is doing this!

Lastly, don’t forget that these new rules are largely intended to eliminate any discrimination in insured benefits. Given the new $100 per day, per participant excise tax penalty for nondiscrimination violations, a thorough review of employment agreements, offer letters and other documents providing for extended health coverage, as well as long term care insurance, for key employees or anyone highly compensated under Section 105(h), is highly recommended.

Q: “Would you mind enlightening me on the credit given to employers after March 2010 for up to 35% of employee health premiums if under 10 employees? I want to make sure I understand it correctly. Is this done by the insurance company or is this something the employer must do on their 941 report..”

Excellent question! The credit for small employer health insurance premiums was part of the Affordable Care Act passed earlier this year, and gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010, or, in IRS-speak in Notice 2010-82, “the credit is available for taxable years beginning after December 31, 2009”. The credit is, generally, 35% of premiums paid, claimed on Form 3800, General Business Credit.

The regulation deals with Form 8941, which allows some small employers a credit on a percentage of health insurance premiums paid for by the employer. That’s the easy part – the difficulty is in the details, which are described, based on the notice guidance, here. A summary flier is available, as well.

An “eligible small employer” uses Form 8941 to figure the credit. An eligible small employer must meed the following three requirements:

1. You paid premiums for employee health insurance coverage under a “qualifying arrangement”.
2. You had fewer than 25 “full-time equivalent employees” (FTEs) for the tax year.
3. You paid average annual wages for the tax year of less than $50,000 per FTE.

FYI: A “qualifying arrangement” is generally considered to be a fully-insured health insurance policy that requires you to pay a uniform percentage, not less than 50%, of the premium cost for each enrolled employee’s health insurance coverage.

Note that, for a tax-year beginning in 2010 only, “a qualifying arrangement includes any arrangement that requires you to pay at least 50% of the premium cost for single (employee-only) coverage for each employee enrolled in any health insurance coverage you provide to employees, whether or not you pay a uniform percentage of the health care premium cost for each enrolled employee”. For tax years after 2010, you must pay at least 50% of the enrolled employees health insurance coverage, not excluding dependents.

In your question, you mention 10 employees as a limit. Actually, what happens is that the credit is reduced if you had more than 10 FTEs; if you had more than 25 FTEs for the tax year, your credit is reduced to zero. There is also an average annual wage limitation which further reduces your credit if  you paid average annual wages of more than $25,000 for the tax year. The exact details and worksheet for figuring the credit are in the instruction for Form 8941, linked above.

So, who isn’t an employee for purposes of this credit?

1. The owner of a sole proprietorship,
2. A partner in a partnership,
3. A shareholder who owns, generally, more than 2% of an S Corp,
4. A shareholder who owns more than 5% of the outstanding stock in a non-S Corp

Note that there are additional details that expand on the above limitations in the Notice and instructions, and there are additional limitations on leased employees, seasonal employees, household and other non-business employees (although you do not have to be in a business or a trade to qualify for the credit), and Ministers.

For employers who are offering HRA’s or HSAs, there could be confusion. The guidance allows high-deductible health insurance plans (HDHPs) as health insurance coverage; it does not allow payments to HSA accounts, as defined under Sec. 223(d)(1) of the IRS Code. Similar restrictions on FSAs and other self-insured plans apply to the credit.

Lastly, if you reward your employees with a richer health insurance plan than average, you credit is further reduced for tax years beginning in 2010. Example: for Colorado employers, the average annual premium must not exceed $4,972 for employee-only coverage, or $11,437 for family coverage.

UPDATE: IRS guidance on small business health care tax  credit

DISCLAIMER: I am not a tax consultant, and this information is considered to be general in nature. Check the links above to download the Notice, Form, and Instructions. Always check with a tax professional, as the above information may change.

In May 2010, the Colorado Legislature passed HB 10-1021, which amended the Colorado Revised Statutes to “expand the state’s mandatory maternity coverage to individual [health insurance] policies”. This change in the law is effective January 1, 2011.

On December 3, 2010, the Colorado Division of Insurance has issued a new bulletin, B-4.36 “Statutory Interpretation of Possible Conflicting Provisions in HB 10-1021”, which advises carriers of the Division’s position and interpretation of the statute’s language in Section 10-16-104(3). According to the DOI, “bulletins are the DOI’s interpretation of existing insurance law or general statements of Division policy”.

In issuing their bulletin, the Division has found conflicting provisions in the law between the statute and the applicability clause in HB 10-1021. In part, the bulletin reads “based on the Division’s reading of the statute… the clear intent… was to expand coverage only to policies issued (and not renewed) on or after January 1, 2011…”.

The statute is in conflict with the applicability clause in HB 10-1021, which uses the term “issued or renewed”,  whereas the statute language simply uses the word “issued”.  The Division takes the position that “the language to the contrary in the applicability clause was an inadvertent mistake”. The Division cites discussions with the bill sponsor and Legislative Legal Services in making this interpretation of the statute.

Therefore, while insurers are encouraged to offer maternity and contraceptive coverage to renewing policies, they are not required to do so, and the change in law only applies to individual and group sickness and accident policies issued after January 1, 2011.

UPDATED: This interpretation of statute has been overruled – see my new post, dated March 15th, 2011.

To recap, interim regulations concerning the new minimum-loss-ratios (MLRs) were recently released for public comment.

OVERVIEW: Beginning in 2011, health insurers must spend at least 80%, or 85% for the large group (more than 100 employees) market, of premiums for medical care claim expenses and “health-care quality improvement”. Otherwise, they will be penalized – beginning in 2012, they will be required to provide rebates to their customers.

The National Association of Insurance Commissioners (NAIC) was entrusted with writing and creating the definitions and formula for calculating MLRs. The Department of Health and Human Services (HHS) reserved the authority to make final decisions about these regulations, based on the NAIC recommendations.

As previously mentioned in a prior post, HHS went along with the NAIC on their recommendations, for the most part. A review of the interim regulations shows that:

1. insurers are allowed to deduct state and federal taxes from premiums used to calculate MLRs.
2. agent/broker commissions, rather than being treated as pass-through expenses, will be treated as administrative expenses. (More on this in a moment)
3. anti-fraud programs are counted as admin expenses, rather than as quality improvements, as many in the health insurance industry had hoped.
4. MLRs, rather than being judged collectively, are required to be accounted for separately in every state.

Regarding so-called “mini-med” policies, of the kind that have elicited so much press recently concerning waivers from the new regulations on coverage, these plans will have at least another year to gather data before falling under the requirement. Mini-med plans are used in many service industries, in place of traditional health insurance policies, primarily due to costs. [Senator Rockefeller, D-WV, is holding a hearing Dec. 1 on whether limited-benefit “mini-med” plans should even be classified as health plans, which is certainly a shot-across-the-bow in the battle to have these  so-called “mini-med” plans removed from the market, forcing employers to provide much more expensive policies for all full and part-time employees – a jobs killer, for sure!]

States may apply to have the MLR standard adjusted or modified if the requirement would result in the destabilization of their individual health insurance market; some states have already said they will apply for such adjustments.

The agent/broker issue: Many in the industry are puzzled about why compensation, in the form of commissions, were treated as administrative expenses. It’s been argued that commissions aren’t premium income, but are a service charge or fee that is tacked on to the total premium and relayed to the agent as a pass-through expense. NAIC side-stepped this issue on first examination, but the truth is many people are concerned that, without insurance agents and brokers, state agencies would be overwhelmed with questions about how to purchase coverage, what kind of coverage, and so on. HHS, along with the NAIC, is participating in a working group, studying the agent-broker issue further, because of the concern that the market could be destabilized without properly trained and experienced professional agents and brokers helping consumers make informed choices. Developing…

Health care reform will change how employees may use their health care flexible spending accounts, health reimbursement arrangements, health savings accounts, and Archer medical savings accounts, starting on January 1, 2011.

The IRS issued Notice 2010-59 which provides information about these changes. Two important changes are an increased penalty for nonqualified HSA and MSA distributions, up from 10% to 20%, and that prescriptions are now required for over-the-counter (OTC) drugs, with the exception of insulin. Flexible spending account holders who have valid prescriptions for OTC items must pay up front and then provide proof when they request reimbursement.

For OTC items that aren’t drugs, such as bandages, blood sugar testing supplies, catheters and so on, members can continue to use spending account funds to pay for these expenses.

TIP: If an employer has a cafeteria plan allows members to use spending account funds for OTCs, the plan will need to be amended. There is a transition period allowed for this change – an amendment made before June 30, 2011 may be made retroactively for expenses incurred on or after January 1, 2011. Contact your third party administrator (TPA) to get this accomplished.

The new health care reform law established, for the first time, federal definitions of “small employer” and “large employer” for health insurance markets. Prior to the passage of this legislation, states defined these markets for themselves.

Here are the new rules:

• From now until 2016, states can define the size of small employer groups as either 50 and fewer employees, or 100 and fewer.

Colorado has defined “small employer” for group insurance purposes as 50 or fewer, and there doesn’t seem to be any rush to change this with the passage of federal law, for now.

Beginning in 2016, the new definitions will apply – businesses with, on average, 1-100 employees in the preceding calendar year will be “small employers”. “Large employers” will be those who had, on average, 101 or more employees in the preceding calendar year (and at least one employee on the first day of the plan year).

For employers who are used to calculating COBRA continuation eligibility, the full-time calculation accounts for both full-time and part-time employees, using the same general formula (part-time employees counted as fractions).

TIP: Full-time seasonal employees who worker fewer than 120 days during the year are excluded.

There are inconsistencies in the application of these new federal definitions that will need to be ironed out, assuming the entire health reform act isn’t amended, repealed and replaced, or successfully challenged in court.

In a press release dated November 29th, Barbara Kelley, head of the Department of Regulatory Agencies, State of Colorado, announced the departure of Marcy Morrison as Colorado Insurance Commissioner.

Effective December 1st, 2010, Morrison will be replaced on an interim basis by John Postolowski, who is currently the Deputy Commissioner of finance and administration at the DOI.

Postolowski has been described as a “veteran” state employee. He will serve in this capacity until Governor-Elect Hickenlooper appoints a permanent replacement.