An Introduction To U.S. Health Care Reform

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “PPACA” or “Health Care Reform.”)  The centerpieces of Health Care Reform are “individual responsibility” provisions generally requiring individuals to maintain health coverage or pay assessments, and the “employer responsibility” provisions, under which large employers must offer group health coverage to full-time employees, and contribute to the cost of coverage, or pay a penalty.

The employer responsibility provisions of Health Care Reform are designed to require employers to shoulder a large portion of the burden of providing group health coverage to their employees, either directly through subsidized employer-sponsored coverage or by funding a portion of the cost of coverage provided through the Exchange.

A. PPACA Creates State-Run Insurance Exchanges

PPACA, as adopted, does require states to establish, by January 1, 2014, government-run insurance market places to be known as “Exchanges.”  These Exchanges should be viewed as last-resort alternatives to private health coverage.  They would be open to individuals and employers with 100 or fewer employees. 

B. No Change in Tax Treatment of Employer-Paid Premiums

PPACA does not change the long-standing rule that permits an employer to pay a portion of the health plan premium on behalf of a covered person without treating that payment as additional income paid to the covered person.  The value of the plan benefits remain tax-favored as well.

C. Employer Limits of Coverage by Plan

Insurers can offer, and an employer can purchase, four types of health plans:  Bronze, Silver, Gold and Platinum, all of which provide at least certain defined “essential benefits.” 

II. COVERAGE MANDATES UNDER PPACA

A. Coverage Mandates Generally

• Individual Coverage Mandates – PPACA requires most individuals to obtain accepted health insurance coverage or pay a penalty beginning in 2014. 
• Employer Coverage Mandates – Employers with 50 or more employees that do not offer coverage to their employees will be subject to penalties if one employee receives a government subsidy for health coverage. 

B. Grandfathered Plan

Under PPACA, a “grandfathered plan” is a health plan in existence on March 23, 2010.  PPACA contains important provisions exempting existing health plans from the applications of some of PPACA’s improvements in health care coverages and qualities, i.e., the “Insurance Reform Provisions.”  While grandfathered plans are excluded from complying with some, but not all, of these Insurance Reform Provisions, other PPACA provisions apply regardless of a plan’s grandfathered status. 

C. Non-Grandfathered Plans

Effective for plan years starting on or after September 23, 2010, the following reforms apply to plans which are not considered “grandfathered plans”:

• Preventative health services and immunizations without cost-sharing;
• No discrimination in favor of higher-wage employees (although self-insured plans continue to be subject to nondiscrimination rules);
• Provision of patient protection on emergency services, choice of primary care provider, and access to gynecological/obstetric services;
• Provision of internal and external appeal processes, effective for plan years starting on or after January 1, 2014 (not applicable to grandfathered plans);
• Routine patient costs for care in connection with clinical trials;
• No discrimination against providers so long as they act within the scope of their licenses;
• Limits on out-of-pocket caps;
• No deductibles greater that $2,000 for single coverage and $4,000 for family coverage (may apply only to plans offered in the small group market);
• Wellness incentives.

D. Insurance Reforms

1. Preventative Care

 Preventative care is defined under PPACA as follows:

• Services on the list of preventative services of the U.S. Preventative Services Task Force that are either strongly recommended (A rating) or recommended (B rating);
• Certain CDC-recommended immunizations;
• Certain infant, child, and adolescent evidence-informed preventative care, health screenings, including well-child care;
• Women’s preventative care screenings; and
• Certain cancer screenings.

Note:  Grandfathered plans are exempt from requirements to cover certain preventative health services with no cost-sharing. 

2. Wellness Coverage

PPACA creates a $200,000,000 five-year program to provide grants to certain small employers (fewer than 100 employees) for comprehensive workplace-wellness programs.  PPACA also provides a free, annual wellness visit and personalized prevention plan services for Medicare beneficiaries and eliminated cost-sharing for preventive services beginning in 2011.

3. Annual/Lifetime Limits/Access to Coverage for Uninsured Individuals with Pre Existing Conditions

Perhaps the most significant of the insurance reforms is the application of annual/lifetime limits.  This rule applies to all group health plans (e.g., grandfathered and non-grandfathered).  The effective date for this rule started with the first plan year on or after September 23, 2010.  Prohibitions relate only to limits on the dollar value of benefits.  Note:  Employers are not required to pay for family coverage.  

a. Annual and Lifetime Limits

Within six months of enactment, PPACA eliminated the ability of insurers to rescind existing policies, except in cases of fraud or intentional misrepresentation of a material fact.  Any cancellation also must be with prior written notice.  Insurers will be banned from setting lifetime caps on essential benefits and restricted in their ability to set annual limits for coverage until 2014, at which point annual limits will also be eliminated. 

Until 2014, annual limits may only be imposed on “essential benefits.”

b. Pre-Existing Conditions Coverage

PPACA essentially guarantees that those with pre-existing conditions will have the ability to purchase insurance coverage. 

c. Pre-Existing Condition Coverage for Children

Within six months of enactment, insurers will be prohibited from denying coverage to children under 19 years of age based on pre-existing conditions. 

4. Extended Coverage for Young Adults

Group health plans and health insurance issuers offering group or individual health insurance coverage that includes dependent coverage of children must make coverage available for children to age 26, regardless of the adult child’s marital or student status if the plan itself provides for dependent children. 

5. Reinsurance for Covering Early Retirees

PPACA requires establishment of a temporary reinsurance program to reimburse participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees and their spouses, surviving spouses, and dependents. 

6. Impact on Government-Funded Plans/Medicare/Medicaid

PPACA will further affect individuals by making the following changes to Medicare and Medicaid programs:

• Rebates for Medicare Part D “Donut Hole” - Currently, there is a gap in Medicare prescription drug coverage (“Medicare Part D”).  This coverage gap falls between $2,830 and $6,440 in total drug spending.  PPACA provides a $250 rebate check for all Medicare Part D enrollees who enter the “Donut Hole.”  Beginning in 2011, a 50% discount on brand-name drugs will be in effect and generic drug coverage will be provided during the Donut Hole gap, which is scheduled to be filled by 2020.
• Medicaid Flexibility for States - States are given a new option under PPACA to cover additional individuals under Medicare.  States will be able to cover parents and childless adults up to 133% of the FPL.

7. Expanded Insurance Coverage/Voluntary Long Term Care Insurance Option

PPACA creates a long-term care insurance program for adults who become disabled.  Participation will be voluntary. 

III. HEALTH PLAN ADMINISTRATION

Under PPACA, health plans will be subject to increased administrative responsibilities, including:

• Non-Discrimination Rules for Fully-Insured Plans This requirement will not apply to grandfathered plans.
• Improving Insurers’ Medical Loss Ratios
• Reporting Health Coverage Costs on Form W-2 – (beginning in 2011)
• Standardizing the Definition of “Qualified Medical Expenses”
• Cafeteria Plan Changes

The representation provided by Bressler, Amery & Ross’s insurance practice group covers a broad range of property-casualty, annuity, life, health and disability insurance issues as well as managed care law and reinsurance issues.  Our attorneys handling these matters appear before state and federal regulatory agencies and self-regulatory bodies, administrative law judges, and state and federal courts.  Our clients include insurers, reinsurers, managed care organizations, insurance holding company systems, insurance agents, brokers and consultants, broker-dealers and investment advisors.  We advise clients on corporate, marketing, product development, and regulatory compliance matters and provide representation in regulatory enforcement, litigation, arbitration, and appraisal proceedings.  Cynthia Borrelli can be contacted on +1 973 966 9685 or by email at cborrelli@bressler.com