With autumn’s changing leaves, businesses are facing the first big changes mandated by health care reforms. The first provisions of the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010 are now in effect. A 2,400-page document, the Health Care Act and its implementing regulations leave many issues unresolved even as businesses begin compliance.
Here’s the dilemma: Despite its cumbersome length, the Health Care Act is missing pages. As it stands, businesses can’t fully implement the Act’s provisions or predict the costs of compliance.
Here at Varnum Law, we’re advising clients on preparing for the upcoming mandates. While the Act’s complexities prevent a “one size fits all” approach, the following guidelines sort out the complexities of compliance.
What’s clear: Businesses must choose between two options this fall. The first gets you fully on board this year. The second postpones compliance with many of the Health Care Act’s provisions by “grandfathering” existing health care packages.
Non-grandfathered status: Time’s up. If you want to eliminate plan benefits or pass on increased costs to plan participants, you need to implement full compliance when your next plan year begins. For many, the plan year coincides with the calendar year, meaning full compliance Jan. 1, 2011. On the other hand, if your plan year starts Sept. 24, you have only days to comply.
Grandfathered status: Time out. With grandfathered status, you get additional time to comply with several of the Act’s provisions: first dollar coverage requirements for preventive care (mandated preventive care can have no deductible or co-pays); coverage for children to age 26 with other coverage; compliance with expanded claims requirements; and compliance with new nondiscrimination requirements. Avoiding these new requirements, particularly the first dollar coverage and expanded coverage for children, may result in significant savings.
Grandfathered plans are subject to other Health Care Act provisions including eliminating lifetime limits, eliminating pre-existing conditions for dependents under age 19 and expanding coverage for older children without other coverage. Any of these could dramatically increase your costs.
If you choose the grandfathered option, you face serious limitations to changing benefits and contribution levels from those in existence on March 23, 2010. (If your insurer raises premiums, you cannot cut benefits or pass on costs to your employees.) Further, you face additional administrative requirements, including employee notifications and increased recordkeeping. Many employers find compliance with these limitations and administrative requirements more burdensome and costly than the advantages and savings of maintaining grandfathered status.
As you try to decide between these options, you’ll discover that the information you need to analyze costs is not yet available. For example, while the Healthcare Act permits grandfathered plans to place some annual limits on “essential benefits,” the government has not defined what those essential benefits are. Insurance companies and third-party administrators are still analyzing the cost impact of providing these and other mandated benefits. It’s impossible to project dollar costs without these key pieces of information.
No matter which option you choose, your business has much ground to cover over the following months. You must determine cost impacts of new benefit mandates, such as the elimination of lifetime limits and pre-existing conditions for dependents under 19; expanded coverage for dependents; and addition of first dollar coverage for preventive care.
You must get your staff working on other mandated requirements: notifying employees of and providing them with a special enrollment period for older children now eligible for coverage; providing a special enrollment period for individuals who have lost coverage due to lifetime limits; and notifying employees of new coverage rights.
Also, you will need to make required plan amendments and notify participants about them. Employers sponsoring a health flexible spending account must amend documents to eliminate reimbursement of non-prescription over-the-counter drugs (except insulin).
Consult with your insurers, third-party administrators and legal team to figure out which option to choose and what costs will be incurred.
Nancy L. Farnam is a partner with Varnum Law in Grand Rapids.