News + Events
Keeping up with Recent Legislation - Numerous Changes to Group Health Plans Required
February 27, 2009
I. Coordination with SCHIP and Medicaid. The Children’s Health Insurance Program Reauthorization Act of 2009 (SCHIP Act) imposes new requirements on employer group health plans.
Special Enrollment Rights. Employers must amend their plans to allow special enrollment rights for employees and their dependents upon (1) termination of coverage under Medicaid or a SCHIP program due to loss of eligibility, or (2) becoming eligible for premium assistance from the State under a Medicaid or SCHIP program. The employee must notify the plan of the special enrollment event within 60 days of the event.
- Note that these changes become effective April 1, 2009. Your group health plan and Section 125 cafeteria plan will need to be amended to allow these changes. In addition, your plan may need to be amended to provide that SCHIP coverage will be secondary to plan coverage.
State Premium Assistance. The SCHIP Act gives States the authority to subsidize an employee’s costs under some employer group health plans in lieu of SCHIP coverage (or reduced SCHIP coverage). The law allows the State to pay the subsidized portion of the premium to the employee or the employer, but the employer can opt out of State payments and require the employee to pay the employee’s full share.
- Note that the States are also allowed to develop procedures to allow subsidized employees to opt out of employer coverage on a monthly basis. At this time it is not clear how these rules will coordinate with IRS rules on limiting mid-year election changes to specified qualified status changes.
Notice Requirements. The SCHIP Act imposes two new notice requirements on affected plans: (1) a notice explaining the availability of State premium assistance, and (2) a notice to the State providing sufficient plan information to allow the State to determine whether employees or their dependents are eligible for assistance and/or whether the SCHIP program will provide supplemental coverage.
In each case, the responsibility to provide the notice does not begin until after a model notice is developed by the Departments of Labor and Health and Human Services. These agencies are charged with developing model notices by February 7, 2010.
II. New Privacy Restrictions in Stimulus Package
The Health Information Technology for Economic and Clinical Health Act (HITECH Act), included as part of the stimulus bill, greatly expands the privacy and security provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and mandates extensive new regulations around electronic medical records. These changes generally become effective as of February 17, 2010, although special provisions apply to some changes. The Act:
Extends the HIPAA Privacy and Security Provisions and Penalties to Business Associates of Covered Entities. Business Associates will now be treated just like Covered Entities for purposes of the HIPAA privacy and security provisions, including liability for civil and criminal penalties. Among other changes, Business Associates who learn that a covered entity has materially breached the HIPAA privacy and security rules, will be required to take reasonable steps to cure the breach or terminate the contract with the covered entity. Covered Entities will likely have to revise their existing Business Associate Agreements to incorporate language reflecting this change.
Increases Penalties for HIPAA Violations and Expands Enforcement Mechanisms. Not only are Business Associates now subject to liability for civil and criminal penalties for HIPAA violations, but the amount of civil monetary penalties (CMPs) available was increased. Further, under the Act, anyone whose PHI is accessed in violation of HIPAA will be eligible to share a percentage of any CMPs collected. Not only will the Office of Civil Rights continue to enforce HIPAA compliance but State Attorneys General will now have the power to enforce HIPAA by bringing suit in federal district court. Finally, the Act requires DHHS to periodically audit Covered Entities and Business Associates to assess HIPAA compliance. These increased penalties and expanded enforcement mechanisms send a strong signal that HIPAA enforcement will likely become more stringent so Covered Entities and Business Associates need to make sure that all of their HIPAA policies and procedures are up to date and in use.
Creates a new Breach Notification Requirement. Covered entities and business associates will be required to meet new notification requirements in the event of a breach of “unsecured” PHI. Business associates must notify the covered entity of the breach, and the covered entity must now notify affected individuals. In the case of a breach affecting at least 500 individuals, the covered entity must also notify major media outlets as well as the Secretary of Health and Human Services.
Expands HIPAA mandated accounting of disclosures for those using electronic health records. Covered Entities and Business Associates using electronic health records will be required to make available an accounting of all uses and disclosures of the electronic health record in the previous three years, including disclosures for payment, treatment, and operations. This is a dramatic expansion of existing law which may require significant revisions to existing electronic health record software. For more discussion of the new privacy rules, see the recent Troutman Sanders Healthcare Advisory.
III. Mental Health Parity Requirements. Mental health parity requirements were passed into law on October 3, 2008 as part of the Tax Extenders and Alternative Minimum Tax Relief portions of the emergency economic stabilization legislation package. Under the new rules, a plan that provides medical and surgical benefits as well as mental health or substance abuse benefits (MHSA benefits), may not impose more restrictive financial requirements on the MHSA benefits than the “predominant financial requirements” imposed on medical and surgical benefits. There can be no separate cost sharing requirements for MHSA benefits, and no separate treatment limits. If the plan covers out-of-network benefits for medical and surgical benefits, it must also do so for MHSA benefits. In addition, the plan must provide a copy of the plan’s “medical necessity” requirements for MHSA benefits upon request. Under prior law, a plan could avoid the parity requirements if it could show that compliance would increase plan costs by at least one percent. This has been modified to require the plan to show that costs will increase by at least two percent in the first year, and by at least one percent thereafter. The new provisions become effective in the first plan year beginning after October 3, 2009.
Michelle’s Law. Under “Michelle’s Law”, a bill signed into law on October 9, 2008, employer group health plans will be required to allow a dependent child who is covered as a student at a post-secondary educational institution to continue his or her coverage if the child loses student status due to serious illness or injury. To be eligible, the treating physician must certify that the student’s medical leave of absence is medically necessary. Coverage must be continued for one year after the date a student takes a medically necessary leave of absence, or until the date coverage would otherwise terminate under the terms of the plan. The plan must provide notice of the new provision in any notice provided by the plan regarding certification requirements for student status. The new law becomes effective for plan years beginning after October 9, 2009.
IV. New Medicare Reporting Requirement. Under the Medicare secondary payer rules, employer group health plans are frequently required to pay primary to Medicare. Under new reporting rules, insurers, third party administrators and, in the case of a self-insured health plan that is self-administered, the plan administrator, are required to report plan data to Medicare to facilitate determination of situations in which the employer plan is primary. These rules build on the previous voluntary data sharing agreements, and became effective with respect to plans that have such agreements beginning October 1, 2008. For plans that don’t have such agreements in place, the new rules become effective beginning April 1, 2009. Because the new rules apply directly to self-insured plans only if they are self-administered, most employers will not be directly affected. However, employers will need to be able to provide required information when requested by the plan’s insurer or third party administrator.
V. Changes to Massachusetts Health Care Reform. For employers with 11 or more full time equivalent Massachusetts employees, the requirements of the Massachusetts Health Care Reform Act are becoming more burdensome.
First, the Health Insurance Responsibility Disclosure provisions previously required that employers file an annual information return no later than November 15 of each year. This requirement has now been changed to require quarterly filings. Following the November 15, 2008 filing, quarterly filings will be due on February 15, May 15, August 15 and November 15.
In addition, for employers with more than 50 full time equivalent Massachusetts employees, the exemption from making a fair share contribution will be met only if both of the previously alternative tests are met. An employer must show that at least 25% of employees are enrolled in coverage AND that the employer has offered to pay at least 33% of the premium cost of individual coverage for full time employees working at least 90 days. Alternatively, the employer may show that at least 75% of its full time employees are enrolled in the employer’s plan. These new rules become effective January 1, 2009.
Finally, proposed regulations would significantly increase the requirements to show that health plan coverage meets the “minimum creditable coverage” standards which permit individuals to avoid Massachusetts tax penalties. These requirements do not apply directly to employer plans, but may have a significant impact on their covered employees. Because of outcry from the employer community, these rules are apparently being reconsidered.
VI. Other States Requiring Section 125 Plans. Like Massachusetts, a number of other states now require employers to offer a “premium conversion” plan to employees to permit them to pay health insurance premiums on a pre-tax basis. However, unlike Massachusetts, these states do not require employers to make a fair share contribution or offer health plans to their employees. These states include Connecticut, Minnesota, Missouri and Rhode Island.