Key Provisions Already in Effect

The following are provisions that have a more immediate impact on group health plans and may require the city's attention and/or action:

Dependent coverage expanded to age 26
The health reform legislation deals with two aspects of covering “adult children”—expanded coverage and federal tax consequences.

Expanded coverage: Effective for plan years beginning after Sept. 23, 2010, dependent coverage is expanded to age 26 for those adult children regardless of financial dependency, full-time student status, or marital status. This applies to all group health plans, including medical, dental, health flexible spending accounts (health FSAs), health reimbursement arrangements (HRAs and VEBAs), etc. However, this expanded definition of dependent coverage does not include health savings accounts (HSAs). Minnesota law currently expands dependent coverage to age 25.

Many of the health plans are offering their groups the option to implement the change early. However, until the federal law goes into effect (after Sept. 23, 2010), cities may not technically be able to offer the expanded coverage early due to the definition of dependent under Minnesota Statutes, section 471.61, which is generally the authority for cities to cover dependents. As a practical matter, there may be reasons why cities want to consider early implementation. If your city is considering early implementation, the following are some issues to think about:

  • Fairness of the availability of coverage among employees for the calendar/plan year.
  • Size of the employee group (how many potential employees affected).
  • Administration of this benefit (e.g., terminating coverage and re-enrolling them at a later date).
  • Budget concerns.

Union contracts currently in place may also impact when cities can make this change. If you implement before the federal law goes into effect and prior to the end of the contract, then you may need to negotiate this change and get a Memorandum of Understanding (MOU) with the union before implementing for union employees.

Cities considering early implementation should consult with their city attorney to go over the legal implications of such a decision.

Learn more about this issue from the DOR website

Grandfathered plans
Most employers will be impacted in some form by health care reform. The legislation exempts “grandfathered plans” from some of the reform provisions, but not all of them—grandfathered plans will have to comply with some of the requirements such as expanded dependent coverage to age 26, no lifetime limits, and no exclusions for pre-existing conditions, etc.

What constitutes a grandfathered plan? The law defines a grandfathered plan as a group health plan in existence on March 23, 2010. Federal agencies recently released Interim Final Rules on Grandfathered Plans under Health Care Reform.

Learn about the interim rules on the HHS website

Grandfathered health plans will be able to make routine changes to their policies, such as cost adjustments to keep pace with medical inflation, adding new benefits, making modest adjustments to existing benefits, etc., in order to keep their grandfathered status. It also appears grandfathered group plans can add new employees, spouses, and dependents and still be considered grandfathered. Grandfathered plans will lose their status if they:

  • Significantly reduce or eliminate benefits.
  • Increase co-insurance amounts (i.e., the percentage amount that individuals pay for certain benefits).
  • Increase co-pays, deductibles, or out-of-pocket maximums by more than 15 percent plus medical inflation.
  • Reduce the employer contribution by more than 5 percent.
  • Change insurance companies (for fully insured groups).

If a plan loses its grandfathered status, covered employees gain additional benefits, such as 100 percent coverage for preventive services and guaranteed access to OB-GYNs and pediatricians. However, most group health plans in Minnesota already offer these benefits, so losing grandfathered status likely will not result in significant changes in benefits or costs to the plan. As a practical matter, maintaining grandfathered status simply may not be feasible as cities look to making benefit changes to their group health plan to help control premium costs.

Potentially the biggest impact of a plan losing its grandfathered status is the application of the non-discrimination testing requirements for fully insured group health plans, which prevent plans from discriminating in favor of highly compensated individuals. These requirements already apply to self-insured plans. For the city’s non-bargained employee population, the plan (medical, dental, vision, etc.) will need to satisfy both eligibility and benefits testing requirements. In general, cities will meet the non-discrimination requirements if they offer the exact same package of benefits and contributions to all employees—including department heads and city managers/administrators.

Actions to be taken:

  • Evaluate the impact of grandfathered status on the city’s health plan. What value does grandfathered status provide? For how long? What is the cost to maintain grandfathered status?
  • To maintain grandfathered status:
    • Identify and document the coverage in place on March 23, 2010, including contribution amounts and benefits.
    • Provide notice in benefit materials of grandfathered status.
    • Notify insurance company of intent to retain grandfathered status.
    • Small employer groups (2-50 employees) should contact their insurance company to see if they will be retaining grandfathered status for their small group health plans.

    Restrictions on lifetime limits and out-of-pocket maximums
    Insurance companies and employers are prohibited from placing limits on lifetime maximums and “unreasonable” limits on annual out-of-pocket maximums. Employer sponsored health plans—whether fully insured or self-insured—which limit lifetime maximums will need to remove those limits for plan years beginning on or after Sept. 23, 2010.

Actions to be taken:

  • Check with your insurance company to see what changes, if any, need to be made to your plan.
  • If changes are needed, what will the cost implication be on your next renewal?

Pre-existing conditions for children
Pre-existing condition exclusions cannot be imposed for children under age 19. Health insurance companies are awaiting clarification from the federal government, but expect that coverage for children under 19 will be guaranteed issue (i.e., they will not be able to deny coverage for these individuals due to pre-existing conditions). Note: This protection extends to adults in 2014.

This provision is effective for plan years that begin on or after Sept. 23, 2010. Under HIPAA, most group health plans already limit pre-existing condition exclusions and waive the waiting period based on prior coverage.

Actions to be taken:

  • Check with your insurance company to see what changes, if any, need to be made to your plan.
  • If changes are needed, what will the cost implication be on your next renewal?

Tax credit for small employers
Small employers—those with fewer than 25 employees and with average wages of $50,000 or less—that provide health coverage for employees may be eligible for a tax credit beginning in 2010. The employer must contribute at least 50 percent of the total premium cost to be eligible for the credit.

Based on IRS guidance, this tax credit is also available to tax-exempt organizations that are a 501 ( c ) organization. Cities and other government employers generally will not qualify for this tax credit. Special rules apply for calculating the tax credit for tax-exempt employers.

Actions to be taken:

  • None at this time.

Other near-term provisions:

  • Coverage can only be rescinded due to fraud or intentional misrepresentation by an individual. Generally, coverage can only be rescinded prospectively rather than retroactively upon providing the individual with at least 30 days advance notice that coverage will be terminated. Plan sponsors will need to be careful when terminating an employee’s or dependent’s coverage–especially when conducting dependent audits.

Learn more about rescinding coverage on the HHS web site

Key provisions that took effect in 2014-2015

  • Availability of insurance exchanges in each state that will serve as a marketplace in which individuals and small employer groups can purchase health care coverage.
  • Guaranteed issue of medical coverage.
  • Pre-existing condition limitations prohibited for adults (prohibition on pre-existing condition limitations on children went into effect for plan years on or after Sept. 23, 2010).
  • Individuals will be required to have medical coverage or face a penalty.
  • Waiting periods for health coverage limited to no more than 90 days.
  • Employers with 50 or more employees required to pay a fee for employees who receive premium subsidies to purchase coverage through the exchange.

Read about key near-term provisions

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