Editor: Would you both tell our readers about Proskauer's decision to form a Health Care Reform Task Force?
Hamburger: Healthcare reform is a major piece of legislation that changes the landscape for all of our clients, whether they are employers, multi-employer funds or service providers - everybody in just about every capacity. The task force was designed to bring together lawyers in employee benefits as well as tax, labor and employment, and healthcare law so we could bring all of the different disciplines to the table and provide our clients with well-rounded and coordinated advice. We also are able to find out what aspects of healthcare reform will be of greatest interest to our clients and then internally coordinate all of this information and disseminate it to our respective departments. So far, our efforts have been hugely successful. We have put out more client alerts, newsletters and Webinars over the past two or three months than in the past two years. We're also publishing a book on healthcare reform in the form of a Q&A for administrators to help them through all of these issues. It will be available soon through Thompson Publishing Group.
Editor: What effect do you think the changes will have on existing health benefit plans? Since the Reform Act generally grandfathers existing individual and group health plans with respect to the new standards, will most plans remain the same or will some modifications be needed?
Napoli: In this context, "grandfathering" does not mean existing plans are exempt from healthcare reform mandates. Instead, grandfathered plans, those in existence on March 23, 2010 (the date of enactment) have to comply with a number of healthcare reform mandates, such as covering children to age 26, eliminating annual or lifetime limits, limiting the application of preexisting condition rules and other changes. Recent government guidance also clarified that grandfathered plans can easily lose that grandfathered status through basic amendments like increasing coinsurance limits or deductibles by more than permitted amounts. Also, grandfathered plans have to provide notice to employees that they intend to be grandfathered. Given all of the limits on retaining grandfathered status, it is expected that plans will now weigh the benefits of grandfathering against the costs and limits on the ability to make further changes. So there are still a number of issues for existing plans to consider.
Editor: Who does the employer look to for guidance on this?
Hamburger: If the plan itself is an insured plan, then an employer should go to its lawyer or consultant on the changes in healthcare reform. Many issues require a level of legal and risk analysis, so the employer will want to check with a lawyer since there are penalties for failure to comply. On the insurance side, an employer can go to the insurer who may or may not be willing or able to provide information from a legal perspective.
Napoli: There's one other party that the employer is going to want to look to in the self-funded area, particularly when pricing out the costs of the plan, and that's its stop-loss carrier. For example, some of the major stop-loss providers are saying that they will provide coverage for the uncapped benefits, but not all have expressly agreed, so there may be mandated coverage that the self-funded plan will have to provide. Employers need to determine whether or not their stop-loss carrier will provide coverage under their policy, and if not, they have to factor that cost in.
Editor: Many of the Health Care Reform Act's provisions do not come into effect until 2013 or later. Discuss the key employee benefits that will take effect immediately or within a short time.
Napoli: Besides grandfathering, it's the rule that dependent children must be covered by their parents' policy up to age 26. It's not as simple as it looks for many large employers because this change has to be implemented through a program across the whole network if the employer is nationwide. Plan administrators must make sure that all of the mechanisms are in place to allow people to add their children - to communicate the benefit accurately to their employees, to provide them with the timing and all of the different mechanisms whereby the child can be added to coverage.
Another key current issue is whether an employer will participate in the early retiree reinsurance program. Under this program, the government has set aside $5 billion to be dispersed to employers as reimbursement for early retiree medical benefits for retirees between ages 55 and 64 who have incurred claims over a threshold amount of $15,000 and under $90,000. Another area would be the limitation on insurers' ability to impose annual limits on the dollar value of coverage, lifetime limits, and the no-rescission rule. There is also a rule that would prohibit the application of preexisting condition limits. We are not sure that this rule is going to be that significant for many employers. Since HIPAA in 1996, the law has already limited the ability to impose preexisting condition periods of longer than, generally speaking, 12 months reduced by periods of prior creditable coverage.
Employees who were in the system and who have gone from employer to employer could carry with them that prior period of coverage to wear away any preexisting condition exclusion. The biggest issue on preexisting conditions would be for either new entrants into the healthcare system, such as children who might have had a preexisting condition, or individuals who had a break in coverage of 63 days or more. If you have had a break in coverage, then prior coverage could be disregarded. So healthcare reform will solve that part of the preexisting condition problem, and plans need to begin thinking of how to implement that rule as well.
Editor: Because of the restrictions on insurers as to lifetime limits, rescissions and preexisting conditions as well as their inability to place dollar limits on coverage, what inducements do insurers have to continue their premiums at reasonable levels?
Hamburger: If the insurance companies have to add all of these deliverables, those obviously increase the cost, so what is it that is going to hold down those costs in terms of charging additional premiums? The technical answer is there is nothing that prevents an insurance company from increasing its premiums to recognize this cost. However, the healthcare reform administration officials have made no secret of the fact that if an insurance company raises premiums too dramatically to compensate for these additional mandates, they would not be allowed entry into the exchanges, which is where they are going to get a huge pool of people shopping for their coverage. The general rationale is to spread the costs among as large a pool of people as possible, thereby reducing costs and preventing the insurers from raising premiums. These reforms do not happen all at once but are phased in over time. Admittedly the deliverables come online early and thereby increase the costs whereas all the benefits that lower the costs (such as spreading costs through the exchanges) don't come into the system until later. How insurers will manage that remains to be seen, but the expectation is that if they were to try to target certain groups by raising premiums artificially, they will be denied access to the very pool that will help them lower their costs.
Editor: How will the new law affect employees' flexible benefit accounts for unreimbursed healthcare expenses?
Napoli: Many employers maintain flexible spending accounts to allow employees to set aside dollars on a pretax basis, which are later used to reimburse themselves for otherwise unreimbursed medical expenses. The new law makes two significant changes to those arrangements. The first change is that over-the-counter drugs (without prescription) will no longer be eligible for reimbursement unlike what is allowed under current IRS rulings. This change will go in effect for expenses incurred beginning in 2011. Currently, many plans have a 12-month period of coverage in their flexible spending arrangement along with a two-and-a-half-month grace period, which would allow an employee to obtain reimbursement through March 15, 2011. Plans need to be prepared to communicate and administer the new rule limiting reimbursements even during that 2011 grace period. The second change to flexible spending arrangements is that the dollar amount available will be limited to $2,500, so employees will not be allowed to set aside more than $2,500 beginning in 2013.
Editor: What impact do you think the entire Reform Act is going to have on employee benefits over time?
Hamburger: A growing sentiment among employers is "why are we doing this to ourselves?" Why does the employer want to stay in the business of delivering healthcare? It's going to be very interesting to see whether more employers will start dropping their coverage. In a survey of 3,700 executives conducted by Business Insurance Online, 52.5 percent strongly disagreed with the statement that it would be better for their organizations to stop offering healthcare benefits and pay a fine. But that leaves a number who believe that it is worth considering dropping coverage altogether. The other option may be to get out of self-insurance and cede the insurance area to the insurers. There are a significant number of employers that are really beginning to question whether continuing their own health plans is the way to go, especially at the mid-size or small employer level.