Publications: Health Care Reform - Action Needed Before December 31, 2010

Below are two checklists of action items employers must take with respect to their health care plans to prepare for the coming plan year, together with the penalties for failure to comply.

The first checklist covers items that are effective with the first plan year that begins on or after September 23, 2010. The second checklist includes items that are effective January 1, 2011, regardless of the plan year of the plan.

Employers should be working with their insurance brokers, payroll providers and benefits counsel to amend their plan and SPD documents, prepare employee communication materials and otherwise maintain the tax and legal compliance of their affected plans.

1.) Items Effective with First Plan Year Beginning on or after September 23, 2010
The requirements in the table below are effective with the first plan year that begins on or after September 23, 2010. For example, if a health care plan has a December 1 plan year, the items will be effective December 1, 2010.

Penalty: An excise tax may be imposed for a failure to comply with any of the requirements below. The excise tax equals $100 per day, per individual with respect to whom the plan does not comply.

• Coverage of Adult Children to Age 26 (applies only if the plan covers children)

The plan must provide an enrollment opportunity to adult children who were previously ineligible; associated plan/insurance contract amendments must be adopted and notices and forms must be prepared and distributed.

In addition: The employer’s cafeteria plan may need to be amended to continue favorable tax treatment for expenses incurred on behalf of adult children.

• Amendments to Accommodate other Coverage Enhancements

These enhancements include:

• Prohibition on recission of coverage for plan participants and beneficiaries
• Elimination of lifetime and annual dollar limits (applies differently to grandfathered and non-grandfathered plans)
• 100% coverage for preventive care (non-grandfathered plans only)
• Patient protections (primary care provider selection, access to pediatricians, access to OB/GYN care, coverage of emergency room treatment) (non-grandfathered plans only)
• Ban on pre-existing condition exclusions for those under age 19 (non-grandfathered plans only)
• The plan/insurance contract must be amended and notices and an updated summary plan description should be provided. Employers with self-insured plans should negotiate with their stop-loss insurers over the effect of coverage enhancements on stop-loss coverage.

• Prohibition on Discrimination for Insured Plans(non-grandfathered plans only)

Insured plans may not discriminate in favor of highly compensated individuals.

Employer must review plan design to ensure no prohibited discrimination will occur, and make any necessary changes. (For example, some employers provide more favorable benefits or cost sharing arrangements for executives, which practices must cease.)

• Appeals Process Changes (non-grandfathered plans only)

An external review process must be added to the plan’s claim and appeal process.

In addition, the enrollee must receive continued plan coverage during the appeal process.

New regulations expand current requirements regarding notices of the appeal process and the enrollee’s ability to review the claim file and present evidence and testimony.

Employers must review and modify plan claim and appeal processes, paying special attention to ensure the plan administrator has appropriate control over claim and appeal decisions.

2.) Items Effective January 1, 2011, Regardless of Plan Year

The requirements in the table below are calendar year requirements, and are not sensitive to when the plan year begins.

Penalties: See each item below for the penalties applicable to it.

• Over-the Counter Drug Amendments

Expenses incurred after December 31, 2010 for over-the-counter drugs that are not prescribed (other than insulin) may not be reimbursed from health care flexible spending arrangements or health reimbursement arrangements. Amounts paid from health spending accounts and Archer MSAs for non-prescribed over-the-counter drugs (other than insulin) are not excludible from income, and will be subject to a 20% penalty under the health care reform law.

Employers must amend plans and provide summaries of material modification describing the change.

Penalty: If a timely amendment is not adopted, the IRS can insist that all participants include in their income all amounts they could have elected under the cafeteria plan (that is, the total value of pre-tax premiums plus the maximum amount they could elect under flexible spending arrangements).

• Reasonable Break Time for Nursing Mothers

The employer must provide:

• Reasonable break time (as determined by the mother) for nursing mothers to express milk 
• A place (that is not the restroom) to express milk.

The employer does not have to compensate the employee for the break. Does not apply to an employer with fewer than fifty employees if it would impose an undue hardship.

Employers should expect to have to provide notices of their break policies and the locations of the break rooms.

Penalties: An employee can sue for two times wages (for the missed breaks), plus attorney’s fees. Willful failure to comply can result in fines of up to $10,000 and imprisonment for up to six months.

It should be noted that neither your broker, insurer nor TPA is responsible for tax or legal compliance.