Agencies Release More Health Care Reform FAQs

March 20, 2013

On January 24, 2013, the agencies charged with implementing the health care reform law (the Departments of Labor, Treasury and Health and Human Services) released another set of FAQs that address employers’ questions regarding compliance with the law. The FAQs address a variety of topics involving health care reform. The FAQs also announced a delay to the March 1, 2013 deadline for employers to distribute to employees a notice on the health insurance exchanges. This article specifically discusses the FAQS on the exchange notice delay, how the law affects health reimbursement arrangements (HRAs), and when fixed indemnity coverage constitutes excepted benefits.


Exchange Notice Delayed

The Patient Protection and Affordable Care Act (PPACA) amended the Fair Labor Standards Act (FLSA) to require that employers who are subject to the FLSA provide notice, no later than March 1, 2013, to all of their current employees stating that they may be eligible to purchase health coverage through a health insurance exchange in lieu of participating in employer-sponsored coverage. PPACA further required that employees hired after March 1, 2013 be provided the notice at time of hire. Note that employers are subject to this notice requirement even if they do not offer any health benefits to employees, and employees are entitled to the notice even if they are not eligible for any health plan offered by the employer.

The required notice must inform employees of the existence of a health insurance exchange, must describe the services that the exchange provides and must tell employees how to contact the exchange to request assistance. The notice must also explain that employees may be eligible for a premium tax credit or a cost-sharing reduction through the exchange in certain circumstances. Finally, the notice must explain the potential consequences to the employee of choosing to purchase coverage through the exchange (i.e., loss of any employer contributions toward the cost of coverage under the employer’s health plan and loss of the federal tax exclusion for most such employer contributions).

The new FAQs explain that, for a variety of reasons, the agencies concluded that the exchange notice requirement would not take effect on March 1, 2013. While the agencies did not provide a deadline when the notice must now be distributed, they indicated that they expect the timing for distribution of notices will be the late summer or early fall of 2013 to coordinate with the open enrollment period for the insurance exchanges (which is currently slated to begin October 1, 2013). The guidance further provides that future guidance on how to comply with the notice requirement “is expected to provide flexibility and adequate time to comply.” The FAQs indicate that the agencies are considering various options for the form of the exchange notice, including the possibility of issuing a model notice or incorporating the exchange notice information into other forms that the agencies may provide for employers’ use.


HRAS

Under PPACA, group health plans and health insurers are prohibited from imposing lifetime or annual dollar limits on essential health benefits. The effective date for most plans was the 2011 plan year, but the law included a phase-in for the annual limit prohibition. In addition, a waiver process was instituted under which, for a limited time, approved plans could have annual limits lower than those permitted under the phase-in provisions. The waiver is available only until the 2014 plan year.

When the annual dollar limit regulations were released, they provided an exemption from the annual dollar limits for an HRA that was integrated with other group health plan coverage. When an HRA is integrated with other group health plan coverage, and the group health plan coverage (by itself) is compliant with the restrictions on annual dollar limits, the fact that the HRA, by itself, would not be compliant is excused because the combined benefits satisfy the requirement. However, the guidance did not address those HRAs that could neither meet the criteria for an available exemption from the rules on annual dollar limits (such as the one for retiree-only plans) nor were integrated with other group health plan coverage (stand-alone HRAs).

Regarding to the limitations on annual and lifetime dollar limits as they apply to HRAs, the FAQs denote the following:

The agencies intend to issue guidance that an HRA used to purchase coverage on the individual market will not be considered as integrated with that individual market coverage. Since an employer-sponsored HRA cannot be integrated with individual market coverage nor with an employer plan that provides coverage through individual policies, such a plan design could not be used to allow the HRA to comply with the rules on lifetime and annual dollar limits.

The agencies intend to issue guidance providing that an employer-sponsored HRA may be treated as integrated with other coverage only if the employee receiving the HRA is actually enrolled in the coverage.

The agencies anticipate that future guidance will provide that, whether or not an HRA is integrated with other group health plan coverage, unused amounts credited before January 1, 2014, consisting of amounts credited before January 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013 may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without violating the rules on annual and lifetime dollar limits. If the HRA terms that were in effect on January 1, 2013 did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited may not exceed those credited from 2012 and may not be credited at a faster rate than the rate that applied during 2012.

Apparently, based on the above, unless the HRA can take advantage of an available exemption from complying with the annual dollar limit requirements it will not be able to avoid application of the rules. As such, certain stand-alone HRAs may no longer be feasible after 2014.


Indemnity Plans

The FAQs clarify the circumstances in which fixed indemnity coverage constitutes “excepted benefits.” Any employer-sponsored plan – whether insured or self-insured – that provides, pays for or reimburses the cost of health care is a “group health plan” that may be subject to the benefit mandates under the health care reform law. However, to the extent that a plan consists of excepted benefits, the plan may be exempt from certain requirements. Since providing excepted benefits does not qualify as offering minimum essential coverage, the definition of excepted benefits is also important to the pay or play analysis. While a discussion of excepted benefits is beyond the scope of this article

The agencies reviewed the definition of fixed indemnity insurance coverage and concluded that many products being advertised as such do not actually qualify. Applicable regulations currently provide that a hospital indemnity or other fixed indemnity insurance policy under a group health plan provides excepted benefits only if:

The benefits are provided under a separate policy, certificate or contract of insurance

There is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor

The benefits are paid with respect to an event with regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor

Regulations further provide that to be hospital indemnity or other fixed indemnity insurance, the insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness regardless of the amount of expenses incurred.

The products the agencies discuss in the FAQs are health insurance policies that provide a fixed dollar benefit for specific medical services (e.g., $50 for a doctor visit, $15 per prescription, etc.) with the dollar amount being paid each time the specified services are received regardless of the actual cost. The agencies concluded that such coverage does not qualify as fixed indemnity coverage, because payment is not made as a fixed dollar amount per day (or other period) of hospitalization or illness. Instead, payment is based on the type of procedure or item, with the amount of payment varying widely based on the specific item. Since this type of coverage does not qualify as “excepted benefits,” it can qualify as minimum essential coverage for purposes of the pay or play provisions. At the same time, such coverage is subject to many of the coverage reform provisions, such as the requirement that non-grandfathered plans cover preventive services with no cost sharing and the prohibitions of lifetime and annual dollar limits on benefits.

Disclaimer: The information provided on this webpage is for informational purposes only. It is not and is not intended to be tax or legal advice. Consult with your own tax advisor and/or attorney.