With the re-election of President Obama in November, the Patient Protection and Affordable Care Act (a.k.a. "healthcare reform" or "Obamacare") survived its second major challenge in 2012. Many employers had been awaiting the outcome of the election before devoting substantial effort to long-term compliance planning. The period of "wait and see" is now over and employers are well-advised to start looking ahead to 2014, when the Act's most significant provisions take effect. Employers should expect a steady stream of PPACA guidance and regulations flowing out of Washington over the next twelve months. The first significant post-election installment of PPACA guidance was issued on November 20, 2012 when the Internal Revenue Service ("IRS"), U.S. Department of Labor ("DOL") and U.S. Department of Health and Human Services ("HHS") jointly issued two Proposed Rules and one Notice of Proposed Rulemaking.
Under the proposed approach, the limit on financial incentives would be increased to 30% of the total cost of coverage effective for plan years beginning on or after January 1, 2014. In addition, the limit would be increased by an additional 20% (up to 50%) to the extent that the additional percentage is in connection with a program designed to prevent or reduce tobacco use. By way of example, if an employee's annual premium for coverage was $6000, a wellness program tied to the reduction of cholesterol could offer a financial incentive of up to $1800 (30% of $6000) under the proposed rules. If the program was geared toward reducing or preventing smoking, the incentive could be as high as $3000 per year (50% of the premium). On the other hand, if the program offered both a non-tobacco related incentive (e.g., cholesterol) and a tobacco-related incentive – then the 30% and 50% tests would be applied separately. In other words, the total incentive could not exceed 50% ($3000) and the non-tobacco component of the incentive could not exceed 30%. ($1800). If an employee elects family coverage, then the applicable percentage limit would apply against the cost of family coverage if dependents participate in the wellness program.
The remainder of the compliance requirements outlined in the 2006 regulations remain largely unchanged; however, the regulations provide some additional clarifications. For example, a financial incentive under a health-contingent wellness program must be made available to all similarly situated individuals. This means that a ‘‘reasonable alternative standard’’ (or waiver of the standard) for obtaining the incentive must be offered to anyone for whom it is unreasonably difficult or medically inadvisable to attempt to satisfy the applicable standard (e.g., achieving a certain BMI). It is permissible for a plan or issuer to seek verification that an individual's health factor makes it unreasonably difficult or medically inadvisable for her to attempt to satisfy the applicable standard; however, the proposed rules make clear that physician verification may be required "if reasonable under the circumstances." For example, the proposed rules indicate that it would not be reasonable to seek verification of a claim that is obviously valid based upon the nature of the individual's condition that is known to the plan or issuer.
Essential Health Benefits, Actuarial Value and Accreditation. In 2014, all non-grandfathered health insurance coverage in the individual and small group markets will be required to provide "essential health benefits" ("EHB") subject to cost-sharing limitations and must meet specific actuarial values ("AV"), known as "metal levels" (e.g., bronze plan, silver plan, etc.). Qualified health plans ("QHPs") that become available to small employers (those employing an average of no more than 100 employees) and individual consumers through health care exchanges in 2014 will also need to meet these standards. In addition, non-grandfathered group health plans must ensure that cost-sharing does not exceed certain limitations set forth under PPACA. By adding some standardization to the categories of insurance benefits identified as EHB, the hope is that consumers will be better equipped to make informed decisions when purchasing coverage. In their November 20 Proposed Rule, the agencies took a big step toward fleshing out these basic concepts.
EHB Coverage. EHB coverage includes ten categories of benefits: 1) ambulatory patient services; 2) emergency services; 3) hospitalization; 4) maternity and newborn care; 5) mental health and substance abuse disorder services, including behavior health treatment; 6) prescription drugs; 7) rehabilitative and habilitative services and devices; 8) laboratory services; 9) preventive and wellness services and chronic disease management; and 10) pediatric services, including oral and vision care. The basic concept is that if a plan does not provide any coverage in one or more category, its benefits will be supplemented by the addition of the entire category of such benefits from a "benchmark plan" identified by the state. Plans that are grandfathered, self-insured or offered on the large group market are not required to offer EHB; however, lifetime and annual dollar limits on benefits that qualify as EHB are prohibited in such plans.
Benchmark Plans. A state may select its benchmark plan from among: 1) the largest health plan (by enrollment) in any of the three largest small group insurance products in the state's small group insurance market; 2) any of the largest three health benefit options generally available to state employees; 3) any of the largest three health benefit options generally available to eligible federal employees; or 4) the coverage plan with the largest insured commercial health maintenance organization ("HMO") operating in the state. If a state does not select a benchmark plan, a plan falling in category (1) above will be selected by default.
Cost-Sharing Limits. For plan years beginning in 2014, plans in the small group market and QHPs must meet cost-sharing requirements as follows: 1) for self-only coverage, deductibles may not exceed $2000 and total cost-sharing may not exceed an indexed limit of approximately $6400; 2) for any coverage other than self-only coverage, deductibles may not exceed $4000 and total cost-sharing may not exceed an indexed limit of approximately $12,800. These amounts will be adjusted annually by HHS. For plans using a network of providers, benefits provided outside of the network do not count toward these annual limits.
Actuarial Value. The proposed rule provides an "AV calculator" by which plans may determine their actuarial value in a uniform manner. Actuarial value is defined in general terms as "the percentage paid by a health plan of the total allowed costs of benefits." As noted above, QHPs offered through health care exchanges will be rated using "metal levels", ranging from a bronze plan (AV of 60%) to a platinum plan (AV of 90%).
Minimum Value. Notably, all health plans offered by large employers (50 or more FTEs) will need to meet minimum value ("MV") standards in 2014. The proposed rule indicates that an employer may meet MV requirements by: 1) using an "MV calculator" to be provided by HHS and the IRS in future guidance; 2) using any safe harbor established by HHS and the IRS; or 3) obtaining a certification from an accredited actuary if the other methods are not appropriate.
Health Insurance Market Rules / Rate Review. The third and final piece of the recent batch of regulatory guidance is directed primarily at insurance companies and will be of limited interest to most employers. This proposed rule sets forth numerous requirements regarding premium rate determinations, guaranteed availability of coverage to individuals and employers, guaranteed renewability, open enrollments and use of networks.
This article is merely a summary of the key provisions in the recent proposed rules issued under PPACA. Employmerns may be assured that this recent installment of federal guidance is only the first of many to come before 2014. If you have any questions regarding the new proposed rules, please do not hesitate to contact any member of our Labor & Employment Practice Group. Employers can also look for future PPACA updates on this blog.