The Patient Protection and Affordable Care Act (ACA) created sweeping reform to the health care system in the United States. The driving principles behind the ACA are to provide affordable health care to all Americans, reduce the growth of the health care costs, and improve the health of our communities.

Significantly, group health plans have faced significant new challenges under the lengthy and complex ACA. The law has drastically changed health care as we know it and requires immediate action and ongoing analysis and restructuring of benefits in the years to come.

While there are variations for some of these requirements, such as a plan’s grandfathered status or whether a particular benefit is deemed excepted under HIPAA’s portability requirements, the group health plan requirements generally include the provisions set forth in this summary.

List of Mandates in Effect Prior to 2012

• Coverage of Adult Children up to Age 26
• Lifetime Benefit Limits and Restricted Annual Benefit Limits
• Limited Grounds for Rescinding Coverage
• Prohibition of Preexisting Conditions Exclusions (Under Age 19)
• Internal and External Claims Appeals Processes
• Mandated Coverage of Preventive Health Services
• Mandated Patient Protections
• Reasonable Break Time for Nursing Mothers
• Over-the-Counter Drug Prohibition
• HSA and Archer MSA Penalty Increase

Mandates Effective for 2012-2013

Cost of Employer-Sponsored Health Coverage Included on Form W-2
Employers must begin reporting the aggregate cost of employer-sponsored coverage provided on their employees’ Form W-2 (Code DD in Box 12).

Restricted Annual Benefit Limits
The annual limit rule increases the minimum annual dollar limit on the value of benefits for any participant or beneficiary with respect to the scope of essential health benefits from $1.25 million to $2 million.

Uniform Summary of Benefits and Coverage (SBC)
With varying compliance dates for disclosure, in general, the requirement went into effect September 23rd of 2013. Group health plans must provide a summary of benefits and coverage that: (1) is in either color or grayscale; (2) is presented in a uniform format; (3) uses terminology understandable by the average plan enrollee; (4) does not exceed four double-sided pages in length; and (5) does not include print smaller than 12-point font. The SBC, notice of material modification, and uniform glossary requirements apply to self-funded and fully-insured group health plans, including grandfathered plans. However, an SBC need not be provided for plans, policies, or benefit packages that constitute HIPAA excepted benefits under 26 CFR 54.9831-1(c).

Extension of Nondiscrimination Rules
The ACA extended the nondiscrimination rules of Internal Revenue Code §105(h)(2) nondiscrimination testing to non-grandfathered fully-insured group health plans. This is a substantial change as §105(h) has historically only been applicable to self-funded group health plans. Fully-insured plans have not had to comply with nondiscrimination testing in the past, except as required under §125 cafeteria plan testing requirements. This provision was scheduled to already be in effect, however, the IRS released Notice 2011-1 delaying the effective date of nondiscrimination testing rules under the ACA until further regulations and guidance are issued. However, group health plans need to be aware that this is still within the ACA so even fully insured plans must be mindful when making design choices.

Employer Annual Reporting Requirements Regarding Quality of Care
Group health plans must annually submit, to the Secretary and enrollees under a plan, a report during each open enrollment period regarding wellness and prevention programs. The Secretary was required to develop reporting requirements for group health plans and issue regulations in 2012; however, these have yet to be released.

Comparative Effectiveness Fee (Patient-Centered Outcomes Research Trust Fund)
Fees on insured and self-insured plans (certain benefits are excepted) in the amount of $1 per covered life for plan years ending on or after October 1, 2012, and ending before October 1, 2013, are required. There are a number of different ways to calculate the “covered lives” which are set forth in the regulations. The approach used by a plan, however, must be consistent. The fee will increase to $2 for the next plan year (ending on or after October 1, 2013 and ending before October 1, 2014) and will again increase and be calculated as indicated for future plan years until the fee ceases for years ending on or after October 1, 2019.

Effective Dates in 2013

Restricted Annual Benefit Limits
The annual limit rule increases the minimum annual dollar limit on the value of benefits for any participant or beneficiary with respect to the scope of essential health benefits to $2 million for 2013. Beginning in 2014, annual limits on the dollar value of benefits for any participant or beneficiary will no longer be allowed. However, group health plans may still place annual or lifetime limits on specific covered benefits that are not essential health benefits.

Flexible Spending Account Limit to $2,500
The flexible spending account limit on salary deferral will be $2,500, adjusted in future years for changes in the cost of living. This requirement applies for plan years effective on or after January 1, 2013. See IRS Notice 2012-40.

Elimination of Deduction for Expenses Allocable to Medicare Part D Subsidy
The employer’s deduction for the amount of any Medicare Part D retiree drug subsidy will be eliminated.

Effective Dates in 2014 and Beyond

Automatic Enrollment for Large Employers Offering Coverage
In accordance with the regulations promulgated by the Secretary, an employer with more than 200 full-time employees and that offers employees enrollment in one or more health benefits plans must automatically enroll new full-time employees in one if its plans, subject to any waiting period authorized by law, and to continue the enrollment of current employees in a health benefits plan offered through the employer. Additionally, any automatic enrollment program shall include adequate notice and the opportunity for an employee to opt out of any coverage the individual or employee was automatically enrolled in. While the effective date for this requirement is a bit unclear, the provision also states that implementation is in accordance with regulations promulgated by the Secretary. The Department of Labor recently issued guidance stating that until regulations are issued, employers are not required to comply with the automatic enrollment mandate. The Department of Labor indicated that it intends to complete the regulations by 2014.

Prohibition on Annual Benefit Limits
Beginning in 2014, annual limits on the dollar value of benefits for any participant or beneficiary are no longer allowed. Group health plans may still place annual or lifetime limits on specific covered benefits that are not essential health benefits.

Prohibition on Excessive Waiting Periods
Group health plans and a health insurance issuers offering group or individual health insurance coverage are prohibited from applying any waiting period (the period that must pass before coverage begins for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan) that exceeds 90 days.

Play or Pay
Penalties can be imposed on applicable large employers who (1) fail to provide health care coverage for all full-time employees; (2) offer minimum essential coverage that is unaffordable; or (3) offer minimum essential coverage under which the plan’s share of the total allowed cost of benefits is less than 60%. The penalty tax will be imposed if any full-time employee is certified to the employer as having purchased coverage through an Exchange with respect to which a tax credit or cost sharing reduction is allowed or paid to the employee. The taxes range from $2,000-$3,000 per full-time employee depending on the circumstance with certain reductions and caps imposed.

The penalty tax can be imposed on “applicable large employers.” The term “applicable large employer” generally means an employer who employed an average of at least 50 full-time employees (an employee who works on average at least 30 hours per week) or full-time equivalent employees (as defined in the regulations) on business days during the preceding calendar year.

Exchanges
Each state is required to establish an American Health Benefit Exchange (“Exchange”) for that state that (1) facilitates the purchase of qualified health plans, (2) provides for the establishment of a Small Business Health Options Program that is designed to assist qualified employers in the state who are small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market in the state; and (3) meets certain organizational and operational requirements. An Exchange is required to make qualified health plans available to qualified individuals and qualified employers, but cannot make available any health plan that is not a qualified health plan. The Exchange is required to have an initial open enrollment period, and annual open enrollment period, and certain special enrollment periods. Note that the terms “qualified employer,” “qualified individual,” and “qualified health plan” are each specifically defined.

An employer is required to provide notice of the availability of the Exchange informing employees (1) of the existence of the Exchange; (2) that employees may be eligible for a subsidy under the Exchange if the employer’s share of the aggregate cost of benefits is less than 60%; and (3) that if the employee purchases a policy through the Exchange, he or she will lose the contribution to any health benefits offered by the employer.  The notice must be provided to each employee at the time of hiring (or to current employee no later than October 1, 2013).

Fair Health Insurance Premiums
Health insurance issuers for health insurance coverage offered in the individual or group market may not charge discriminatory premium rates.

Guaranteed Availability and Renewability of Coverage
Health insurance issuers that offer health insurance coverage in either the individual or group market must accept every employer and individual in the State that applies for coverage. However, the issuers are permitted to limit enrollment to annual open and special enrollment periods for those with qualifying lifetime events. The Secretary is required to promulgate regulations with respect to enrollment periods.

Nondiscrimination based on Health Status
The ACA extends the prohibition from discriminating against an individual with regard to eligibility or coverage based on a health status-related factor to health insurance issuers offering individual health insurance coverage. Additionally, the ACA codified the nondiscrimination requirements for wellness programs.

Nondiscrimination in Health Care Providers
Group health plans and health insurance issuers offering group or individual coverage are prohibited from discriminating with respect to plan participation or coverage against health care providers acting within the scope of their professional license or certification under applicable State laws.

Comprehensive Health Insurance Coverage
Health insurance issuers that offer health insurance coverage in the individual or small group market must ensure that such coverage includes essential health benefits. Group health plans must comply with certain cost-sharing requirements.

Coverage for Clinical Trials
Group health plans and health insurance issuers offering group or individual health insurance coverage that provide coverage to qualified individuals are prohibited from (1) denying the individual participation in a clinical trial; (2) denying (or limiting or imposing addition conditions on) the coverage of routine patient costs for items and services furnished in connection with participation in the trial (with some exceptions); and (3) discriminating against the individual on the basis of the individual’s participation in such trial.

Transparency in Coverage
The ACA places reporting obligations on group health plans and health insurance issuers offering group or individual health insurance coverage seeking certification as a qualified health plan to the Exchange, the Secretary, the State insurance commissioner, and to the public.

Individual Mandate
An applicable individual must ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage. Subject to limited exemptions, a shared responsibility penalty is imposed on any applicable individual for any month in which he or she fails to maintain minimum essential coverage, which includes a government sponsored program, an employer sponsored plan, a plan in the individual market, a grandfathered plan, and certain other coverage.

Increase Wellness Incentive Limit
The ACA codifies substantially similar basic requirements for the wellness programs currently in the HIPAA regulations. However, significantly, the ACA increases the maximum incentive available to 30% of the cost of coverage and authorizes the Secretaries of Labor, Treasury, and HHS to increase the incentive to 50% of the cost of coverage.

Reporting of Health Insurance Coverage
Every person, including self-insured and fully-insured group health plans, who provides “minimum essential coverage” to an individual during a calendar year is required to make a return to the IRS regarding individual health insurance coverage. Additionally, the reporting person is required to provide a written statement to the covered individual.

Effective Dates in 2018

Excise Tax on Cadillac Plans
A 40% nondeductible excise tax will be imposed on high-cost health coverage (the “Cadillac Tax”). If the coverage is insured, the health insurance issuer is responsible for paying the tax. If the coverage is HSA or Archer MSA contributions, the employer is responsible for paying the tax. For other coverage, the plan administrator is responsible for paying the tax. The Cadillac Tax only applies to applicable employer-sponsored coverage. With certain exceptions, if the employer or plan sponsor miscalculates the excess benefit attributable to each coverage provider, it must pay a tax penalty (in addition to the Cadillac Tax) in the amount equal to 100% of the additional excise tax that must be paid by coverage providers due to the miscalculation plus interest.

Please note that the above serves as a summary only. There are various complexities associated with each provision, with varying definitions, exceptions, and requirements. With regard to provisions becoming effective within the next year, plans sponsors and group health plans should immediately have their plan design, procedures, and administration thoroughly reviewed by legal counsel.

This legislation is overwhelming in nearly every sense of the word, and we are ready to assist you in planning your strategies and steps toward compliance, as well as updating your documents as required. As always, please contact us with any questions you may have. Attorney Beth Latchana can be reached directly at elatchana@fraserlawfirm.com (517) 377-0826.

Interested in learning more about Final HIPAA Regulations? Click here.

Interested in learning more about Accountable Care Organizations? Click here.

IRS Circular 230 Disclosure

Unless expressly stated otherwise, this document is not intended or written to function as a covered opinion under Department of Treasury regulations. Any federal tax advice within this document is not intended or written to be used, and cannot be used, for the purpose of: (1) avoiding penalties that may be imposed, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The first round of SBCs was required on or after September 23, 2012 (for periods of open enrollment/plan years occurring on or after this date).  [Please see our previous detailed memorandum dated July 11, 2012 outlining the SBC requirements, including format, content, and timing and method of distribution.]  Guidance and changes for the second round of SBCs was released Tuesday, April 23rd.

On April 23, 2013, the Departments of Health & Human Services, Labor and Treasury (Departments) jointly prepared and released additional Frequently Asked Questions specifically regarding Summary of Benefits and Coverage (SBC) requirements for the second year of applicability (for coverage beginning on or after January 1, 2014 and before January 1, 2015).  See FAQs about the Affordable Care Act Implementation Part XIV.

The updated guidance and templates can be found at:

• Affordable Care Act Implementation FAQs Part XIV: http://www.dol.gov/ebsa/faqs/faq-aca14.html
• Template (authorized for second year of applicability): www.dol.gov/ebsa/pdf/correctedsbctemplate2.pdf and www.dol.gov/ebsa/correctedsbctemplate2.doc
• Sample Completed SBC (authorized for second year of applicability): www.dol.gov/ebsa/pdf/CorrectedSampleCompletedSBC2.pdf and www.dol.gov/ebsa/CorrectedSampleCompletedSBC2.doc

Significantly, only two specific additions are required for the second round of SBCs:

1)      Whether the plan or coverage provides minimum essential coverage (MEC) as defined under section 5000A(f) of the Internal Revenue Code of 1986;

2)      Whether the plan or coverage meets the minimum value (MV) requirements (whether the plan’s or coverage’s share of the total allowed costs of benefits provided under the plan or coverage is not less than 60 percent of such costs).

MEC and MV

The updated templates (page 4) have a designated entry line for the plan or issuer to indicated whether the plan or coverage “does” or “does not”: (1) provide MEC; and (2) meet the MV requirements.

However, the FAQs also provide that no enforcement will be taken against a plan or issuer who (1) is unable to modify the SBC template for the second year, (2) uses the authorized template for the first year, and (3) includes a cover letter or similar disclosure setting for the MEC and MV information as follows:

Does this Coverage Provide Minimum Essential Coverage?
The Affordable Care Act requires most people to have health care coverage that qualifies as “minimum essential coverage.” This plan or policy [does/does not] provide minimum essential coverage.

Does this Coverage Meet the Minimum Value Standard?
The Affordable Care Act establishes a minimum value standard of benefits of a health plan. The minimum value standard is 60% (actuarial value). This health coverage [does/does not] meet the minimum value standard for the benefits it provides.

Annual Limits

Although it was the intent of the Departments to remove language regarding annual limits as they will no longer be allowed in 2014, this change has not been made and the FAQ in Q3 set forth the appropriate responses to the SBC questions and charts on annual limits.  However, the FAQ states that removal of the section on annual limits is allowed, specifically:

To the extent a plan or issuer wishes to modify the SBC template for disclosures required to be provided for the second year of applicability to remove this information, the Departments will not take any enforcement action against a plan or issuer for removing the entire row in the Important Questions chart on page 1 of the SBC (with the question: “Is there an overall annual limit on what the plan pays?”).

See FAQs about the Affordable Care Act Implementation Part XIV, Q3.

Coverage Examples

A previous FAQ indicated that additional coverage examples would be included in subsequent SBCs; however, the Departments believe it is important to maintain the current coverage examples.  Therefore, the second round of SBCs will include the same two coverage examples that existed for the first year of applicability (normal delivery when having a baby and managine type 2 diabetes).

Extension of Relief

The FAQs bring a welcome extension of relief, such as continuing with the Departments’ basic approach to implementation of the SBC requirements during the first year of applicability and electronic distribution of SBCs in certain circumstances.  Please see FAQ5 for a full list of extensions.

Additionally, FAQ6 addresses extended relief for closed blocks of business (insurance products that are no longer being offered for purchase) as long as certain conditions are met.

Last, FAQ7 informs us that HHS is extending the anti-duplication rule for group health coverage (which is set forth in the final SBC regulations) to student health insurance coverage, as defined in in 45 CFR 147.145(a).  “Therefore, the requirement to provide an SBC with respect to an individual will be considered satisfied for an entity (such as an institution of higher education) if another party (such as a health insurance issuer) provides a timely and complete SBC to the individual.”

If you should have any questions regarding this latest round of FAQs, SBC requirements in general, or would like assistance in drafting or reviewing your SBCs, please do not hesitate to contact us. You can reach attorney Samantha Kopacz directly at skopa@fraserlawfirm.com or 517-377-0868. Attorney Beth Latchana can be reached at elatc@fraserlawfirm.com or 517-377-0826.

This presentation was given by attorney Mike James to the Michigan Association of Certified Public Accountants at their Healthcare Conference on April 23, 2013.

http://www.slideshare.net/FraserTrebilcockLawyers/accounting-for-accountable-care-organizations

To find out more about ACOs, read the white paper co-authored by attorney Michael James: Affordable Care Organizations in Michigan. You can also contact him directly at mjames@fraserlawfirm.com, 517-377-0823 or www.fraserlawfirm.com. Michael James, a senior attorney at Fraser Trebilcock, provides representation and counseling related to all facets of business enterprise and healthcare matters.

For example, hundreds of thousands of Michigan residents are expected to utilize the exchange to obtain insurance.  However, an individual who does not maintain health insurance must make an additional payment to the IRS.  The difference between the IRS payment and the cost of a qualifying insurance policy is significant.  In its decision upholding the constitutionality of the ACA, the Supreme Court noted that, in 2016, the expected amount owed to the IRS is 50% to 85% less than the projected expense to purchase a qualifying insurance policy.  Therefore, it is possible that healthy, low-risk individuals will choose to pay the IRS rather than buying insurance.  This is especially true in light of the ACA’s elimination of pre-existing conditions from the coverage equation.

It is likely that such departure of the low-risk demographic from the market will have an impact on insurers.  Without a healthy population to equalize the risk on the exchange, insurers may attempt to increase insurance premiums for the remaining population.  However, given the regulatory environment, insurers will not be able to rely solely on premiums.  Instead, insurers may also seek to reduce reimbursements to providers who deliver care under plans offered on the exchange.  Ultimately, some insurers may simply choose not to participate in the exchange after evaluating the perceived risks associated with its population.  Less competition amongst insurers could also lead to increased insurance premiums.

Although the health exchange will increase the number of insured potential patients, not all health care providers will be interested in participating in the exchange.  Decreasing reimbursements may eliminate any incentive a provider has to increase the scope of health insurance plans he is willing to accept.  This is especially true if the new plans are associated with a higher-risk population.  In addition, the administrative costs associated with collecting patient contributions under these plans may be prohibitive.  Providers have historically opted in and out of various governmental programs for similar reasons.

Ultimately, the question remains how will consumers, insurers and health care providers participate in the health exchanges, and whether it will be in a way that creates a sustainable equilibrium.

To find out more about the roles and issues facing key stakeholders in the health exchange, contact an attorney in the Health Care Practice Group of Fraser Trebilcock. You can also contact attorney Michael James directly at mjames@fraserlawfirm.com, 517-377-0823 or www.fraserlawfirm.com. Michael James, a senior attorney at Fraser Trebilcock, provides representation and counseling related to all facets of business enterprise and healthcare matters.

The first deadline for payment of the Patient-Centered Outcomes Research Institute (PCORI) fee is this July 31, 2013.

Governing Law and Who Must Comply:

Internal Revenue Code (“Code”) sections 4375 and 4376 impose fees for each policy year / plan year ending on or after October 1, 2012 and before October 1, 2019.  Issuers of specified health insurance policies are liable for the fee imposed under Code section 4375.  Plan sponsors (typically employers) of applicable self-insured health plans are liable for the fee imposed by section 4376.

The final regulations can be found HERE.

As plans sponsors of self-funded plans are directly liable for these fees, the focus of this article is on those plans.

Which Plans Are Affected:

Each plan sponsor must first determine which plans are subject to the fee.  An “applicable self-insured health plan” is one that provides accident and health coverage if any portion of that coverage is provided other than through an insurance policy and is established or maintained for the benefit of employees, former employees, or other eligible individuals as set forth in the regulations.

Excepted from these reporting requirements are:

• plans that provide substantially excepted benefits as defined in Code section 9832(c) (however, retiree-only plans are subject to this fee);
• employee assistance programs, disease management programs or wellness programs that do not provide significant benefits in the nature of medical care or treatment; and
• expatriate plans.

However, if the same plan sponsor establishes and maintains multiple self-funded plans with the same plan year, those plans may be combined and treated as a single applicable self-insured health plan for purposes of the fee.

How are Participants Counted:

The fee is based on the average number of lives covered under the plan for the plan year, including those on COBRA (or similar continuation coverage under other federal or state law).  There are a number of ways to make this determination:

• Actual Count: The plan sponsor would add the total number of lives covered for each day of the plan year and divide that total by the number of days in the plan year.

• Snapshot Method:  The plan sponsor calculates the covered lives on a quarterly basis.  The dates used for the second, third and fourth quarters must be within three days of the date in that quarter that corresponds to the date used for the first quarter, and all dates must be used in the same plan year.  This can be conducted via a “count” method (counting covered lives and dividing by number of dates counted) or a “factor” method (counting participants (and for participants having other than self-only coverage, multiplying by 2.35) and then dividing by the number of dates counted).

• Form 5500 Method:  The Form 5500 may be used only if the 5500 is filed no later than the PCORI fee due date for that plan year.  For a plan offering self-only coverage and coverage other than self-only (i.e., family coverage), the average number of covered lives equals the sum of the total participants covered at the beginning and the end of the plan year as reported on the Form 5500 for that applicable self-insured health plan.  If the plan offered only self-only coverage, the average number of covered lives is the total number of participants covered at the beginning and end of the plan year divided by 2.

• Special Rule for HRAs and Health FSAs:  HRAs and health FSAs which are not HIPAA excepted benefits, and therefore are subject to these rules, have limited reporting obligations.  If the plan sponsor does not establish or maintain an applicable self-insured health plan other than a health FSA or HRA, each participant under the health FSA or HRA may be treated as a single life (i.e., spouses, dependent or other beneficiaries need not be counted).

NOTE: For plan years beginning before July 11, 2012 and ending on or after October 1, 2012 (i.e., the first year the fee is in effect), a plan sponsor must use any reasonable method to calculate the number of covered lives.

Amount of Fee:

$1: For plan years ending on or after October 1, 2012 and before October 1, 2013.

$2: For plan years ending on or after October 1, 2013 and before October 1, 2014.

The amount for later years is based on percentage increases in the projected per capita amount of the National Health Expenditures.

When and How Must the Fee Be Reported and Paid:

The fee is due no later than July 31^st of the year following the last day of the policy or plan year and  must be reported and paid on Form 720, “Quarterly Federal Excise Tax Return.”

Other Fees:

The Temporary Reinsurance becomes effective in 2014 and is estimated to cost $63 per covered life, although application of the fee differs from that of the PCORI fee.  Be sure to watch for additional information regarding this fee.

To find out more about the Patient-Centered Outcomes Research Institute, or the passage of the Patient Protection and Affordable Care Act, contact attorney Elizabeth Latchana at elatchana@fraserlawfirm.com, 517-377-0826 or www.fraserlawfirm.com. Elizabeth Latchana is a shareholder at Fraser Trebilcock, specializing in employee health and welfare benefits.

Disclaimer: This information is a brief summary of a complex area of the law and  is provided for informational purposes only. It is not intended to constitute tax advice which may be relied upon to avoid penalties.

Circular 230 Disclosure: Unless expressly stated otherwise, this message is not intended or written to function as a covered opinion under Department of Treasury regulations. Any federal tax advice within this message is not intended or written to be used, and cannot be used, for the purpose of: (1) avoiding penalties that may be imposed, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Patient-Centered Outcomes Research Institute (PCORI) Fee / Comparative Effectiveness Fee
Code sections 4375 and 4376 impose fees for each policy year / plan year ending on or after October 1, 2012 and before October 1, 2019.  The issuer of a health insurance policy is liable for the fee imposed under Code section 4375.  The plan sponsor (typically the employer) of an applicable self-insured health plan is liable for the fee imposed by section 4376.

As employers of self-funded plans are directly liable for these fees, the focus of this alert is on those plans.

Who Must Comply:
Issuers of health insurance policies and plan sponsors of applicable self-insured health plans with plan years ending on or after October 1, 2012 and before October 1, 2019 must comply.

Which Plans Are Affected:
The first important step is to determine which plans and policies are subject to the fee.  An “applicable self-insured health plan” is one that: (1) provides accident and health coverage if any portion of that coverage is provided other than through an insurance policy, and (2) is established or maintained by:

“(A) By one or more employers for the benefit of their employees or former employees;

(B) By one or more employee organizations for the benefit of their members or former members;

(C) Jointly by one or more employers and one or more employee organizations for the benefit of employees or former employees;

(D) By a voluntary employees’ beneficiary association, as described in section 501(c)(9);

(E) By an organization described in section 501(c)(6); or arrangement (as defined in section 3(40) of the Employee Retirement Income Security Act of 1974 (ERISA)), a rural electric cooperative (as defined in section 3(40)(B)(iv) of ERISA), or a rural cooperative association (as defined in section 3(40)(B)(v) of ERISA).”

See 26 CFR 46.4376-1(b)(1).

Excepted from these reporting requirements are:
-plans that provide substantially excepted benefits as defined in section 9832(c) (however, retiree-only plans are subject to this fee);
-employee assistance programs, disease management programs or wellness programs that do not provide significant benefits in the nature of medical care or treatment; or
-expatriate plans

These is a special rule for multiple plans.  If the same plan sponsor establishes and maintains more than one self-funded plan, those plans that have the same plan year may be combined and treated as a single applicable self-insured health plan for purposes of the fee.

Plan sponsor is also specifically defined in the regulations.  For plans established or maintained by a single employer, the plan sponsor is the employer.  Other situations and arrangements designating the plan sponsor are set forth in the regulations, including for employer organizations, multiple employer plans, MEWAs, rural cooperatives, VEBAs, and other arrangements as set forth in the regulations.  If the situation is not identified by the regulations, the plan document’s designation of plan sponsor controls.  If a plan sponsor is not designated in the written documents, the regulations further explain how a plan sponsor is determined.

How are Participants Counted:
The fee is based on the average number of lives covered under the plan for the plan year, including those on COBRA (or similar continuation coverage under other federal or state law).  There are a number of ways to make this determination:

Actual Count: This method is true to its name.  The plan sponsor would add the total number of lives covered for each day of the plan year and divide that total by the number of days in the plan year.

Snapshot Method:  Using this method, a plan sponsor calculates the covered lives on a quarterly basis.  The dates used for the second, third and fourth quarters must be within three days of the date in that quarter that corresponds to the date used for the first quarter, and all dates must be used in the same plan year.

-Using a snapshot count method, the total number of lives covered is then divided by the number of dates a count was made.

-Using a snapshot factor method, the number of lives covered on a date is the sum of: (a) the number of participants with self-only coverage on that date; plus (b) the number of participants with coverage other than self-only coverage on that date multiplied by 2.35.  These figures are added for each date counted and then divided by the number of dates a count was made.

Form 5500 Method:  The Form 5500 may be used to determine the fee as long as it is filed no later than the due date for the PCOR fee for that plan year.  For a plan offering self-only coverage and coverage other than self-only (i.e., family coverage), the average number of covered lives equals the sum of the total participants covered at the beginning and the end of the plan year as reported on the Form 5500 for that applicable  self-insured health plan.  If the plan offered only self-only coverage, the average number of covered lives would be the total number of participants covered at the beginning and end of the plan year divided by 2.

Special Rule for HRAs and Health FSAs:  HRAs and health FSAs which are not HIPAA excepted benefits, and therefore are subject to these rules, have limited reporting obligations.  If the plan sponsor does not establish or maintain an applicable self-insured health plan other than a health FSA or HRA, each participant under the health FSA or HRA may be treated as a single life (i.e., spouses, dependent or other beneficiaries need not be counted).

If the plan sponsor does maintain another applicable plan that has the same plan year as the health FSA or HRA, the two plans may be treated as a single plan, and participants will be counted as required for the other applicable plan.  The special counting rule described above will only be used for those participants in the health FSA or HRA that do not participate in the other applicable self-insured health plan of the plan sponsor.

If a plan contains both fully insured and self-insured options, lives covered only under a fully insured option are disregarded for purposes of the self-funded PCORI fee.

NOTE: For plan years beginning before July 11, 2012 and ending on or after October 1, 2012 (i.e., the first year the fee is in effect), a plan sponsor must use any reasonable method to calculate the number of covered lives.

Amount of Fee:
$1: For plan years ending on or after October 1, 2012 and before October 1, 2013.
$2: For plan years ending on or after October 1, 2013 and before October 1, 2014.

The amount for later years is the amount from the previous year, plus that same amount including the percentage increase in the projected per capita amount of the most recently released HHS National Health Expenditures.

When and How Must the Fee Be Reported and Paid:
The fee is due no later than July 31^st of the year following the last day of the policy or plan year.  So that means that a plan with its year ending April 30^th will not have to the first PCORI fee due until July 31, 2014.  “A return that reports liability for the fee imposed by section 4376 for a plan year must be filed by July 31 of the calendar year immediately following the last day of the plan year.  Thus, for example, a return that reports liability for the fee imposed by section 4376 for the plan year ending on January 31, 2013, must be filed by July 31, 2014.”  See 26 CFR 40.6071(a)-1(c)(2) (regarding timing to file the return for self-insured health plans).

The fee must be reported and paid on Form 720, “Quarterly Federal Excise Tax Return.”

If you should have any questions about the PCORI fee and its application to your specific benefit plans, please contact our offices. You can reach attorney Beth Latchana directly at elatchana@fraserlawfirm.com or 517-377-0826.

This week’s actions move Michigan one step closer to creating a State Partnership Exchange.  After legislation to create a state-based health exchange failed in late 2012, the federal-state partnership was Michigan’s only option to be involved with the state’s health exchange in 2014.  Michigan plans to use these funds to perform the plan management and consumer assistance functions of the State Partnership Exchange.  In addition, the funds will help Michigan bring its Medicaid and CHIP programs online with the exchange.

If the HB 4111 is passed in the Senate, Michigan can move forward with its plans under the State Partnership Exchange model.  According to the United States Department of Health and Human Services (“HHS”), a State Partnership Exchange allows a state to assume primary responsibility for carrying out certain activities related to plan management and/or consumer assistance and outreach.  With respect to plan management, the scope of state responsibilities may include certifying health plans for the exchange and the day-to-day administration and oversight of health plan issuers.  On the consumer front, HHS hopes to draw on a state’s knowledge and experience regarding the needs of the state’s population.  Here, the scope of state responsibilities may include: the day-to-day management of the Exchange Navigators; the development and management of a separate, in-person assistance program; and the creation of outreach and educational activities.

We will continue to update you as details related to Michigan’s health exchange unfold.

To find out more about the Michigan health exchange and the impact the Affordable Care Act has on health care, contact attorney Michael James at mjames@fraserlawfirm.com, 517-377-0823 or www.fraserlawfirm.com. Michael James, a senior attorney at Fraser Trebilcock, provides representation and counseling related to all facets of business enterprise and healthcare matters.

 The final regulations reflect both HITECH Act amendments and other comprehensive refinements to the current HIPAA rules.  Indeed, HHS officials describe these new regulations as making “the most sweeping changes to the HIPAA Privacy and Security Rules since they were first implemented.”  Specifically, the final regulations, among other things, enhance an individual’s privacy protections, strengthen the government’s ability to enforce the law, impose additional obligations on business associates (and their subcontractors), and require updates to a health plan’s HIPAA documents.

Highlights of changes include (but are not limited to) the following:

1. Business Associates.  The final regulations clarify the provisions in the Privacy and Security Rules that are directly applicable to business associates, and that direct liability applies to business associates that fail to comply with these provisions.  Subcontractors of business associates will also now be directly obligated to comply with HIPAA, and business associates must enter into agreements with subcontractors in accordance with the requirements for business associate agreements.  The final regulations also explicitly expand the definition of business associate and provide an agent/principal analysis to be used in determining whether liability of the business associate attaches to the covered entity.  Business associate agreements will need to be updated to reflect the changes set forth in the final regulations (although under certain circumstances, a special transition rule may apply to a valid business associate agreement in effect before January 25, 2013).
2. Changes to the breach notification requirements.  The final regulations expand the definition of “breach.”  The final regulations replace the original “risk of harm threshold” with a more objective standard.  Specifically, the final regulations modify the definition of “breach” and the risk assessment approach that was set forth in the interim final rule.  Under the new definition of breach, an impermissible use or disclosure of PHI is presumed to be a breach unless the covered entity or business associate, as applicable, demonstrates that there is a low probability that the PHI has been compromised.  This standard replaces the “significant risk of harm” standard.  The final regulations also modify the factors that covered entities and business associates must consider when performing a risk assessment with respect to a potential breach.
3. Increased and tiered civil monetary penalties for noncompliance.  Pursuant to the HITECH Act, the final regulations adopt higher penalties for HIPAA violations.  Penalties, which range from $100 per violation to $50,000 per violation, are based on violation category (ranging from “did not know” to “willful neglect—not corrected) and the facts and circumstances surrounding the violation.  The manner in which HHS counts violations may result in multi-million-dollar penalties.
4. Restrictions on use of genetic information (pursuant to GINA).  The final regulations expressly incorporate “genetic information” into the definition of PHI and generally prohibits the use or disclosure of genetic information for underwriting purposes to health plans that are covered entities.
5. Expanded individual rights.  The final regulations permit covered entities to disclose a decedent’s PHI to family members and others who were involved in the care or payment for care of the decedent prior to death, unless doing so would be inconsistent with any known preference of the individual.   The final regulations implement the HITECH Act requirement that covered entities, in certain circumstances, comply with an individual’s request to restrict disclosure of his or her PHI.  The final regulations also strengthen an individual’s right to access his or her PHI (including the right to receive electronic copies of PHI).
6. Notice of privacy practices.  The final regulations make significant changes to the content of a covered entity’s notice of privacy practices including (but not limited to) statements (1) regarding uses and disclosures that require authorizations, (2) related to fundraising communications, and (3) regarding an affected individual’s right to be notified following a breach of unsecured PHI.  Thus, a covered entity is required to revise and redistribute its notice of privacy practices.
7. Additional limitations.  The final regulations impose additional limitations on how information is used and disclosed for marketing and fundraising purposes.  The final regulations also prohibit the sale of an individual’s health information without their permission.  Additionally, patients are permitted to restrict insurance companies from accessing portions of their medical records if they paid for the corresponding treatment out of their own pocket.
8. Authorizations for research purposes disclosures and uses.  The final regulations amend requirements for authorizations related to research.  As such, authorizations for this purpose will need to be revised and updated.

These are just a few highlights of provisions found in the 560+ pages of the final regulations.  The effective date for the final regulations is March 26, 2013, with a compliance deadline for most of the rules of September 23, 2013.

Health plans and their business associates need to begin preparing for the necessary changes now.  The final regulations require health plans to update their policies and procedures, business associate agreements, and notices of privacy practices.  Additional workforce training will also be necessary to update workforce members with access to PHI on the new regulations.  HHS, even prior to the publication of the new final regulations, has aggressively investigated and enforced the HIPAA requirements.  As such, it is as important as ever to ensure your health plan is HIPAA compliant.

For more information on compliance obligations under the new regulations, you can reach attorney Samantha Kopacz directly at skopa@fraserlawfirm.com or 517-377-0868. Attorney Beth Latchana can be reached at elatc@fraserlawfirm.com or 517-377-0826.

As you know, group health plans offering prescription drug coverage are required to disclose to all Part D-eligible individuals who are enrolled in or were seeking to enroll in the group health plan coverage whether such coverage was “actuarially equivalent,” i.e., creditable. (Coverage is creditable if its actuarial value equals or exceeds the actuarial value of standard prescription drug coverage under Part D.) This notice is required to be provided to all Part D eligible persons, including active employees, retirees, spouses, dependents and COBRA qualified beneficiaries.

The regulations also require group health plan sponsors with Part D eligible individuals to submit a similar notice to the Centers for Medicare and Medicaid Services (“CMS”).  Specifically, employers must electronically file these notices each year through the form supplied on the CMS website.

The filing deadline is 60 days following the first day of the plan year.  If you operate a calendar year plan, the deadline is the end of February.

At a minimum, the Disclosure to CMS Form must be provided to CMS annually and upon the occurrence of certain other events including:

1) Within 60 days after the beginning date of the plan year for which disclosure is provided;
2) Within 30 days after termination of the prescription drug plan; and
3) Within 30 days after any change in creditable status of the prescription drug plan.

The Disclosure to CMS Form must be completed online at the CMS Creditable Coverage Disclosure to CMS Form web page at: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosureForm.html

The online process is composed of the following three step process: (1) Enter the Disclosure Information; (2) Verify and Submit Disclosure Information; and (3) Receive Submission Confirmation.

The Disclosure to CMS Form requires employers to provide detailed information to CMS including but not limited to, the name of the entity offering coverage, whether the entity has any subsidiaries, the number of benefit options offered, the creditable coverage status of the options offered, the period covered by the Disclosure to CMS Form, the number of Part D eligible individuals, the date of the notice of creditable coverage, and any change in creditable coverage status.

For more information about this disclosure requirement (instructions for submitting the notice), please see the CMS website for updated guidance at: https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosure.html

As with the Part D Notices to Part D Medicare-eligible individuals, while nothing in the regulations prevents a third-party from submitting the notices (such as a TPA or insurer), ultimate responsibility falls on the plan sponsor.

Reminder:  Form W-2 Reporting on Aggregate Cost of Employer Sponsored Coverage

Unless subject to an exemption, employers must report the aggregate cost of employer-sponsored coverage provided in 2012 on their employees’ Form W-2 (Code DD in Box 12) issued in January 2013. Please see IRS Notice 2012-9.  See also our previous e-mail alerts dated September 22, 2011 as updated on April 13, 2012 for more information. If you did not receive or cannot locate these alerts or memoranda, please advise.

Alert:  Employer Notice of Exchanges (Delayed)

The Affordable Care Act requires that employers must provide employees a notice regarding the upcoming availability of state insurance exchanges in their state for 2014. This new notice requirement falls under the Fair Labor Standards Act provisions, specifically FLSA section 18B, and until yesterday, the deadline imposed for this notice requirements was March 1, 2013.

However, yesterday FAQs were released stating that the exchange notice deadline is delayed.  While these FAQs are located on the Department of Labor’s website, they state they were jointly prepared by the Departments of Labor, Health and Human Services (HHS), and the Treasury.

The FAQs are Q1 provide, in part, as follows:  “The Department of Labor has concluded that the notice requirement under FLSA section 18B will not take effect on March 1, 2013 for several reasons. First, this notice should be coordinated with HHS’s educational efforts and Internal Revenue Service (IRS) guidance on minimum value. Second, we are committed to a smooth implementation process including providing employers with sufficient time to comply and selecting an applicability date that ensures that employees receive the information at a meaningful time. The Department of Labor expects that the timing for distribution of notices will be the late summer or fall of 2013, which will coordinate with the open enrollment period for Exchanges.”

The FAQs also address matters such as HRAs, fixed indemnity insurance and PCORI fees.  Please see http://www.dol.gov/ebsa/faqs/faq-aca11.html for more information.

If you would like further information regarding the above matters, health care reform, or employee benefits in general, please feel free to contact our office. You can reach attorney Elizabeth Latchana at elatc@fraserlawfirm.com or 517-377-0826, or attorney Samantha Kopacz at skopa@fraserlawfirm.com or 517-377-0868.

Rewards programs have become an increasingly popular and important way for businesses to attract new customers and retain their most profitable clientele.  In addition, these programs provide companies with a wealth of data related to consumer purchases that can be used to forecast demand and create targeted marketing initiatives. Typically, rewards programs consist of coupons or rebates given by a retailer to a customer after the customer surpasses specific spending thresholds.  Rewards are usually redeemable on future purchases at the retailer or one of the retailer’s business partners.

Prior to the Patient Protect and Affordable Care Act (“ACA”), retailers faced potential exposure if their programs rewarded customers for the dollars spent on items covered by federal health care programs.  Therefore, retailers generally excluded purchases of medical devices, medical supplies and prescription drugs covered by Medicare and Medicaid from their rewards programs. However, the ACA has created new regulations that directly affect the permissible scope of retailer rewards programs.  As a result, retailers that comply with the new regulations may be able to expand their programs to include purchases related to items covered by federal health care programs.

Changes in Health Care Regulations:

Civil Monetary Penalties

Section 1128A(a)(5) of the Social Security Act (“Act”) provides for the imposition of civil monetary penalties (“CMP”) against any person who offers or transfers remuneration to a Medicare or state health care program (including Medicaid) beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a state health care program.  The Office of Inspector General (“OIG”) may also initiate administrative proceedings to exclude such party from the federal health care programs.  “Remuneration” includes the transfer of items or services for free or for less than fair market value.  The OIG has taken the position that incentives that are only nominal in value are not prohibited by the statute, and has interpreted “nominal in value” to mean no more than $10 per item or $50 in the aggregate on an annual basis.  Therefore, before the ACA, programs that offered significant rewards to customers based on their purchase of medical devices, medical supplies and prescription drugs covered by programs like Medicare would likely be in violation of the Act and be subject to CMP.

However, the ACA amended the definition of “remuneration” for purposes of CMP by adding a new exception for rewards offered by retailers.  Under the ACA, retailer rewards do not constitute “remuneration” for CMP purposes if they meet the following three criteria:

1)      The rewards consist of coupons, rebates or other rewards from a retailer;

2)      The rewards are offered or transferred on equal terms available to the general public, regardless of health insurance status; and

3)      The offer or transfer of the rewards is not tied to the provision of other items or services reimbursed in whole or in party by the Medicare or Medicaid programs.

Based on this exception, retail rewards programs should be able to avoid CMP as long as they are structured correctly.  If the retailer offers rewards in the form of coupons, rebates or other types of rewards based on a customer’s purchases, the first prong of the exception will likely be satisfied.  In order to satisfy the second prong, the rewards program must be offered on equal terms to all customers.  In other words, all customers of the retailer must be eligible to participate in the rewards program.  The final prong will likely create the most difficulty for retailers.  The rewards program cannot be tied to the provision of other items or services reimbursable in whole or in part by the Medicare or Medicaid programs.  Retailers will have to develop rewards programs that comply with this regulation for both “earning” and “redeeming” transactions.  Retailers should make it a priority to utilize the knowledge of an experienced business and health care attorney to develop a plan that enhances business objectives, satisfies federal regulations and avoids liability.

The Anti-Kickback Statute

The Anti-Kickback Statute (“AKS”) prohibits the payment or receipt of remuneration in return for referring individuals for items or services reimbursable by a federal health care program.  See Section 1128B(b) of the Act.  Under the AKS, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The statute has been interpreted to cover any arrangement where one purpose of the remuneration is to obtain money for the referral of services or to induce further referrals.  Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both.  A violation of the AKS will also lead to an automatic exclusion from federal health care programs, including Medicare and Medicaid.

Unfortunately, the AKS does not have a exception to the definition of “remuneration” similar to the one that was created by the ACA for CMP.  However, the OIG recently released an Advisory Opinion related to the AKS and retailer rewards programs.  Although Advisory Opinions have limited application and authority, the OIG’s analysis and determinations are insightful.

The OIG was asked to evaluate a rewards program of a retailer that owned and operated thirteen supermarkets, most of which had in-store pharmacies.  The retailer’s rewards program permitted customers to earn gasoline discounts at a partnering gas station based on the amount customers spent on purchases in the retail supermarkets, including the cost-sharing amounts paid by customers on items covered by federal health care programs purchased at the in-store pharmacies.

After evaluating the retailer’s rewards program, the OIG found that the program posed a minimal risk of fraud and abuse.  The OIG noted that the retailer’s stores sold a broad range of groceries and other non-prescription items.  As such, the risk that the rewards program would steer beneficiaries to the retailer’s stores to purchase federally reimbursable items or services was low.  Customers were not required to purchase prescription items to earn rewards and there was no specific incentive for transferring prescriptions to the retailer’s pharmacies.  The OIG also determined that the rewards program would not likely lead to an overutilization or otherwise increase the costs to federal health care programs.  Any cost-sharing amounts counted towards a customer’s rewards would result from prescriptions already prescribed, and the rewards could not be used on future prescription purchases.  Ultimately, the OIG determined that it would not impose sanctions on the retailer in connection with the AKS.

Conclusion:

Based on the changes to the regulatory environment found in the ACA and recent insights from the OIG, retailers may be able to expand their rewards programs to include purchases related to items covered by federal health care programs.  However, retailers must engage in careful analysis and planning to ensure that their rewards programs do not violate health care regulations.  Retailers interested in expanding their rewards programs, or making sure their current rewards programs comply with health care regulations, should seek the advice of an experienced health care attorney and consider obtaining an Advisory Opinion from the OIG based on the specifics of the proposed program.

Michael P. James, J.D., M.B.A., CSSGB, a senior attorney at Fraser Trebilcock Davis & Dunlap, P.C., provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@fraserlawfirm.com, (517) 377-0823 or www.fraserlawfirm.com.