By Kristi R. Gauthier, Esq.
Clark Hill PLC

May 2013 – The Departments of Labor, Health and Human Services and Treasury (“Agencies”) issued proposed regulations on the waiting period restrictions imposed by the Patient Protection and Affordable Care Act (PPACA). Under these provisions, effective with plan years beginning on and after January 1, 2014, employers are prohibited from imposing waiting periods applicable to their group health plans that exceed 90 calendar days.

For these purposes, a “waiting period” is the period of time that must pass before an eligible employee or dependent may enroll in the coverage under the group health plan. To be an “eligible” employee or dependent means that the individual has otherwise satisfied the eligible criteria under the terms of the group health plan (e.g., eligible job classification).  Below are some of the key concepts employers should understand with regard to these provisions:

90 days means 90 days!  The proposed regulations make it clear that the waiting period cannot exceed 90 days, and all calendar days are counted.  Therefore, if the 91st day falls on a weekend or holiday, and due to administrative constraints the employee cannot be enrolled on that day, the employer must make coverage effective earlier than the 91st day.  This also means that provisions such as “the first of the month following 90 days” will no longer be permissible.

The waiting period restrictions apply regardless of grandfathered plan status or employer size.

The provisions do not mandate a waiting period. Employers are not required to impose a waiting period for their group health plans, but rather if they elect to do so, it cannot exceed 90 calendar days.

 

The 90-day waiting period limitation does not apply to HIPAA-excepted benefits (e.g. standalone dental and vision plans, most health flexible spending accounts, fixed indemnity insurance, specified disease/illness policies, etc.).

 

Plan provisions that base eligibility on conditions other than the lapse of time are permissible so long as they are substantive and are not designed to avoid compliance with the 90-day waiting period restrictions (e.g., meeting certain sales goals, a specified level of commission, certain number of hours per period, etc.).

 

Cumulative hours of service requirements that do not exceed 1,200 hours are permissible, and the waiting period of no more than 90 days must begin once the new employee satisfies the cumulative hours of service requirement. However, employers should be cautious so as to not violate the employer shared responsibility provisions and open themselves up to potential penalties.

 

Currently there are no special exemptions or delayed effective dates for collectively bargained or multiemployer plans.

 

As always, it is important for employers to work closely with their legal counsel, benefits consultants, third party administrators and/or insurers to ensure compliance with PPACA. Employers should review their current group health plan waiting periods to ensure that it does not impose a waiting period of greater than 90 days after January 1, 2014 (or as of the start of the first plan year beginning after January 1, 2014 if the employer operates on a non-calendar year basis). Employers should also review, and amend where necessary, any group health plan documentation that details waiting periods such as plan documents, summary plan descriptions, underlying insurance certificates, employee handbooks, open enrollment materials, etc.

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.

By Ron Present

 

May 2013 – Nearly a year has passed since the Supreme Court upheld the Patient Protection and Affordable Care Act (PPACA). When President Obama was re-elected in November, reform became a certainty. Since that time, organizations, large and small, have struggled to understand the Act and how to comply.  

 

A popular theme in discussions about health care reform has been cost. According to a recent Towers Watson report on health care benefits trends among employers, employers will spend an average of $9,248 per employee in 2013. It’s understandable to see why there’s so much trepidation among employers with 50 or more employees. Offering health care coverage can quickly add up to millions of dollars, cutting into profits. Quickly growing organizations on the verge of employing 50 FTEs must also prepare to comply with PPACA to avoid penalties.
An organization’s knee-jerk response to rising employee health care benefit costs might be to discontinue them altogether. This may be particularly attractive to organizations where the financial penalty for not offering coverage is significantly less than the cost to offer employee health care coverage.

 

Beware: focusing on the financial implications of health care reform alone can increase exposures to your organization in other ways. This is why it’s important to take a comprehensive, strategic approach to assessing health care reform and the implications for your organization.

 

Include Health Care Reform in Your Enterprise Risk Management Process
The decisions you make regarding health care reform will affect several areas of your organization. To properly assess the risk involved with your options, include health care reform in your enterprise risk management process.

 

Are You Prepared to Lose Talent?
An unintended consequence of discontinuing employee health care benefits could be loss of experienced talent. Organizations in industries that rely upon hard-to-find, highly skilled talent may put themselves at competitive disadvantage by choosing not to offer health care benefits or limiting employee hours to make certain individuals ineligible for benefits. Competitors could easily win the talent war by offering the highly valued benefits your company decided to do away with. In the short term, this move may save money, but in the long term, it could cost untold amounts in lost profits.

 

Do You Have an In-House Expert?
Health care reform is a complex issue. Most organizations don’t have an internal resource that fully understands all the implications. An independent advisor puts your best interest first. He or she can help you evaluate information from your insurance provider. In addition, an outside expert can help you devise a strategy to address the short-term and long-term increases and any other developments that arise along the way.

 

Health Care Costs are a HUGE Factor
Ultimately, businesses can’t escape the cost discussion. If your organization decides to continue offering health care benefits, there are cost-control methods you should consider:

 

Consider Self-Insuring
If your business is fully insured, you could consider self insurance. This generally means that your business would take on additional risk, but not all of it, for a reduction in premiums. If your business is currently self-insured, consider increasing your stop-loss point and reducing your premium.

 

Get the Best Price
Have you challenged your provider to give you the best price available? If not, this is the time to do it. Find out what your company can do to qualify for the discounts that are available.

 

Conduct a Claims Audit
Make sure your insurer is paying your claims accurately and that you are only paying for those eligible for benefits. You could be overpaying. An independent insurance consultant or an accounting firm with specialized services could assist you with this project.

 

Start a Captive Insurance Company
Captive insurance companies provide a formal method to reinsure, or to develop a fund to reduce your reliance on private insurance. This risk management tool has been used to reduce the cost of property & casualty insurance for many years. Rising health insurance costs make captive insurance companies a great option to help control those costs. Recent developments have made this captive option more accessible for smaller to mid-sized companies.

 

Form, or Join, a Private Exchange
Another potential solution is to form, or join,  a private insurance exchange. This may be complementary to forming a captive insurance company, in that the entity forming it creates its own marketplace. This may qualify as providing insurance with a defined contribution that may help control costs and be compliant with PPACA regulations.

 

Ron Present is a principal in the Brown Smith Wallace health care industry services practice. He has more than a quarter-century of experience in the health care industry as an executive and consultant. He can be reached at 314.983.1358 or rpresent@bswllc.com.
 

May 2013 – One of the objectives of the Affordable Care Act (ACA) is to standardize products in the individual and small employer markets through “Metal Levels.” Four metal levels will determine the type of health insurance that can be offered to individuals and small employers: Platinum, Gold, Silver and Bronze.

Additionally, the ACA outlines the percent of health care expenses that each metal level plan design would typically expect to pay for essential health care benefits. This is called the health plan’s “Actuarial Value.”  For example, a health plan with a 70 percent actuarial value would on average pay 70 percent of expenses for essential health benefits with the enrollee paying 30 percent through a combination of co-pays, deductibles and co-insurance.

The four metal levels are defined by actuarial value targets that a qualified health plan must achieve, plus or minus 2 percent. For example, a silver plan must have an actuarial value of 68 percent to 72 percent.

In addition to the four metal level plans, “Catastrophic” plans are allowed in the individual health care market for young adults (under age 30).

Most health insurance insurers will offer benefits designs at all four of the metal levels. Insurers must offer at least one Silver and one Gold plan design if they are offering products on the federal or state marketplace (exchange).
 

By Evie Zois Sweeney
Muchmore Harrington Smalley & Associates
Senior Lobbyist

 

April 2013 – The newest chapter in Michigan’s journey with the Patient Protection and Affordable Act (ACA) was unveiled on April 17, 2013 when a bill sponsored by Senator Jim Marleau (R), Lake Orion was introduced in the Michigan Senate. Senate Bill 324 defines the role of the “navigator,” prescribes certain powers and authority to the director of the Department of Insurance and Financial Services and establishes a licensing and training program for a prospective navigator. The bill also stipulates what a navigator is prohibited from doing. If passed by the state legislature, it will become a significant piece of legislation for those most interested in the state’s implementation of the ACA.

 

The ACA describes the navigator role as an entity that has “existing relationships or could readily establish relationships, with employers and employees, consumers (including uninsured and underinsured consumers), or self-employed individuals likely to be qualified to enroll in a qualified health plan.” Eligible entities could include trade, industry and professional associations, community and consumer focused nonprofit groups, chambers of commerce and licensed insurance agents and brokers, to name just a few.

 

Senate Bill 324 requires a navigator to be licensed in order to receive funding from an exchange.

 

The bill also specifies that a navigator may do all of the following:
A)    Conduct public education activities to raise awareness of the availability of qualified health plans.
B)    Distribute fair and impartial general information concerning enrollment in all qualified health plans offered within the exchange and the availability of the premium tax credit.
C)    Facilitate enrollment in qualified health plans, without suggesting that an individual select a particular plan.
D)    Provide referrals to appropriate state agencies for an enrollee with a grievance, complaint, or question regarding the enrollee’s health plan, coverage or a determination under such plan coverage.
E)    Provide information in a manner that is culturally and linguistically appropriate to the needs of the population served by the exchange.

 

In addition to identifying the functions a navigator is prohibited from engaging in (a link to the bill in its entirety is provided below), the legislation also grants the director of the Department of Insurance and Financial Services the ability to refuse, suspend or revoke a navigator license (of a person or business entity) if the director considers it necessary to protect insureds and the public. The legislation also identifies various violations warranting suspension or revocation.

 

Senate Bill 324 was referred to the Senate Health Policy committee where it awaits a hearing. The bill in its entirety can be viewed at: http://www.legislature.mi.gov/documents/2013-2014/billintroduced/Senate/pdf/2013-SIB-0324.pdf.
 

Determining Full-Time Employees for Purposes of PPACA’s Employer Shared Responsibility Provisions

 

By Kristi R. Gauthier, Esq.
Clark Hill PLC

 

April 2013 – Beginning in 2014, applicable large employers who fail to offer affordable minimum essential health coverage to at least 95 percent of full-time employees  and their dependent children that provides minimum value could face potential penalties if a full-time employee obtains a tax credit for coverage on an exchange. Employers must determine which of their employees are “full-time” employees for purposes of the Patient Protection and Affordable Care Act (“PPACA”). Therefore, it is crucial for an employer to track the hours of service for each of its employees in order to know which employees are considered to be “full-time employees” and could potentially trigger penalties for the employer.

 

Realizing that it was administratively difficult for employers to measure employees’ hours in real time and add and drop employees month to month during a plan year, the Departments issued a safe harbor for determining employees’ full-time status. The rules are complex but this article will provide an overview of the general concepts.

 

Overview of The Safe Harbor Rules
The safe harbor introduced the following concepts:

• Standard Measurement Period: The “look back period” during which an employer measures the hours of service for its employees in order to determine their status as full-time or part-time. This period can be between three and twelve consecutive calendar months.

• Stability Period: The “hold period” during which those employees are locked into full-time or part-time status based on the hours of service during the standard measurement period, regardless of how many hours the individuals work during the stability period.  This period must be at least six consecutive calendar months and no shorter than the employer’s elected standard measurement period. (For example, if the employer chose a 12 month standard measurement period, the stability period would also have to be 12 months.)

• Administrative Period:  The optional period during which an employer can determine which employees are full-time employees, notify and enroll eligible employees in coverage, etc. (similar to an open enrollment period). This period cannot be longer than 90 days.

 

Ongoing Employees
For ongoing employees (e.g., those employees on an employer’s payroll for a measurement period), the employer will measure each employee’s hours of service during the elected standard measurement period to determine each employee’s status. Each employee will be locked in as either full-time or part-time during the immediately following stability period, regardless of the number of hours worked during the stability period. The following illustration provides an example and shows the interplay of these various periods.

 

New Hires
For new hires, the rules are a bit different. If an employee is reasonably expected at his or her start date to work full-time, an employer that sponsors a group health plan that offers coverage to the employee at or before the conclusion of the employee’s 90 days of employment will not be subject to the employer shared responsibility payment by reason of its failure to offer coverage to the employee for up to the initial 90 days of employment.

 

For new hires who, at the time of their hire, the employer cannot determine if the employee is reasonably expected to work full-time, then the employer can deem that employee to be a “variable hour employee” and employers are permitted to determine whether the new employee is a full-time employee using an “initial measurement period” of between three and 12 months, as chosen by the employer. The employer measures the hours of service completed by the new employee during the initial measurement period and determines whether the employee completed an average of at least 30 hours of service per week during this period. The stability period for such employees must be the same length as the stability period for on-going employees. As in the case of a standard measurement period, if an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least six consecutive calendar months that is no shorter in duration than the initial measurement period and that begins after the initial measurement period (and any associated administrative period).

 

If a new variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period, the employer is permitted to treat the employee as not being a full-time employee during the stability period that follows the initial measurement period. This stability period for such employees must not be more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period, plus any associated administrative period in which the initial measurement period ends.

 

Transition of A New Hire To An Ongoing Employee
The ultimate goal is to transition the newly hired employee onto the same measurement cycle as existing, on-going employees. Therefore, once a new employee who has been employed for an initial measurement period has also been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other on-going employees. For example, an employer with a calendar year standard measurement period that also uses a one-year initial measurement period beginning on the employee’s start date would test a new variable hour employee whose start date is February 12 for full-time status first based on the initial measurement period (February 12 through February 11 of the following year) and again based on the calendar year standard measurement period (if the employee continues in employment for that entire standard measurement period) beginning on January 1 of the year after the start date.

 

Next Steps
Applicable large employers subject to the employer shared responsibility provisions need to determine how they will calculate hours of service to determine which of their employees will be considered “full-time.” Employers should carefully review their workforce to determine the length of the “standard measurement period” and the “stability period” that will best serve their needs. For example, employers with a fluctuating or seasonal workforce may find it advantageous to utilize a shorter measurement period and stability period, while others may determine that utilizing a longer measurement period works best in terms of averaging employee hours of service over a longer period of time. This is a subjective analysis that is based upon the specific and unique circumstances of each employer’s workforce.

 

Employers should also consider whether to include an “administrative period” to allow time to determine which employees are considered “full-time” and to communicate group health plan information and enroll eligible employees who are considered full-time. It is also important for employers to implement adequate administrative and recordkeeping processes in order for the employer to efficiently and accurately track and document each employee’s hours of service and applicable status.

 

Given the effective date for the employer shared responsibility provisions is right around the corner, employers should work with their legal counsel and/or benefits consultants to analyze their workforce and put together a plan of action for compliance.

 

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

 

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.