WASHINGTON—Employers are allowed to change insurers without their health care plans automatically losing grandfathered status under the health care reform law, federal regulators said Monday.
In a reversal of their previous position, the Departments of Labor, Treasury and Health and Human Services said forcing an employer to stay with an insurer to keep a health plan’s grandfathered status would give that insurer an unfair advantage.
“If an employer has to stay with the same insurance company to keep the benefits of having a grandfathered plan, the insurance company has undue and unfair leverage in negotiating the price of coverage renewals,” according to an HHS fact sheet.
In addition, “allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have,” HHS said.
Like the original rule, self-funded employers also will be able to change plan administrators without losing grandfathered status for their plans.
Grandfathered plans are shielded from certain health care reform law requirements, such as providing full coverage of preventive services.
The agencies noted that they received many comments on the initial rule that would have stripped grandfathered status for plans that changed insurers. The change in position was in response to those comments, HHS said.
Monday’s action came after federal regulators signaled in September that they intended to modify the original rule
To view the full article click here
Tuesday, November 16, 2010
Friday, October 29, 2010
Additonal Guidance on Grandfathered Plans Released
The U.S. government recently released several additional FAQs clarifying grandfathered status regulations for existing health plans that are hoping to avoid compliance with certain reform provisions next year.
The guidance confirms that the six conditions outlined in the interim final regulations released in June are the only conditions that plans must comply with to attain grandfathered status. If all of these conditions are met, existing health plans are exempt from certain provisions of the health care reform laws, such as providing free preventive care services and an external review process for appeals.
Those conditions are as follows:
• Benefits may not be substantially reduced or eliminated from the plan.
• Co-insurance cost-sharing percentages cannot be significantly increased.
• The deductible or out-of-pocket maximum must not increase by an amount exceeding 15 percent more than medical inflation.
• The copayment listed under the plan may not increase by an amount exceeding 15 percent or $5 more than medical inflation (the greater of the two options).
• The employer’s contribution to the plan’s cost cannot decrease by more than 5 percent.
• The insurer cannot impose annual and/or lifetime limits below a certain amount.
The guidance reiterates that grandfathered status will be determined on a singular basis; an employer might have one grandfathered benefits package that is exempt from those specific provisions, and another that is not grandfathered and subject to all provisions.
It also explores the effect that wellness program changes will have on grandfathered status. The guidance states that offering incentives such as premium discounts to wellness program participants will be permitted, but imposing penalties such as cost-sharing surcharges may violate the terms of maintaining grandfathered status.
There has been speculation that the administration may alter the regulations released in June to make it easier for employers to maintain grandfathered status. Currently, the regulations state that employers seeking grandfathered status for their plans cannot enter into a “new policy, certificate, or contract of insurance” after March 23, 2010, suggesting that changing carriers would eliminate the plan from grandfathered status even if benefits remain the same. This regulation may be adjusted in the near future to allow for carrier changes as long as the plan’s benefits remain relatively similar.
To read the FAQs in their entirety, click here.
The guidance confirms that the six conditions outlined in the interim final regulations released in June are the only conditions that plans must comply with to attain grandfathered status. If all of these conditions are met, existing health plans are exempt from certain provisions of the health care reform laws, such as providing free preventive care services and an external review process for appeals.
Those conditions are as follows:
• Benefits may not be substantially reduced or eliminated from the plan.
• Co-insurance cost-sharing percentages cannot be significantly increased.
• The deductible or out-of-pocket maximum must not increase by an amount exceeding 15 percent more than medical inflation.
• The copayment listed under the plan may not increase by an amount exceeding 15 percent or $5 more than medical inflation (the greater of the two options).
• The employer’s contribution to the plan’s cost cannot decrease by more than 5 percent.
• The insurer cannot impose annual and/or lifetime limits below a certain amount.
The guidance reiterates that grandfathered status will be determined on a singular basis; an employer might have one grandfathered benefits package that is exempt from those specific provisions, and another that is not grandfathered and subject to all provisions.
It also explores the effect that wellness program changes will have on grandfathered status. The guidance states that offering incentives such as premium discounts to wellness program participants will be permitted, but imposing penalties such as cost-sharing surcharges may violate the terms of maintaining grandfathered status.
There has been speculation that the administration may alter the regulations released in June to make it easier for employers to maintain grandfathered status. Currently, the regulations state that employers seeking grandfathered status for their plans cannot enter into a “new policy, certificate, or contract of insurance” after March 23, 2010, suggesting that changing carriers would eliminate the plan from grandfathered status even if benefits remain the same. This regulation may be adjusted in the near future to allow for carrier changes as long as the plan’s benefits remain relatively similar.
To read the FAQs in their entirety, click here.
Monday, October 25, 2010
IRS Delays Mandatory W-2 Reporting of Health Care Coverage Costs
On Tuesday October 12th, the IRS issued a notice providing interim relief to employers regarding reporting the costs of group health plan coverage to employees (Notice 2010-69). Under the notice, notification to employees on Form W-2 will not be required for 2011. The IRS also posted a draft 2011 Form W-2 on its site.
The health care reform legislation enacted in March requires employers to include the aggregate cost of applicable employer-sponsored health care coverage on employees’ W-2s for tax years starting on or after Jan. 1, 2011 (new IRC § 6051(a)(14)). The IRS decided that employers need additional time to make changes to their payroll systems and procedures to comply with this rule. Therefore, the notice says the reporting requirement will not be mandatory for W-2s issued for 2011 and employers will not be subject to penalties for failure to meet the requirements of section 6051(a)(14) for 2011 tax years.
Employers who choose to report 2011 health care coverage costs to their employees will do so in Box 12 using the code “DD.” The IRS anticipates issuing guidance on the reporting requirement before the end of the year.
To read the full article click here
The health care reform legislation enacted in March requires employers to include the aggregate cost of applicable employer-sponsored health care coverage on employees’ W-2s for tax years starting on or after Jan. 1, 2011 (new IRC § 6051(a)(14)). The IRS decided that employers need additional time to make changes to their payroll systems and procedures to comply with this rule. Therefore, the notice says the reporting requirement will not be mandatory for W-2s issued for 2011 and employers will not be subject to penalties for failure to meet the requirements of section 6051(a)(14) for 2011 tax years.
Employers who choose to report 2011 health care coverage costs to their employees will do so in Box 12 using the code “DD.” The IRS anticipates issuing guidance on the reporting requirement before the end of the year.
To read the full article click here
Friday, October 8, 2010
Health Care Reform: Tips for Open Enrollment
The first round of health care reform changes under the Patient Protection and Affordable Care Act of 2010 ("PPACA") goes into effect January 1, 2011 for calendar year group health plans. It's now crunch time for employers pulling together their open enrollment materials for 2011.
Click here to read more.
Click here to read more.
Wednesday, September 15, 2010
Judge Sets Hearing on Suit Challenging Health Reforms
PENSACOLA, Fla. (Reuters)—A Florida judge said Tuesday he would hear arguments Dec. 16 on a lawsuit by 20 U.S. states seeking to block President Barack Obama's overhaul of the U.S. health care system.
U.S. District Judge Roger Vinson, who is weighing a motion by the Justice Department to dismiss the lawsuit, ordered the follow-up hearing on the lawsuit led by Florida and involving 19 other states, which was originally filed in March by mostly Republican state attorneys general.
Judge Vinson said he would formally rule on the dismissal motion by Oct. 14, but Florida Attorney General Bill McCollum said the judge had already strongly indicated that the case would not be dismissed.
"The judge's apparent decision today means we will proceed," Mr. McCollum told reporters.
He was referring to what transpired during nearly two hours of arguments in Vinson's Pensacola courtroom Tuesday. During the hearing, the judge said he would likely reject "at least one" of the government's motions for dismissal of the case, but he did not elaborate.
An adverse ruling on the dismissal would be a setback for the White House, forcing it to defend its reforms in the middle of a tough campaign before the November midterm congressional elections.
The lawsuit claims the sweeping reform of the $2.5 trillion U.S. health care system, pushed through by President Obama's fellow Democrats in Congress after months of bitter partisan wrangling, violates state government rights in the Constitution and will force massive new spending on hard-pressed state governments.
The new health care law is a cornerstone of President Obama's domestic agenda and aims to expand health insurance for millions more Americans while curbing costs. Obama officials have insisted it is constitutional and is necessary to stem huge projected increases in health care expenses.
To view the full article click here
U.S. District Judge Roger Vinson, who is weighing a motion by the Justice Department to dismiss the lawsuit, ordered the follow-up hearing on the lawsuit led by Florida and involving 19 other states, which was originally filed in March by mostly Republican state attorneys general.
Judge Vinson said he would formally rule on the dismissal motion by Oct. 14, but Florida Attorney General Bill McCollum said the judge had already strongly indicated that the case would not be dismissed.
"The judge's apparent decision today means we will proceed," Mr. McCollum told reporters.
He was referring to what transpired during nearly two hours of arguments in Vinson's Pensacola courtroom Tuesday. During the hearing, the judge said he would likely reject "at least one" of the government's motions for dismissal of the case, but he did not elaborate.
An adverse ruling on the dismissal would be a setback for the White House, forcing it to defend its reforms in the middle of a tough campaign before the November midterm congressional elections.
The lawsuit claims the sweeping reform of the $2.5 trillion U.S. health care system, pushed through by President Obama's fellow Democrats in Congress after months of bitter partisan wrangling, violates state government rights in the Constitution and will force massive new spending on hard-pressed state governments.
The new health care law is a cornerstone of President Obama's domestic agenda and aims to expand health insurance for millions more Americans while curbing costs. Obama officials have insisted it is constitutional and is necessary to stem huge projected increases in health care expenses.
To view the full article click here
Friday, September 10, 2010
Guidance Issued on 2011 FSA / HSA Changes
The Patient Protection and Affordable Care Act (PPACA) changed the requirements related to reimbursements for over-the-counter (OTC) drugs. These changes affect health FSAs, HRAs, HSAs and Archer MSAs, which will need a prescription to reimburse the costs of OTC drugs purchased after December 31, 2010.
On September 3, 2010, the IRS released IRS Notice 2010-59, which provides additional information on this requirement. The notice states:
· Reimbursement is restricted to prescribed drugs, insulin and OTC drugs that have a
prescription;
· Health FSA and HRA debit cards cannot be used for OTC drugs, except as provided in the notice; and
· Required cafeteria plan amendments must be adopted by June 30, 2011 and can be retroactively effective.
See www.ecfc.org/files/legislative-news/n-10-59.pdf for a copy of the Notice.
IRS NOTICE 2010-59
General Rule
The Notice provides guidance on Section 9003 of PPACA, which revises the definition of “medical expenses” for employer-provided accident and health plans, including health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs). PPACA Section 9003 also revises the definition of “qualified medical expenses” for health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs). Section 9003 applies after December 31, 2010.
Under these rules, tax-free payment or reimbursement is only available after December 31, 2010, for expenses incurred for a medicine or drug if the medicine or drug is a prescribed drug (determined without regard to whether the drug is available without a prescription) or is insulin. This means that these expenses may be paid or reimbursed by an employer-provided plan (including a health FSA or HRA) or reimbursed tax-free by an HSA or Archer MSA if the medicine or drug:
· Requires a prescription;
· Is an OTC medicine or drug and the individual obtains a prescription; OR
· Is insulin.
Note that expenses incurred for OTC medicines or drugs purchased without a prescription before January 1, 2011, may be reimbursed tax-free at any time, pursuant to the terms of the plan.
What Is a Prescription?
For purposes of these rules, the Notice clarifies that a prescription means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.
What About Other OTC Items?
The Notice makes clear that the requirement to get a prescription does not apply to OTC items that are not medicines or drugs, including equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits. These items can qualify for medical care if they otherwise meet the tax code’s definition of medical care, which includes expenses for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. However, expense for items that are merely beneficial to the general health of an individual, such as an expenditure for a vacation, are not expenses for medical care.
Rules for Debit Cards
In most cases, health FSA and HRA debit cards will not be able to be used to purchase OTC medicines or drugs, effective January 1, 2011. This is because current debit card systems are not capable of recognizing and substantiating that the OTC medicine or drug were prescribed. However, see below for an exception for purchases at certain pharmacies. Also, debit cards may continue to be used for medical expenses other than OTC medicines or drugs.
In order to facilitate the significant changes to existing systems necessary to reflect the new rules, the IRS will not challenge the use of debit cards for expenses incurred through January 15, 2011, as long as the use follows existing rules. However, on and after January 16, 2011, OTC medicine or drug purchases at all providers and merchants must be substantiated before reimbursement may be made. This is the case even if the provider or merchant has an inventory information approval system (IIAS). Substantiation is accomplished by submitting the prescription (or a copy of the prescription or other documentation that a prescription has been issued) for the OTC medicine or drug and other information from an independent third party that satisfies existing requirements.
The Notice gives examples of documentation that would satisfy the substantiation requirements for OTC medicines or drugs:
· A customer receipt issued by a pharmacy which identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number.
· A similar receipt without an Rx number that is accompanied by a copy of the related prescription.
As noted above, there is an exception to the restrictions on debit card use for certain pharmacies. Prior IRS guidance (Notice 2007-2) provides that health FSA and HRA debit cards may be used at a pharmacy that does not have an IIAS if 90 percent of the store’s gross receipts during the prior taxable year consists of items which qualify as expenses for medical care under Internal Revenue Code Section 213(d). The Notice states that, until further guidance is issued, debit cards may be used at a pharmacy that satisfies the 90-percent test to purchase OTC medicines or drugs that have been prescribed, provided that substantiation is properly submitted in accordance with the terms of the plan. The prescription (or a copy of the prescription or other documentation that a prescription has been issued) and other information from an independent third party must be included. For the purpose of determining whether a pharmacy meets the 90-percent test, sales of OTC medicines and drugs at the pharmacy may continue to be taken into account after December 31, 2010.
Transition Rule for Cafeteria Plans
Cafeteria plans may need to be amended to follow the new requirements for OTC medicines and drugs. In general cafeteria plan amendments may be effective only prospectively. However, the Notice states that, notwithstanding the general rule against retroactive amendments, an amendment to conform to the cafeteria plan to the new OTC drug requirements that is adopted no later than June 30, 2011, may be made effective retroactively for expenses occurred after December 31, 2010 (or after January 15, 2011 for health FSA and HRA debit card purchases).
Effective Dates
For expenses incurred after December 31, 2010, payments or reimbursements for medicines or drugs from an employer-provided accident and health plan, including a health FSA or HRA, are restricted to prescribed drugs, insulin, and OTC drugs that are prescribed.
This effective date applies regardless of whether the plan year for the employer’s plan is a fiscal or calendar year or whether there is no plan year (or other coverage period in the case of an HRA), and regardless of any applicable grace period for a health FSA.
Tax-free distributions for qualified medical expenses from an HSA or Archer MSA for medicines or drugs purchased after December 31, 2010, are restricted to prescribed drugs, insulin and OTC medicines or drugs that are prescribed.
On September 3, 2010, the IRS released IRS Notice 2010-59, which provides additional information on this requirement. The notice states:
· Reimbursement is restricted to prescribed drugs, insulin and OTC drugs that have a
prescription;
· Health FSA and HRA debit cards cannot be used for OTC drugs, except as provided in the notice; and
· Required cafeteria plan amendments must be adopted by June 30, 2011 and can be retroactively effective.
See www.ecfc.org/files/legislative-news/n-10-59.pdf for a copy of the Notice.
IRS NOTICE 2010-59
General Rule
The Notice provides guidance on Section 9003 of PPACA, which revises the definition of “medical expenses” for employer-provided accident and health plans, including health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs). PPACA Section 9003 also revises the definition of “qualified medical expenses” for health savings accounts (HSAs) and Archer medical savings accounts (Archer MSAs). Section 9003 applies after December 31, 2010.
Under these rules, tax-free payment or reimbursement is only available after December 31, 2010, for expenses incurred for a medicine or drug if the medicine or drug is a prescribed drug (determined without regard to whether the drug is available without a prescription) or is insulin. This means that these expenses may be paid or reimbursed by an employer-provided plan (including a health FSA or HRA) or reimbursed tax-free by an HSA or Archer MSA if the medicine or drug:
· Requires a prescription;
· Is an OTC medicine or drug and the individual obtains a prescription; OR
· Is insulin.
Note that expenses incurred for OTC medicines or drugs purchased without a prescription before January 1, 2011, may be reimbursed tax-free at any time, pursuant to the terms of the plan.
What Is a Prescription?
For purposes of these rules, the Notice clarifies that a prescription means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.
What About Other OTC Items?
The Notice makes clear that the requirement to get a prescription does not apply to OTC items that are not medicines or drugs, including equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits. These items can qualify for medical care if they otherwise meet the tax code’s definition of medical care, which includes expenses for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. However, expense for items that are merely beneficial to the general health of an individual, such as an expenditure for a vacation, are not expenses for medical care.
Rules for Debit Cards
In most cases, health FSA and HRA debit cards will not be able to be used to purchase OTC medicines or drugs, effective January 1, 2011. This is because current debit card systems are not capable of recognizing and substantiating that the OTC medicine or drug were prescribed. However, see below for an exception for purchases at certain pharmacies. Also, debit cards may continue to be used for medical expenses other than OTC medicines or drugs.
In order to facilitate the significant changes to existing systems necessary to reflect the new rules, the IRS will not challenge the use of debit cards for expenses incurred through January 15, 2011, as long as the use follows existing rules. However, on and after January 16, 2011, OTC medicine or drug purchases at all providers and merchants must be substantiated before reimbursement may be made. This is the case even if the provider or merchant has an inventory information approval system (IIAS). Substantiation is accomplished by submitting the prescription (or a copy of the prescription or other documentation that a prescription has been issued) for the OTC medicine or drug and other information from an independent third party that satisfies existing requirements.
The Notice gives examples of documentation that would satisfy the substantiation requirements for OTC medicines or drugs:
· A customer receipt issued by a pharmacy which identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number.
· A similar receipt without an Rx number that is accompanied by a copy of the related prescription.
As noted above, there is an exception to the restrictions on debit card use for certain pharmacies. Prior IRS guidance (Notice 2007-2) provides that health FSA and HRA debit cards may be used at a pharmacy that does not have an IIAS if 90 percent of the store’s gross receipts during the prior taxable year consists of items which qualify as expenses for medical care under Internal Revenue Code Section 213(d). The Notice states that, until further guidance is issued, debit cards may be used at a pharmacy that satisfies the 90-percent test to purchase OTC medicines or drugs that have been prescribed, provided that substantiation is properly submitted in accordance with the terms of the plan. The prescription (or a copy of the prescription or other documentation that a prescription has been issued) and other information from an independent third party must be included. For the purpose of determining whether a pharmacy meets the 90-percent test, sales of OTC medicines and drugs at the pharmacy may continue to be taken into account after December 31, 2010.
Transition Rule for Cafeteria Plans
Cafeteria plans may need to be amended to follow the new requirements for OTC medicines and drugs. In general cafeteria plan amendments may be effective only prospectively. However, the Notice states that, notwithstanding the general rule against retroactive amendments, an amendment to conform to the cafeteria plan to the new OTC drug requirements that is adopted no later than June 30, 2011, may be made effective retroactively for expenses occurred after December 31, 2010 (or after January 15, 2011 for health FSA and HRA debit card purchases).
Effective Dates
For expenses incurred after December 31, 2010, payments or reimbursements for medicines or drugs from an employer-provided accident and health plan, including a health FSA or HRA, are restricted to prescribed drugs, insulin, and OTC drugs that are prescribed.
This effective date applies regardless of whether the plan year for the employer’s plan is a fiscal or calendar year or whether there is no plan year (or other coverage period in the case of an HRA), and regardless of any applicable grace period for a health FSA.
Tax-free distributions for qualified medical expenses from an HSA or Archer MSA for medicines or drugs purchased after December 31, 2010, are restricted to prescribed drugs, insulin and OTC medicines or drugs that are prescribed.
Wednesday, September 1, 2010
First Round of Approved Applications for Early Retiree Reinsurance Program Released
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