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What’s New for 2014

Adjusted Community Rating

Adjusted community rating (ACR) rules will apply to non-grandfathered individual and small group insurance markets effective for plan years (policy years in the individual market) beginning on or after Jan. 1, 2014. Under the ACA provision, the use of actual or expected health status or claims experience to set rates for premiums is prohibited. Other rating factors such as age, geographic area and tobacco use may be used to vary premiums, within certain limits. The only groups not affected by the rating changes are self-funded groups and grandfathered plans along with large fully insured groups in most states. In some states, small groups or individuals with coverage in effect as of Oct. 1, 2013, may be able to renew their coverage (“keep their coverage”) if their renewal date falls between Jan. 1, 2014, and Oct. 1, 2014.

Clinical Trials

For new and renewing plans effective on or after Jan. 1, 2014, all non-grandfathered health plans are required to cover certain routine patient costs incurred in approved clinical trials. An approved clinical trial is one conducted in relation to the prevention, diagnosis or treatment of cancer or other life-threatening diseases or conditions and which has been approved or sponsored by one of a number of federal health-related agencies. Coverage is for routine patient costs and care that would be a covered benefit even if the member was not a participant in a clinical trial, but not for the device, medication or data collection costs associated with the trial.

Exchanges

Exchanges offer another option for individuals and small groups to shop for, select and enroll in high-quality, affordable health plans.

Public Exchanges

The ACA required Exchanges to be established in each state by Jan. 1, 2014. While many people will continue to access health insurance as they do today – through an employer, government program or health insurers, the online Exchanges provide another way for individuals and small businesses to research, compare and enroll in health insurance offered by health insurers. Exchanges exist in each state and are operated by either the state government, by the federal government or as a partnership between the two.

There are two types of Exchanges: one for small businesses, called Small Business Health Options Program (SHOP) and another for individuals, called the Individual Marketplace. Employees meeting certain requirements who cannot afford the coverage provided by their employer may purchase a plan in the Exchange. Unaffordable means the premium costs more than 9.5 percent of the employee’s yearly income.

From 2014 through 2016, only individuals and employers in the small group market are eligible to participate in an Exchange. In 2017, states may permit employers in the large group market to participate.

Private Exchanges

Private exchanges have been in place for several years. However, with increased interest in private exchanges for active employees and retirees, a number of private exchanges are being established by a variety of different entities such as consulting firms and cooperatives. Private exchanges are available to all business segments and fully insured or self-funded groups of all sizes. Because private exchanges are operated by private entities, subsidies are not available to those purchasing health care insurance through a private exchange.

Flexible Spending Account (FSA)

Effective in 2013, there is a maximum of $2,500 that can be set aside in a health FSA. In subsequent plan years, the maximum is expected to increase based on inflation. This change is in addition to no longer allowing health FSAs to be used for over-the-counter medications, which became effective in 2011. Also, an exception to the longstanding “use-or-lose” rule associated with FSAs now allows health FSAs to carry over up to $500; however, employers may specify a lower amount or not permit the carryover at all. The accumulated unused amount carried over plan year to plan year cannot exceed $500. Additionally, the same carryover limit must apply to all plan participants. Plan documents must be amended to include the carryover provision. An FSA carryover provision and an FSA grace period cannot be offered at the same time.

Individual Mandate

Beginning Jan. 1, 2014, the ACA requires individuals who are not exempt to either maintain minimum essential coverage for themselves and any nonexempt family members or include an individual shared responsibility payment with their Federal income tax return. However, there is transitional relief offered in 2014. Employees purchasing coverage in the SHOP Exchange will not be subject to the individual shared responsibility payment if they have enrolled in the employer’s coverage by March 31, 2014. There is also transition relief ensuring that employees who are eligible to enroll in a non-calendar year employer-sponsored plan with a plan year beginning in 2013 and ending in 2014 (the 2013-2014 plan year), who did not elect coverage in 2013, will not be subject to the fines associated with the individual mandate during that plan’s 2013-2014 plan year. The health insurance required must be minimum essential coverage or an individual would pay a potential penalty for noncompliance. For this individual mandate, coverage may be obtained through government programs such as Medicare or Medicaid; employer or individual insurance market; or Exchange. If individuals do not elect coverage offered by their employer, do not have other coverage and do not meet one of the narrow exceptions, there will be a tax penalty based on an individual’s income. Please consult a tax advisor with questions.

  • 2014 – $95 per uninsured person or 1 percent of household income over the filing threshold (whichever is greater)
  • 2015 – $325 per uninsured person or 2 percent of household income over the filing threshold (whichever is greater)
  • 2016 – and beyond, $695 per uninsured person or 2.5 percent of household income over the filing threshold (whichever is greater)
  • 2017 – going forward, the penalties will be increased by the cost-of-living adjustment.

Integrated Health Reimbursement Account (HRA)

An HRA is considered integrated with a group health plan if, under the terms of the HRA, an employee (or former employee) is permitted to permanently opt out of and waive future reimbursements from the HRA at least annually and, upon termination of employment, either the remaining amounts in the HRA are forfeited or the employee is permitted to permanently opt out and waive future reimbursements from the HRA.

Mental Health Parity

The Final Rules will begin to apply on the first day of the plan year that starts on or after July 1, 2014. The rules do not mandate coverage of any mental health and substance use disorder benefits. If a plan chooses to provide coverage for mental health and substance use disorder benefits, it must do so in compliance with the rules. Plans may define which conditions they will cover and which they will not; however, fully insured plans are also subject to state law mandates and both fully insured and self-funded plans may be subject to mandates under the ACA that include coverage of mental health and substance use disorder treatment benefits.

Removal of Pre-existing Condition Exclusions

For plan/policy years that began on or after Jan. 1 2014, the health reform law removes any restrictions on pre-existing conditions for individuals of all ages. Therefore, coverage may not be denied for pre-existing conditions nor will individuals with pre-existing conditions be charged more. This is an update to the provision from 2010 that did not allow exclusions for children under the age of 19 with a pre-existing condition. This applies to grandfathered and non-grandfathered plans; however, grandfathered individual health plans are exempt from this requirement.

Taxes and Fees

The permanent Insurer Fee will be collected from health insurance issuers based on net written premiums. The annual fee is permanent and expected to total $8 billion in 2014 for all insurers, increasing each year to $14.3 billion in 2018, and increasing by the rate of premium growth thereafter. Based on industry analysis, the impact on premium is about 2.5 percent. The Insurer Fee will fund premium tax subsidies for low-income individuals and families who purchase health insurance through Exchanges. The fee impacts fully insured customers only.

The temporary Transitional Reinsurance Fee applies for years 2014 to 2016. The ACA imposes a fee on health insurance issuers and self-funded plans and then distributes the funds to issuers in the non-grandfathered individual market that disproportionately attract individuals at risk for high medical costs. The intent is to spread the financial risk across all health insurers to provide greater financial stability. The fee will be assessed on a per capita basis. The health reform law specifies the total amounts of the Reinsurance Fee that must be collected for the Reinsurance Program: $12 billion in 2014, $8 billion in 2015 and $5 billion in 2016, totaling $25 billion. States are permitted to increase these fees at their discretion. Based on industry estimates, the average projected cost is about $5 per member/per month in 2014, which then decreases each year for the subsequent two years.

The temporary Patient-Centered Outcomes Research Institute (PCORI) Fee funds research that evaluates and compares health outcomes, clinical effectiveness, risks and benefits of medical treatments and services. The fee is effective 2012 to 2019 and increases from $1 to $2 per member per year for policy or plan years ending Oct. 1, 2013, through Sept. 30, 2014. The PCORI Fee is indexed to medical inflation thereafter.

Waiting Period Limits

Employers will need to offer new employees health benefit coverage no later than day 90 of their employment. The 90-day waiting period limit applies to all group health plans, fully insured and self-funded, grandfathered and non-grandfathered, for the plan year on or after Jan. 1, 2014. For employers that currently offer compliant waiting periods, no change is being made.

Wellness Programs

The final wellness rules are effective for plan years beginning on or after Jan. 1, 2014, for grandfathered and non-grandfathered plans. The new rules essentially increase the maximum reward permissible under a health-contingent wellness program offered in connection with a group health plan from 20 percent to 30 percent of the cost of coverage and up to 50 percent for wellness programs that are designed to reduce or prevent tobacco use. The new rules also divide health-contingent wellness programs into two subcategories (activity-only programs and outcome-based programs); provide clarifications regarding the reasonable design of these programs and the reasonable alternatives that must be offered in order to avoid prohibited discrimination.

This communication is designed to provide a summary of significant developments to our clients. Information presented is based on known provisions. Additional facts and information or future developments may affect the subjects addressed. It is intended to be informational and does not constitute legal advice regarding any specific situation. Plan sponsors should consult and rely on their attorneys for legal advice.