Self-funded Plans Face New Scrutiny, Pressures Under National Health Reform
The sweeping health reform law enacted March 23 contains elements that will introduce new coverage requirements on group health plans. Employer groups say this could contribute to the erosion of self-funded plans’ membership.
The reform law expands coverage to 35 million previously uninsured Americans by providing tax credits and discounts and expanding Medicaid coverage. It includes employer mandates to insure workers or pay into a government-run insurance fund to do so. It imposes standards of coverage that plans and policies must follow or be taxed. It eliminates practices insurance companies have used to limit coverage.
Federal inspection, enforcement and new regulations will be applied to make sure group plans and insurers comply with benefit requirements.
Some Dust Still Unsettled
The main piece of reform legislation signed by President Barack Obama on March 23 was the Patient Protection and Affordable Care Act (H.R. 3590), which incorporated reform provisions that originated in the U.S. Senate. Separately, the U.S. House of Representatives developed a reconciliation bill that would amend H.R. 3590. That bill — the Health Care and Education Affordability Reconciliation Act (H.R. 4872) passed on March 21 in a 219-to-212 vote without a single Republican voting yes.
Exposure to Insurance Reforms
Insurance reform mandates many hoped would not apply to existing self-insured (grandfathered) plans will apply even to those plans, including:
(1) the elimination of annual and lifetime limits;
(2) a ban on pre-existing condition exclusions; and
(3) expanded coverage of dependent children.
The House reconciliation bill would apply these to all plans, in calendar year 2010, although phase-in dates are not precise.
Elimination of Lifetime and Annual Limits
The law requires that group plans may not impose any lifetime limit on the dollar value of benefits or impose unreasonable annual limits. The bar on limits will not apply for benefit plans that are not part of the “essential benefits package.” Plans may put limits beneficiary limits on specific benefits to the extent that such limits are otherwise permitted under federal or state law.
Pre-existing Condition Exclusions
Under the new law, plans may not impose pre-existing condition exclusions. Plan sponsors are familiar with less stringent versions of such limits that were introduced in the 1996 HIPAA statute and finalized in 2004 rules. On the other hand, the U.S. Department of Health and Human Services (HHS) would set up a high-risk pool to cover new enrollees with pre-existing conditions.
H.R. 4872 would tweak this language, however. Under that bill, plans could impose a pre-existing condition exclusion only if the exclusion relates to a condition that was diagnosed or treated in the 30 days before enrollment date (the “look-back” period used to be six months). The exclusion could last no more than three months (down from 12 months), or nine months in the case of a late enrollee (used to be 18 months).
Extending Dependent Coverage
The new law requires all group health plans that provide dependent coverage for children to continue to make that coverage available until the child reaches age 26. H.R. 4872 would extend coverage to age 27. At least 30 states have now enacted similar legislation to extend dependent coverage, according to the National Council of State Legislatures.
Government to Redefine Terms
Under the law, within 12 months, HHS will develop standards that group health plans and insurers will have to use in benefit summaries and coverage explanations, to describe the benefits and coverage under plans and coverage. In developing such standards, HHS will work with the National Association of Insurance Commissioners. This will force plans to review and rewrite plan documents and summary plan descriptions, giving them stricter formatting and disclosure requirements and imposing higher noncompliance penalties.
Reform Could Erode Plans
The law enables plan members to leave group health plans in order to buy coverage on a government-run health insurance exchange (whose earliest possible open enrollment period would be July 1, 2012, under the law). Members of grandfathered plans or that meet minimum benefit requirements will be ineligible to obtain coverage through an exchange.
Members of plans paying less than 8% of their salary on premiums will not be eligible to buy insurance on the exchange until 2014, when HHS may adjust the rules. If a new self-funded plan fails to meet the requirements of a qualified health benefits plan, employees will be eligible to shop for benefits on the exchange. But if an employer plan is deemed “unaffordable,” employees may leave and buy insurance on the exchange, possibly receiving tax credits to do so.
Employer plans will have to issue “free choice vouchers” to employee if worker premium shares exceed 8% but less than 9.8% of salary. Workers will use the vouchers to buy coverage on the exchange and the vouchers will be equivalent to the employer contribution to the workers’ coverage under the plan.
Employers Might Opt Out
Similarly, under H.R. 4872, employers could terminate their health benefits program, and instead pay 8% of payroll per employee into the health insurance exchange trust fund. “A contribution is made in accordance with this section with respect to an employee if such contribution is equal to an amount equal to 8% of the average wages paid by the employer during the period of enrollment.”
“Ultimately, the cumulative effect of rigid requirements on employer-sponsored health coverage would likely lead many companies to simply ‘pay’ rather than [sponsor a plan]” American Benefits Council (ABC) President James Klein said in a statement. “This would lower the level of active employer engagement and the important role employers play as innovative and demanding purchasers of health care services.”
Reporting on Self-funded Plans
Under the law, self-funded plans will have not have to offer qualified benefit plans, the kind of which will be offered by insurers operating on the government-run insurance exchange. Therefore, self-funded plans will not be subject to provider-network, quality accreditation, uniform enrollment, marketing and Internet portal rules, as plans sold on the insurance exchanges will be.
On the other hand, the law directs HHS to conduct a study of self-insured plans to:
depict what kind of employers self-insure, including their financial solvency;
see whether new insurance market reforms cause adverse selection in the large group market or to encourage small and midsize employers to self-insure.
explore the extent to which self-insured group health plans can offer less costly coverage and, if so, whether lower costs are due to more efficient plan administration and lower overhead or to the denial of claims and the offering very limited benefit packages;
quantify claim denial rates and plan benefit changes to see the extent to which plans scale back health benefits during economic downturns
study the effect of conflicts of interest
Reporting on Self-funded Plans
Under the law, self-funded plans will have not have to offer qualified benefit plans, the kind of which will be offered by insurers operating on the government-run insurance exchange. Therefore, self-funded plans will not be subject to provider-network, quality accreditation, uniform enrollment, marketing and Internet portal rules, as plans sold on the insurance exchanges will be.
On the other hand, the law directs HHS to conduct a study of self-insured plans to:
depict what kind of employers self-insure, including their financial solvency;
see whether new insurance market reforms cause adverse selection in the large group market or to encourage small and midsize employers to self-insure;
explore the extent to which self-insured group health plans can offer less costly coverage and, if so, whether lower costs are due to more efficient plan administration and lower overhead or to claims denials and limited benefit offerings;
quantify claim denial rates and plan benefit changes to see the extent to which plans scale back health benefits during economic downturns; and
study the effect of conflicts of interest on plan administration and claims denials.
Starting in 2014, HHS will monitor premium increases for coverage offered by health plans, including those sponsored by employers, and will review whether premiums at employer-sponsored plans are rising at faster rate than premiums of plans offered through government-regulated exchanges.
Here are some other elements that will impact employer health plans, and self-funded plans in particular:
Two years after enactment, group health insurers and self funded plans must provide, prior to any “enrollment restriction,” a summary of benefits and coverage explanation under the following circumstances: (1) at the time of an individual’s application; (2) prior to enrollment or re-enrollment; and (3) at the time the group health policy is issued (for a policyholder or certificate holder).
HHS will develop reporting requirements under which group health plans and insurers will submit annual reports on whether plan benefits improve health outcomes, implement activities to prevent hospital readmissions, implement activities to improve patient safety and reduce medical errors and implement wellness activities. Penalties may be imposed for noncompliance.
90 days after the law is enacted, HHS will set up a temporary reinsurance program for early retirees under which group health plans will be reimbursed for part of their costs in covering such individuals and their dependents. Plans that take advantage of this program will be audited annually to ensure they are in compliance with the program’s criteria.
Group health plans or insurers cannot deny coverage for individuals participating in clinical trials.
There will be an increase in the additional tax on distributions from HSAs and Archers MSAs that are not used for qualified medical expenses.
The maximum salary reduction amount for health FSAs will be lowered to $2,500; that amount will be adjusted for inflation.
Except for self-insured plans, rules cannot be established that base health insurance eligibility on total hourly or annual salary of employees or that discriminate in favor of higher-wage employees.
MyHealthGuide Source: Todd Leeuwenburgh, Editor, Employer Health Benefits, Thompson Publishing Group, 3/25/2010, www.Thompson.com
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