What Do Plan Sponsors Need to Be Worried About Within the Next Year Under PPACA?

April 20, 2010 (PLANSPONSOR.com) - Plan sponsors have lots of issues to deal with  - but perhaps none looms quite so large these days as getting a handle on what they need to do to prepare for the impact of the Patient Protection and Affordable Care Act.
By PS
This week’s question: 

What do plan sponsors need to be worried about within the next year under PPACA?

Under PPACA, while the employer mandates aren’t effective until 2014, and the “Cadillac plan” excise tax until 2018, there are a number of plan design considerations for 2010 and 2011.  Most immediately, employers may be able to take advantage of the retiree reinsurance program.  This is a temporary program that will reimburse both insured and self-funded employer plans for some claims costs of retirees ages 55-64, who are not Medicare-eligible.  This program begins 90 days after enactment and ends in 2014, when the Exchange is up and running – or sooner, if the reinsurance pool runs out of funds (so plans may want to act quickly).

There are also several changes that will be effective for the 2011 plan year (or possibly earlier for plans with earlier plan years).  These include:

  • Restrictions on Annual & Lifetime Limits (plans will not be able to impose lifetime limits on “essential benefits” and only will be able to impose annual limits as permitted by the Secretary of HHS);
  • Prohibition on Rescissions (plans generally will not be able to rescind an individual’s coverage, except due to fraud or misrepresentation)  
  • Requirement to Cover Adult Children to Age 26 (plans must cover adult children to age 26, regardless of marital or student status);   
  • Restrictions on Pre-Existing Condition Exclusions for Enrollees under Age 19 (which will be extended to all enrollees in 2014).

In addition, some tax changes will apply, beginning in 2011.  Flexible spending accounts, health reimbursement arrangements, and health savings accounts no longer will be able to reimburse over-the-counter drugs without a prescription.  The penalty for payment of nonqualified expenses from an HSA also will be increased.

Moreover, some changes that may not be effective until later years could have immediate consequences for financial accounting purposes.  Most notably, a change to limit employer deductions for retiree prescription drug expenses to the extent the employer receives a Retiree Drug Subsidy has already caused numerous companies to recognize significant expense charges in their income statements even though the change will not be effective until 2013. 

Some of these changes even apply to so-called “grandfathered plans,” so all plans (insured and self-funded) will be affected in some way.  Plans should review the new requirements to see how their plan provisions stack up.

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html 

Contributors:

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, DC.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm’s Policy and Legislation group. He counsels plan sponsors, insurers and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently-enacted health reform legislation.

PLEASE NOTE:  This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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