We get regs. on the Early Retiree Reinsurance Program

One of the purposes of the Affordable Care Act is to subsidize the payment of claims under the medical coverage of early retirees so that employers will continue to sponsor plans providing for such coverage. The Department of Health and Human Services (DHHS) has now published interim regulations on the Early Retiree Reinsurance Program (Program), which is effective June 1, 2010.

FUNDING FOR THE EARLY RETIREE REINSURANCE PROGRAM IS LIMITED, AND THE SECRETARY OF DHHS IS AUTHORIZED TO STOP ACCEPTING APPLICATIONS ONCE THE FUNDING LIMIT HAS BEEN REACHED. THEREFORE, IT IS IMPORTANT TO APPLY AS SOON AS POSSIBLE.

Some highlights of the Program are as follows:

Under the Program, the DHHS will provide a subsidy
(a) to the employer sponsoring a postretirement medical plan
(b) with respect to health benefit claims actually incurred under the plan
(i) of retirees aged 55 and over who are not eligible for coverage under Medicare (i.e., retirees aged 55-65 who do not have a condition that would qualify them for Medicare coverage regardless of age) or
(ii) for coverage as active employees of a different employer, and
(iii) including the surviving spouses, eligible spouses and dependents of such early retirees (to the extent eligible under and as defined by the plan), whether or not such family members are eligible for Medicare and regardless of whether the dependents are also tax dependents,
(d) provided that the plan generates cost savings for participants by having “programs and procedures in place to generate cost savings” with respect to at least some chronic and high-cost conditions (which are defined as conditions for which $15,000 or more in health benefit claims are likely to be incurred during a plan year by a participant)—for example, by maintaining a diabetes management program (exemplifying a cost saving program for a chronic condition) or by covering all or a large portion of participants’ copays or coinsurance for treatment and visits related to cancer (exemplifying a cost saving procedure for a high-cost condition).

The amount of the reimbursement with respect to valid claims for health benefits is “80 percent of the portion of the health benefit costs (net of negotiated price concessions) attributable to the claims that exceed $15,000, but are below $90,000.” In other words, the DHHS will reimburse 80% of the amount by which a participant’s aggregate annual claims for a year exceed $15,000 (called, the “cost threshold”) but do not exceed $90,000 (the “cost ceiling”). The maximum reimbursement per participant is therefore $60,000. Copays, coinsurance, and deductibles are included in the amount subject to reimbursement. The cost threshold and cost ceiling are subject to adjustment by DHHS.

For purposes of the subsidy, “health benefits” do not include benefits excepted under HIPAA, such as long term care benefits.

The plan sponsor must make records available to the Secretary of DHHS for audit purposes. Owing to the Privacy Rule, the plan sponsor must therefore have a written agreement with its health insurance issuer or group health plan (it would seem that both are required), requiring the health insurance issuer and/or group health plan to disclose information on behalf of the sponsor to the Secretary. The agreement must encompass business associates of the health insurance issuer or group health plan.

To receive reimbursement under the Program, a plan sponsor must apply to the DHHS in accordance with the DHHS’s forms and procedures. The application must specify the plan year cycle for which reimbursement is sought (e.g., starting and ending day and month), and an application is not required every year. If an application is approved, the plan and plan sponsor will continue to be certified so long as the plan and plan sponsor continue to meet the requirements of the Program.

Among other things, an application must include the applicant’s TIN, name and address, contact information, a summary of how reimbursements will be used, a summary of the sponsor’s procedures or program for generating cost savings, and a projection of reimbursement amounts for the first two plan-year cycles. Reimbursements must be used in connection with the plan sponsor’s early retiree health insurance program and may not be used as general revenue. Examples of permitted uses include, “to pay for increases in … the sponsor’s premium, or increases in other health benefit costs (or to reduce plan participants’ costs).”
Application may be made for plan years that start before June 1, 2010, so long as they end after that date. For example, a plan sponsor may apply for reimbursement with respect to a calendar year plan that began January 1, 2010. However, claims incurred prior to June 1, 2010 may be included in the determination of reimbursements to the plan sponsor only up to the cost threshold ($15,000). A participant’s claims occurring before June 1, 2010 that exceed $15,000 are disregarded.

Negotiated price concessions must be reflected in claims submitted for reimbursement. In other words, reimbursements are operative only with respect to claims actually paid, even if rebates and other reductions in price are provided only after claims are initially paid.

Claims with respect to an early retiree may not be submitted until the retiree has exceeded the cost threshold ($15,000). Claims for reimbursement, however, must include all of the early retiree’s claims, including the claims below the cost threshold, in order to establish that the cost threshold has been met.

Claims submissions must include a list of the early retirees for whom claims are being submitted.

Claims are processed on a first-in, first-out basis until program funding is expended.

In the case of insured plans, claims may be submitted directly by the insurer.

We get model COBRA notices from the DOL

The EBSA has met its obligation under the American Recovery and Reinvestment Act (ARRA) of providing model notices on COBRA premium assistance by March 19th.

The model notices are available on the EBSA website. The notices include a Full General Notice, an Abbreviated General Notice, and a Notice of Extended Election Period. There is also a notice with respect to COBRA benefits under State law (i.e., where States have acted to create COBRA duties for employers with fewer than 20 employees--Hawaii does not have such a law).

Please note the following in regard to the model notices:

1) Full General Notice. The EBSA has taken the position that a notice must be provided to every qualified beneficiary who experienced a COBRA qualifying event, regardless of the type of qualifying event (e.g., including voluntary terminations), on and after September 1, 2008 (but not after December 31, 2009).

2) Abbreviated Notice (for QBs who have an election in place). An abbreviated notice may be given to COBRA qualified beneficiaries who experienced a qualifying event after September 1, 2008 and who continue to have a COBRA election in place.

3) Notice of Extended Election Period (for QBs whose event occurred before Feb. 17th and who didn’t have an election in place on Feb. 17th). ARRA requires plans to provide an extended election period of 90 days for any person who experienced a qualifying event on or after September 1, 2008 and before February 17, 2009, and who did not have a COBRA election in effect on February 17, 2009. The 90 day period begins to run when the plan administrator gives notice of the availability of the extended election period to such individuals. The EBSA has provided a model notice of the extended election period. ARRA requires that the notice of the extended election period be given within 60 days after February 17, 2009 or no later than 4/18/2009. (Although 4/18/2009 is a Saturday, it is not clear that plan administrators may wait until Monday, April 20, 2009, to provide the Notice of Extended Election Period.)

Please review the notices, here: http://www.dol.gov/ebsa/COBRAmodelnotice.html.

John D'amato, Friday, March 20, 2009

The President's health care proposal

Here is what the White House website identifies as the main features of the President's proposal on health insurance:

•Require insurance companies to cover pre-existing conditions so all Americans regardless of their health status or history can get comprehensive benefits at fair and stable premiums.
•Create a new Small Business Health Tax Credit to help small businesses provide affordable health insurance to their employees.
•Lower costs for businesses by covering a portion of the catastrophic health costs they pay in return for lower premiums for employees.
•Prevent insurers from overcharging doctors for their malpractice insurance and invest in proven strategies to reduce preventable medical errors.
•Make employer contributions more fair by requiring large employers that do not offer coverage or make a meaningful contribution to the cost of quality health coverage for their employees to contribute a percentage of payroll toward the costs of their employees' health care.
•Establish a National Health Insurance Exchange with a range of private insurance options as well as a new public plan based on benefits available to members of Congress that will allow individuals and small businesses to buy affordable health coverage.
•Ensure everyone who needs it will receive a tax credit for their premiums.

I wonder whether we need all of this. In particular, I wonder whether we need bullet points 2, 3, 5, 6, and 7.

If we took the alternative step of simply requiring employers to provide health insurance for their employees (subject to certain cost sharing), then we wouldn't need bullet point 2 (the tax credit) or 3 (government contribution to catastrophic health insurance). Businesses wouldn't be disadvantaged by offering health insurance because it would be a cost of doing business for everyone. Similarly, we wouldn't need bullet point 5 (the Wal-Mart tax) because all employers would be required to provide health insurance coverage. Bullet point number 6 would no longer be necessary because employees (and their dependents (again, subject to cost sharing)) would be covered under employer group health plans and low income individuals and families would continue to have the option of Medicaid. Bullet point 7 would also no longer be necessary--everyone would be covered (or could be covered) under either employer group health plans or Medicaid.

It just strikes me as wrongheaded and unnecessary to create another federal bureaucracy when the system would work better if the duty to provide health insurance were simply imposed upon the employer and the market was left to take care of everything else.

The Hawaii model isn't a bad one. The one danger I think it has is that it concentrates power in the hands of health insurers (again, including HMOs and Blue Cross/Blue Shield types entities). That is something to be avoided. They have the patients so they're in a position to control doctors' compenation. They have the doctors, so they're also in a position to control the care that is given. Not all of this is bad. But some of it can be.

John D'Amato, Saturday, February 28, 2009

The President's idea on the "Automatic Workplace Pension"

Contained in the President's budget proposal for the Department of Labor is the President’s idea on the “Automatic Workplace Pension”. (Go here for the budget proposal.) The proposal is to require employers that don’t sponsor retirement plans to automatically establish IRAs for their employees and to automatically pay part of the employees’ wages into the IRAs, subject to the employees’ right to opt out of the system.

The proposal doesn’t specify the amount of the automatic contribution. Presumably, the contribution would be set at the maximum contribution that a taxpayer may make to an IRA, namely, $5,000 for taxpayers under 50 for the 2009 tax year, subject to the employee's right to decrease the contribution. (It is possible, but I don't think likely, that, for taxpayers aged 50 and over, the contribution would be set at $6,000, which is the limit currently applicable to them.)

At present, the President’s proposal doesn’t require contributions of employer money. However, the Saver’s Credit is expanded under the President’s Budget and could well function as an employer administered match of employee deferrals to automatic IRAs on the model of COBRA premium assistance under the American Recovery and Reinvestment Act (“ARRA”).

The "Saver’s Credit" was added to the tax code by the Economic Growth and Tax Relief Reconciliation Act of 2001 and made permanent by the Pension Protection Act of 2006. See Code Sec. 25B. The Saver’s Credit is a credit equal to a certain percentage of up to $2,000 in employee deferrals to an IRA, 401(k) plan, or other retirement vehicle (including 403(b) annuities and 457 plans), reduced by distributions from such vehicles. The percentage match varies with the employee’s adjusted gross income, as shown in the following table, phasing out at adjusted gross income of $50,000 or more for married taxpayers filing jointly.


Married filing jointly Head of hsehld All others Credit
$0-$30,000 $0-$22,500 $0-$15,000 50% of contribution
$30,001-$32,500 $22,501-$24,375 $15,001-$16,250 20% of contribution
$32,501-$50,000 $24,376-$37,500 $16,251-$25,000 10% of contribution
Over $50,000 Over $37,500 Over $25,000 credit not available


The President’s budget proposal expands the Saver’s Credit by providing for a 50% match of the first $1,000 deferred to an eligible retirement plan vehicle by families having adjusted gross income of no more than $65,000. (It is not yet clear how the President’s proposal articulates with the above table.)

If the Saver’s Credit were administered in the same manner as COBRA assistance premiums under the ARRA—namely, by offset to the employer’s payroll taxes—then the Saver’s Credit could be contributed by the employer on a pay period basis to the employee’s automatic IRA. However, the President’s proposal does not yet provide for administering the credit in such a fashion.

John, February 27, 2009

CHIP Reauthorization Act gives States the option of covering Medicaid eligible children of working parents under employer group health plans

The Children’s Health Insurance Program Reauthorization Act of 2009 (“Act”) (enacted February 4, 2009) has the potential for shifting coverage of low-income children (and their families) to employer group health plans, if a parent of such a child is employed and the child remains eligible for coverage under Medicaid.

The relevant background of the Act is as follows:

Medicaid provides for health insurance programs for low income individuals, including children, under plans maintained by States. The portion of Medicaid covering children is called the Children’s Health Insurance Program (“CHIP”). In Hawaii, for example, all Medicaid programs for low income individuals are housed under the QUEST program.

The income limitation for coverage under QUEST for low income adults (who are not age 65 or over and are not certified as blind or disabled) is 100% of the Federal Poverty Guideline. For children, the income limitation is 200% of the Federal Poverty Guideline. (Click here for the 2009 Federal Poverty Guidelines.)

The Act extends CHIP by permitting States to elect to provide health insurance assistance to low income children by the means of paying for the coverage of such children under employer group health plans covering the children’s parents. In addition, the children's parents may also be covered under the employer's group health through such premium payments (if the parents are also eligible for Medicaid).

Thus, for example, instead of covering low income children only under QUEST, the State of Hawaii could now elect to cover the children through employer group health plans covering the children’s parents. Hawaii would give effect to this election by making premium assistance payments to pay for the children’s coverage, either directly to the group health plans or to the children’s parents. Further, if a targeted child’s parent or parents are also eligible for coverage under QUEST, then the State of Hawaii may now elect to make a premium payment to cover the entire family under the employer’s group health plan.

Some relevant details of the premium assistance program are as follows:
• Premium assistance under an employer’s group health plan must be elected by the targeted individual. In other words, the State cannot simply force coverage under the group health plan.
• An employer that offers dependent coverage under its group health plan may opt out of receiving premium subsidies directly from the State and may require that the premium subsidies be paid to the targeted individual.
• In the case of a child, the subsidy is equal to the difference between the employee contribution required for employee only coverage and the employee contribution required for coverage of the employee plus child. (N.B.: This will mean that to the extent that the employer subsidizes dependent coverage for any employee, the same subsidy will have to be provided with respect to children who are eligible for Medicaid coverage. Thus, a net fiscal effect of the Act is to shift a portion of the cost of covering low income children (and families) under Medicaid to employers.)
• In the case of coverage of one or more parents in addition to coverage of the child, the amount of the subsidy is increased to take into account the coverage of the parent(s), or, if cost effective in the State’s determination, the subsidy is equal to the cost of family coverage.
• In States which elect to provide premium assistance,
• The employer’s group health plan must permit enrollment of an employee who is eligible but not enrolled and of a dependent of any employee upon the occurrence of either of the following:
• the termination of the coverage of the employee or dependent under Medicaid or the State’s CHIP program (presumably owing to the choice of the employee to be covered under the employer’s group health plan), or
• the employee’s or dependent’s becoming eligible for premium assistance,
• provided that the employee enrolls within 60 days of the triggering event.
• The employer must give written notice to each employee of the opportunities for premium assistance that may be available.
• States opting to provide premium assistance with respect to coverage under employers’ group health plans are required to provide outreach and education services to families and employers.
• The Secretaries of Labor and Health and Human Services are directed to develop model notices within one year after the date of the Act’s enactment (which was February 4, 2009), and employers are required to issue such notices no later than the first plan year beginning after the anniversary of the Act’s enactment (e.g., January 1, 2011 for calendar year plans).

While April 1, 2009 is the effective date for the Act, employers should not rush into providing the required notices about the potential availability of premium payments through Medicaid. The Act requires States to elect to provide premium assistance and to offer outreach services, and obligates the two Secretaries to provide model notices within one year. Providing notice to employees at this point of opportunities for premium assistance that might become available to them through Medicaid would only serve to confuse the situation. Let the States act first.

It is highly likely, however, that States will act sooner rather than later to implement the options now available under the Act. States themselves carry part of the cost of Medicaid through cost sharing with the Federal government. To the extent that employers subsidize health care costs (which is the norm in Hawaii), then the State fisc will benefit through the employer group health plan option. Further, to the extent that limits are imposed on enrollment in State Medicaid health plans and those limits have already been reached, coverage through employer group health plans is the only means available for covering new Medicaid eligible individuals. In Hawaii, for example, QUEST is at its limit of 125,000 enrollees and cannot take new enrollees. Premium payments for coverage through employers is Hawaii’s only option for covering additional low income individuals.

Go here for text of Act (click Continue to GPO Site).

John, Sunday, February 22, 2009

We get a stimulus bill that has COBRA premium assistance provisions

The intent of the American Recovery and Reinvestment Act of 2009 ("ARRA") on COBRA premium assistance is clear, but the law leaves a lot of issues open. Here are some highlights of the COBRA assistance provisions of ARRA (which was enacted on Tuesday, February 17th):

• ARRA amends the Internal Revenue Code and ERISA to provide a subsidy of 65% of COBRA premiums for up to 9 months for COBRA qualified beneficiaries with respect to whom the COBRA qualifying event is "involuntary loss of employment" occurring in the period beginning September 1, 2008 and ending December 31, 2009.
• "COBRA continuation coverage" is defined to include coverage under State "mini-COBRA laws" so the subsidy is also available to employees of employers having fewer than 20 employees in States that have adopted "mini-COBRA laws."
• Responsibility for administering the subsidy is placed largely upon the person to whom premiums are paid (or treated as being paid). That person is required to deem the payment of 35% of COBRA premiums by “assistance eligible individuals” to be payment of those premiums in full and is permitted to recoup the 65% subsidy of premium payments by offset to payroll tax obligations (including FICA and federal income tax withholdings and employer FICA).
• The “person to whom premiums are paid” is treated as
  · the plan (in the case of multiemployer plans),
  · the employer (in the case of single employer plans that are subject to COBRA or that are wholly or partially self-insured), or
  · the insurer (in the case of all other plans).
• Notice of the right to ARRA premium assistance must be given by the plan administrator to assistance eligible individuals:
  · within 44 days of the COBRA qualifying event in the case of events occurring after the date of ARRA’s enactment (February 17, 2009) and
  · within 60 days of the date of ARRA’s enactment, for COBRA qualifying events occurring on or before that date (but not before September 1, 2008) if there is no COBRA election in place on the date of ARRA’s enactment.
• An extended COBRA election period is available for assistance eligible individuals not on COBRA as of ARRA’s enactment date (the period begins on the date that such individuals are given notice of their eligibility for COBRA assistance and ends 60 days later); and special rules apply to employees and employers in “mirrored tax” jurisdictions (e.g., Guam--the COBRA assistance provisions are not treated as provisions of the "mirror tax code" so that payroll tax payments to the taxing authority of those jurisdictions are not reduced).
• Eligibility for COBRA premium assistance begins to phase out at $125,000 AGI for single filers and $250,000 AGI for joint filers, and is completely eliminated at $145,000 AGI for single filers and $290,000 AGI for joint filers. Any excess COBRA premium assistance paid to such filers is recaptured by an increase to their taxes by the amount of the excess.
• Expedited review by the Secretary of Labor is required of applications by COBRA qualified beneficiaries to be treated as “assistance eligible individuals” in cases in which such treatment has been denied them. The Secretary of Labor must act upon such applications within 15 business days.
• The Secretary of Labor is required to provide model notices within 30 days of the date of enactment of ARRA and is also required to provide forms and procedures for implementing the review requirement.
  
  Open issues include the following:
  
  ARRA does not provide a definition of "involuntary termination." Does voluntary termination for “good reason” count as “involuntary termination”? Does participation in a voluntary severance program or early retirement program count as “involuntary termination”?
  
  Must notice of the right to ARRA premium subsidies be given to assistance eligible individuals whose COBRA qualifying event occurred on or prior to February 17, 2009 but who did elect COBRA by February 17, 2009? Presumably, the answer is, yes, both to comply with the letter of ARRA and to give notice to existing assistance eligible individuals of their right to COBRA premium reduction under ARRA. But what is the date by which such notice must be given? 44 days after February 17, 2009? 60 days?
  
  Where the premium collector is the employer, the plan is fully insured, and COBRA qualified beneficiaries make premium payments directly to the insurer, is the employer required to pay over the subsidized amount to the insurer? How does the employer know whether the COBRA qualified beneficiaries have made any payment to the insurer, or how much of a payment has been made? When must the subsidized amount be paid? Is the employer entitled to be billed by the insurer?
  
  What is the procedure where an assistance eligible individual and an employer disagree about the individual’s right to ARRA premium assistance? Does the employer’s failure to deem payment of 35% of the COBRA premium as payment in full count as a benefit denial that is immediately appealable to the Secretary of Labor under the expedited review procedure required by ARRA? Or must the individual first exhaust the plan’s claims procedures? Is the individual required to pay the full premium amount during the pendency of the application? Or, in the case of a fully insured plan, is the employer required to continue to pay over the subsidized amount to the insurer? What about the case in which the individual has not yet become a COBRA qualified beneficiary and has been denied the right to an extended election period?
  
  Bottom line:
  
  · The intent of ARRA’s COBRA premium assistance provisions and the general manner in which the assistance is supposed to work are clear, but significant issues remain to be worked out. In particular, there are open issues of coordination among assistance eligible individuals, employers, insurers, and the Departments of Labor and Treasury.
  
  · Outreach efforts by the Secretary of Labor, in consultation with the Secretaries of the Treasury and Health and Human Services, are required to be made to employers, group health plan administrators, public assistance programs, States, insurers, and other entities.

I've done a Memo on the COBRA assistance provisions of ARRA. Email me for a copy. See here for text of the American Recovery and Reinvestment Act (press, "Continue to GPO Site" and then press "Open").

John, February 19, 2009