HHS is Consistent! Pre-Thanksgiving Regulation Dump – 2014 Version

HHS is Consistent! Pre-Thanksgiving Regulation Dump – 2014 Version

PPACAThe Department of Health and Human Services (HHS) has come through for us again.  This year’s pre-Thanksgiving regulation dump came a bit earlier than expected.  They issued proposed regulations that address a variety of Patient Protection and Affordable Care Act (PPACA) benefit provisions for 2016 affecting both the group and individual markets. There is a 30-day comment period on these proposed regulations. We will focus solely on the key provisions of the group markets here.

Preview of the proposed guidance: Here.  Note, this document is scheduled to be published in the Federal Register on 11/26/2014 and available online at http://federalregister.gov/a/2014-27858, and on FDsys.gov

2016 Transitional Reinsurance Fee Contribution Amount: The Reinsurance Fee applies to insured and self-funded group health plans for calendar years 2014 through 2016. The 2015 fee amount of $44 was announced previously. The proposed fee for 2016 is $27 per covered individual.   [Note:  Insured expatriate plans do not have to pay the reinsurance fee. The regulations propose that self-insured expatriate plans also not be required to pay the reinsurance fee for 2015 and 2016].

Cost-Sharing Limits: The proposed plan year cost-sharing maximums for 2016 are $6,850 for self-only coverage and $13,700 for family coverage. Insurers are permitted, but not required, to count out-of-network costs toward the annual cost-sharing limits.

Lower Cost-Sharing Limits for Certain Individuals: Lower cost-sharing limits are proposed for certain individuals with lower incomes. For individuals with household incomes between 100% and 200% of the federal poverty level, the proposed maximum is $4,250 for self-only coverage and $4,500 for family coverage. For individuals with incomes between 200% and 250% of the federal poverty level, the proposed maximums are $5,450 for self-only coverage and $10,900 for family coverage.

Minimum Value: To meet the minimum value requirement, a plan must include substantial coverage of both inpatient hospital services and physician services in addition to meeting the requirement to cover at least 60% of allowed costs.

A proposed minimum value calculator for 2016 was issued, including links to the draft actuarial value calculator and the draft calculator methodology.

If you are looking for links to 2015’s calculator and methodology they can be found here.

Medical Loss Ratio (MLR) Rebates: Currently, individuals enrolled in insured group health plans subject to ERISA must receive the benefit of any MLR rebates within three months of receipt by the group policyholder. The proposed regulations would apply this same three-month timing to individuals enrolled in non-federal governmental plans and other group health plans not subject to ERISA.

The proposed regulations also clarify how certain types of expenses should be treated in calculating the medical loss ratio.

New Essential Health Benefit Benchmark Plan Selection: The proposed rules would require all states to select new benchmark plans for 2017 based on plans available in 2014.

Hardship Exemptions from the Individual Mandate: Individuals who live in states that chose not to expand Medicaid, who have household incomes below 138% of the federal poverty level, are under age 65 and do not qualify for Medicaid or Medicare, will automatically qualify for a hardship exemption from the Individual Mandate. They will not be required to apply for Medicaid and be denied, or to obtain a hardship exemption certificate from the Marketplace.

Any individual whose gross income is below the federal income tax filing threshold can qualify for a hardship exemption from the Individual Mandate. This exemption can be claimed through the tax filing process.

Opt-Out Madness: This most recent round of regulation-dumping has a curious piece about employer opt-out credits. Often employers will use an opt-out credit as an incentive for employees to choose not to enroll in the employer’s health plan. Well, we already remind the employee that choosing not to be covered might result in them being fined under PPACA’s individual mandate rules, but the opt-out could have consequences for the employer’s plan too.

The employer’s opt-out credit must be treated as an “additional employee contribution” for purposes of the affordability test under PPACA’s employer mandate rules.

This strange position is quite a departure from conventional notions of “employee cost share”. Therefore, most employers/plan sponsors have not included these dollars in their affordability calculations. The position that the regulators have taken (and that, could change, or be reinforced during the comment period) is that starting on January 1, 2015, when the affordability rules become effective, that for opt-out credits, that can’t be converted to cash, they will be treated as additional employee contributions.

Here’s an example:

  • An employee’s required contribution for individual coverage under the employer’s Medical/Rx plan is $100 per month.
  • The employer offers a taxable/cash opt-out payment of $50 per month to the employee if he/she waives coverage for the Medical/Rx plan.
  • The “cost” to the employee for purposes of determining affordability under PPACA is $150 (not $100).

The point is that the employees who enroll in the health plans are paying $100 for their coverage and they are giving up their right to receive the $50. Employees who elect health coverage will have $150 less in taxable income than employees who decline coverage. (Meaning the employee is “effectively” paying $150 for his/her coverage).

We can only guess that the reason for this rule is that under an alternative rule (i.e., opt-out credits do not count as employee contribution) employers could simply convert cafeteria plan contributions (which obviously do count as employee contributions) to opt out credits that would count as employer contributions.

Here’s another example. Let’s assume an employer is willing to pay an employee $5,000 per month and charge the employee $200 per month for health coverage.  That coverage might not be affordable.  If opt-out credits count as employer contributions, the employer could instead say that it is paying the employee $4,800 per month and providing free health insurance, but employees who opt-out get $200 more per month in taxable income.  The result for the employee is exactly the same because in each case, the employee chooses between $5,000 in taxable income with no insurance or $4,800 in taxable income with health coverage.  However, for the employer the opt-out approach would mean that the coverage is affordable while the other approach means coverage may not be affordable.  If opt-out credits instead count as employee contributions (as the new regulations provide), opt-out credits are treated just like cafeteria plan contributions for affordability purposes.

Anyway, we believe that is the logic that the regulators wrestled with.  And, with that, please try to enjoy your Thanksgiving holiday!