ERISA Section 607 defines the term group health plan as an employee welfare benefit plan providing “medical care” to participants or beneficiaries 1) directly, 2) through insurance, 3) reimbursement, 4) or otherwise. ERISA Section 607 refers to Section 213(d) of title 26 to generally define the term medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. 

Employers need to take a close look at all their benefit programs to determine if a group health plan exists under the ERISA law. When a group health plan exists certain compliance obligations may apply, such as providing participants a Summary Plan Description (SPD), offering the program to COBRA beneficiaries, and reporting information about the program under Form 5500.  

The programs listed below generally fall into the category of a group health plan:

1. Programs that directly provide medical care to employees:

• On-site medical clinics that provide more than basic first-aid
• Workplace flu shot programs
• Wellness programs that provide biometric health screenings

2. Programs that provide medical care through insurance:

• Health insurance
• Dental insurance
• Vision insurance
• Cancer and critical illness insurance that coordinate benefits with health insurance
• Fixed indemnity and hospital indemnity insurance that coordinate benefits with health insurance 

3. Programs that provide medical care through reimbursement:

• Health Flexible Spending Accounts (Health FSAs)
• Health Reimbursement Arrangements (HRAs)
• Executive Medical Reimbursement Plans 

4. Programs that provide medical care otherwise:

• Telemedicine plans
• Programs that provide grief counseling and/or alcohol and substance abuse counseling, such as certain Employee Assistance Programs (EAPs)
• Discount programs for dental, vision, prescriptions or other medical care

Last week, the Trump administration issued final rules which extend the maximum duration of short term medical plans (STM plans). STM plans can now have an initial coverage period just shy of one year (364 days). Taking into account renewals, STM plans can have a maximum duration of up to 36 months.

STM plans are exempt from the Affordable Care Act (ACA) market reforms. These plans can use preexisting conditions to determine eligibility for coverage, and they don’t have to cover essential health benefits. These exemptions make the premiums for STM plans lower. According to a recent press release from the Centers for Medicare and Medicaid Services (CMS), the average monthly premium for an individual in the fourth quarter of 2016 for a STM plan was approximately $124, compared with $393 for an unsubsidized individual market plan.

“We continue to see a crisis of affordability in the individual insurance market, especially for those who don’t qualify for large subsidies,” said CMS Administrator Seema Verma. “This final rule opens the door to new, more affordable coverage options for millions of middle-class Americans who have been priced out of ACA plans.”

Critics aren’t buying this message though.

The Obama administration had limited the maximum duration of STM plans to 90 days so that more individuals would purchase comprehensive health insurance with coverage protections of the ACA, including coverage for essential health benefits and the prohibition of denying someone coverage based on their health status.

Critics believe the ACA individual market will destabilize because of the new rules. There’s a belief that the young and/or healthy population will flock towards STM plans, leaving the ACA individual market to cover the old and/or unhealthy population. If this is true, it would be expected that premiums for plans in the ACA individual market will go up and choices will go down. States may also step in and respond to the new rules, and several already have.

States concerned with the new rules can pass laws which circumvent the Trump administration rules. States can mandate certain benefit requirements, limit durations of coverage and prohibit the use of underwriting, among other things.

The new STM plan rules will take effect this October, just a few weeks before the 2019 ACA open enrollment period is set to begin. It will be interesting to see how this all shakes out.

The midterm elections will be held on November 6, 2018, and the Affordable Care Act (ACA) will surely be a hot topic on campaign trails. Republicans are expected to continue down a path of conveying their belief that the ACA is ineffective and has driven up healthcare costs. Democrats are expected to point out consumer protections that are included in the ACA, such as coverage for pre-existing conditions and essential health benefits. There’s also three important lawsuits to watch which may shape the direction of the ACA regardless of the election outcome.

1. A coalition of 20 states led by Texas have filed a lawsuit contesting that the ACA is not constitutional when considering recent changes to the law. The Tax Cuts and Jobs Act zeroed out the Individual Mandate penalty starting in 2019. The requirement to have health insurance still exists under the ACA, but there is no penalty for being uninsured. In 2012, the Supreme Court Justices upheld the constitutionality of the Individual Mandate. Some of the Justices indicated the Individual Mandate was permissible because it was a tax. Now that there is no penalty, some Republicans argue that the ACA must go.
2. The cities of Baltimore, Chicago, Cincinnati and Columbus, OH have filed a complaint against President Donald Trump’s administration. These cities allege that the Trump administration is not upholding their constitutional responsibilities. They argue that the Trump administration is intentionally trying to sabotage the ACA when the Constitution requires the President and his administration to faithfully execute all existing laws.
3. A dozen state attorneys general are suing the Department of Labor (DOL) over the expansion of association health plans (AHPs). The DOL recently issued rules which provide more flexibility for small businesses to join forces when purchasing health insurance coverage. The new rules do not require AHPs to cover essential health benefits, a protection which otherwise applies to small group health plans. The state attorneys general believe this type of change requires Congressional approval and exceeds the regulatory power of the DOL. Furthermore, they argue this rule was issued to intentionally avoid certain requirements and protections that the ACA has in place for small businesses.

It’s unclear how each of these lawsuits will play out, but you can expect many Republicans and Democrats to pick sides as these cases progress. It’s hard to believe that it has been 8 ½ years since the ACA became law, and not a day goes by without something ACA-related making the headlines.

Below is a summary of key Health Savings Account (HSA) provisions included in each bill:

HR 6311

• Medicare Part A would not eliminate HSA eligibility.
• The maximum contribution limit would be increased to $6,650 per individual and $13,300 per family.
• Both spouses age 55 and over could make catch-up contributions to the same HSA.
• HSAs opened within 60 days of enrolling in a qualified high deductible health plan (HDHP) would be treated as being opened as the same day of enrollment in the HDHP (allowing expenses to be paid taxfree retroactive to the HDHP enrollment date).
• Bronze and catastrophic plans would be considered HSA-eligible plans.

HR 6199

• Coverage for non-preventive services up to $250 per individual and $500 per family could be provided prior to the deductible without disqualifying HSA eligibility.
• HSA accountholders could receive care through a direct primary care (DPC) arrangement without disqualifying eligibility for an HSA, and DPC expenses could be paid tax -free from the HSA (up to $150/mo for an individual and $300/mo for a family).
• On-site medical clinics made available by an employer would not disqualify HSA eligibility.
• Coverage under a spouse’s Flexible Spending Account (FSA) would not disqualify HSA eligibility.
• Conversions of funds from an FSA or HRA would be permitted into an HSA, up to certain limits, and only if an employer permitted the conversion.
• Gym memberships, sports equipment and personal trainers would be qualified expenses , up to certain limits.
• Removes the requirement to have a prescription for over-the counter drugs to be considered eligible expenses (applies to all reimbursement accounts).
• Certain items related to menstrual care would be qualified expenses.

The next step is that these bills will move onto the Senate where 60 votes will be needed. This may be a difficult challenge. While most, if not all of the 51 Senate Republicans would likely vote in favor of these bills, Democratic leadership is likely to oppose the two bills. Many Democrats believe that expanding HSAs and other types of free market healthcare are an attack on the Affordable Car e Act (ACA). There’s also the upcoming midterm elections which may delay any swift action on these bills. At the same time, there was some bipartisan support from House members. Twelve Democrats voted to pass HR 6311 and 46 Democrats voted for HR 6199.

Many of you are familiar with the reinsurance fees that were charged to health insurance plans from 2014 to 2016, but you may not be as familiar with the risk adjustment program. The risk adjustment program was authorized under the Affordable Care Act (ACA). This permanent program is intended to protect against adverse selection and risk selection in the individual and small group markets (inside and outside of the Exchanges).

Adverse selection occurs when people who are most in need of healthcare purchase insurance, driving up premiums. When the ACA was being drafted, i nsurance companies were concerned about adverse selection because they would no longer be able to use medical underwriting when determining eligibility for coverage.

Risk selection occurs when insurance companies try to avoid enrolling people with high medical costs into coverage, driving down premiums. When the ACA was being drafted, lawmakers were concerned insurance companies might structure their drug formularies or plan designs so that they were less attractive to higher risk individuals.

These concerns ultimately resulted in the creation of the risk adjustment program under the ACA. The risk adjustment program redistributes money from plans with lower-risk enrollees to plans with higher risk enrollees (whether related to adverse selection, risk selection, or both). If you’re an insurance company with a healthy risk pool, you’re paying into the risk adjustment program. If you’re an insurance company with an unhealthy risk pool, you’re collecting from the risk adjustment program.

The Centers for Medicare and Medicaid Services (CMS) was expected to make $10.4 billion in payments under the risk adjustment program to eligible insurance companies based on 2017 enrollments, but they recently announced the payments have been suspended. According to CMS and other officials in the Trump administration, the payments have been suspended because of a court ruling made in New Mexico earlier this year. The ruling by a federal judge found the formula that CMS uses to make payments under the risk adjustment program to be flawed.

The ruling only impacts risk adjustment payments for the years 2017 and 2018. CMS crafted a new formula for 2019 and future years. Critics of the suspension have suggested CMS could issue an interim final rule which takes effect immediately, using a formula similar to that which will be used in 2019 and allowing for immediate payment of the funds. However, Seema Verma, CMS Administrator, has stated CMS cannot make payments until the litigation is resolved.

The suspension of the payments comes at a volatile time. Insurance companies are starting to file their rates for 2019. Without a quick resolution to the risk adjustment payments, insurance premiums may rise even more than originally expected. Many states are already looking at another round of double digit increases. It’s not clear how much more premiums will rise if the risk adjustment payments aren’t quickly restored.
 

Part 1 – Is it or isn’t it a qualifying event?

Medicare entitlement of the employee is listed as a COBRA qualifying event; however, it is rarely a qualifying event. In situations where it is a qualifying event, it is only a qualifying event for the spouse or children that are covered under the group health plan.

For Medicare entitlement of the employee to be a qualifying event, the employer’s eligibility rules must specifically state that employees who gain access to Medicare cannot participate on the group health plan. This is prohibited in most instances by the Medicare Secondary Payer rules (MSP rules) which provide that employers must allow employees to continue coverage on the group health plan, even once enrolled in Medicare. This is best illustrated by an example:
John works for XYZ Company which has 200 employees and is subject to COBRA and the MSP rules.

John is enrolled in the group health plan offered by XYZ Company, and he also has elected to cover his spouse Jill under the plan. John just turned age 65 and has become eligible for Medicare, but Jill is only 62 years old and is not yet eligible for Medicare. John has decided to drop coverage for himself on the group health plan and enroll in Medicare, and consequently, Jill will be losing coverage under the group health plan

Does XYZ Company have to offer COBRA to Jill? No.

John voluntarily dropped coverage under the group health plan. XYZ Company did not, and is prohibited from, changing John’s eligibility for coverage under the group health plan because he enrolled in Medicare. John could have continued coverage under the group health plan even while enrolled in Medicare. As a result, John’s Medicare entitlement does not trigger a COBRA qualifying event for Jill.

Medicare entitlement will usually only be a qualifying event when an employer offers retirees under the age of 65 access to a retiree health plan. In this situation, the MSP rules permit (but do not require) the employer to terminate coverage on the retiree plan upon the retiree’s entitlement to Medicare. If coverage for the retiree is terminated as a result of their Medicare entitlement, the covered spouse and children would be eligible for up to 36 months of COBRA coverage on the retiree plan.

Part 2 – Special COBRA Rules for Termination of Employment & Reduction in Hours

Generally, termination of employment or reduction in hours results in a maximum COBRA coverage period of 18 months for those covered on the group health plan at the time of the event, but there are special rules when either event occurs shortly after an employee becomes entitled to Medicare. These rules extend the maximum coverage period for spouses and children, but not for employees.

If an employee terminatesemployment shortly after becoming entitled to Medicare (e.g. he/she retires) or experiences a reduction in hours shortly after becoming entitled to Medicare, the covered spouse and children are eligible for 36 months of COBRA coverage less the number of months the employee has been entitled to Medicare (but not less than 18 months of coverage). This is best illustrated with an example:

John works for XYZ Company. He and his wife Jill are covered by a group health plan which is subject to COBRA. John becomes entitled to Medicare on July 1st. John and Jill also remain covered under the group health plan offered by XYZ Company. On January 1st (6 months later), John retires and therefore John and Jill both experience a termination of employment qualifying event.

•  John is eligible for 18 months of COBRA coverage.
•  Jill is eligible for 30 months of COBRA coverage (36 months of COBRA – 6 months of time that has elapsed since John’s entitlement to Medicare).

Part 3 – An Employer’s Right to Terminate COBRA Early

An employer may terminate COBRA coverage early when a qualified beneficiary becomes entitled to Medicare after electing COBRA coverage. This is best illustrated with an example:

John works for XYZ Company. He and his wife Jill are covered by a group health plan which is subject to COBRA. John retires on July 1st. John and Jill are both offered and elect COBRA for a maximum period of 18 months because of experiencing a termination of employment qualifying event. On January 1st (6 months later), John becomes entitled to Medicare. XYZ Company may terminate John’s COBRA as of January 1st. Jill can continue coverage under COBRA for the maximum 18-month duration provided she does not become entitled to Medicare during this time.

If COBRA is terminated early because of entitlement to Medicare, employer’s must send an early termination notice to the qualified beneficiary who is affected.

Part 4 – Summary

COBRA rules seem simple on the surface but are far more complex once you take a deeper dive into the rules. Our parent company, Flexible Benefit Service Corporation (Flex) provides COBRA administrative services for employers to help them comply with this challenging administrative requirement.