Labor and Employment Alert: Employee Cost Sharing for Health Benefits and other Employee Benefits News

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Summary:  Recent government guidance addresses permissible employee cost sharing under your company's group health plan.  This Vorys Client Alert summarizes what you need to know about out-of-pocket limits, annual and lifetime dollar limits, first dollar preventive care, and tobacco surcharges.  To bring you up to date on other employee benefits news, this Client Alert also lists key dates for compliance with new HIPAA privacy regulations. 

Deductibles and out-of-pocket limits

Small group health insurance policies will be subject to the following caps on in-network deductibles and out-of-pocket limits next year:

The small group health insurance market is generally limited to employers with fewer than 50 employees. 

Previously, there was a question as to whether the small group market caps would also apply to self-insured group health plans and health insurance policies sold to large employers.  Recent final regulations by the Department of Health and Human Services (HHS) and Department of Labor (DOL) FAQs Part XII (posted February 20, 2013) resolve that question as follows:

Only in-network essential health benefits (as defined by the applicable adjusted benchmark plan) need be counted toward the caps.  Out-of-network deductibles and out-of-pocket limits are not capped by federal law (but, for insured plans, may be capped by state insurance law). 

The cap on out-of-pocket limits presents a logistical problem for those plans where medical benefits are administered (or insured) by one entity and prescription drug benefits and other non-excepted benefits are administered by a different entity. The out-of-pocket limit is a cap on participant expenditures for all essential health benefits (e.g., the combination of medical benefits and prescription drug benefits) and, once reached, no further coinsurance or copays are permitted. 

Transitional rule:  Recognizing that the application of the out-of-pocket limit to all essential health benefits will require new and ongoing communications between vendors, the government provided a one-year transitional rule.  For the first plan year starting on or after January 1, 2014, the out-of-pocket limit need only apply to medical coverage.  However, if prescription drug coverage (or other non-excepted coverage) has a separate out-of-pocket limit, it cannot exceed the dollar amount then in effect.  The out-of-pocket limit will have to apply to the combined benefits beginning in the following year. 

Action items:  If your company has a non-grandfathered health plan, check with your insurer, third party administrator and/or pharmacy benefit manager to confirm they will be building the systems needed to administer the out-of-pocket limit.  Make a note to amend your plan documents accordingly.

Annual and lifetime dollar limits on essential health benefits

HHS declined to provide a uniform federal definition of essential health benefits.  Instead, HHS allowed each state to select a benchmark health plan (with a default option for states that fail to make a selection).  The specific benefits included in a state's benchmark health plan are, with some federally mandated adjustments, deemed to be the essential health benefits for all non-grandfathered individual and small group health insurance policies sold in that state.  

Self-insured group health plans and health insurance policies sold to large employers (generally, employers with 50 or more employees) do not need to cover all essential health benefits.  However, a self-insured group health plan or large group health insurance policy cannot impose annual or lifetime dollar limits on any essential health benefits that happen to be included in the plan or policy.  What benefits are deemed to be essential for this narrow purpose (i.e., the prohibition on annual and lifetime dollar limits)?  The preamble to the final regulations implies that HHS will permit the use of any benchmark plan (from any state) with the federally mandated adjustments.  A list of the state benchmark plans and an explanation of the federally mandated adjustments is available at http://cciio.cms.gov/resources/data/ehb.html

Action item: If your group health plan includes dollar limits on a specific benefit, you should plan to remove the dollar limit or find an adjusted benchmark plan that does not cover that specific benefit.

First dollar preventive care

A non-grandfathered group health plan must provide first dollar coverage (i.e., no cost sharing imposed on the participant) for four categories of preventive care:

  1. Services with an "A" or "B" rating from the United States Preventive Services Task Force (USPSTF);
  2. Immunizations for children, adolescents, and adults recommended by the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention;
  3. Preventive care and screenings for infants, children and adolescents as provided for in the comprehensive guidelines supported by the Health Resources and Services Administration; and
  4. Additional preventive care and screening for women provided for in the guidelines supported by the Health Resources and Services Administration.

These lists were compiled as guidelines for health care providers.  When applied as instructions for first dollar reimbursement of services and supplies however, the lists can be ambiguous.  The government clarified some of these ambiguities in FAQs Part XII (posted February 20, 2013).  For example, when recommended by the USPSTF, first dollar coverage is required for:

Tobacco use and wellness programs

If your company has a health-contingent (also known as a "standard-based") wellness program, you know that employees who fail to meet specified health standards can be charged higher contributions for health coverage (assuming the program meets specified conditions and you apply certain employee protections).  Currently, the contribution differential cannot exceed 20% of the cost of coverage.  Starting with the 2014 plan year, the contribution differential can be as much as 30% of the cost of coverage plus another 20% (for a maximum of 50%) where the additional 20% is based on tobacco use. 

There is a new wrinkle:  HHS recently published final regulations defining "tobacco use" for purposes of premiums for health insurance to be sold on the public exchanges.  "Tobacco use" is defined as the use of tobacco on average of four or more times per week within no longer than the past six months.  Needless to say, this definition is not consistent with what is typically used in wellness programs today.  HHS, IRS and DOL previously indicated the intention to coordinate provisions applicable to tobacco users for purposes of premiums in the public exchanges and employer-sponsored wellness programs.  Therefore, it is possible that your program will have to use the same definition of tobacco use in order to apply the full 50% premium differential. 

Action item:  Check back for developments before planning 2014 tobacco users surcharge. 


Protected health information (PHI)

If your company has a self-insured group health plan, you probably know that protected health information (individually-identifiable health information collected for purposes of administering health benefits) must be handled and protected in accordance with federal privacy rules (known as the HIPAA privacy rules).  Recent revisions to those rules may require that you:

Notice of exchanges postponed

One provision of the Affordable Care Act calls for a notice of the public exchanges to be distributed to employees in March 2013.  Recognizing that not much useful could be said about the exchanges next month, the government deferred the notice pending further guidance.  It is expected to be back on the schedule in late summer or fall.

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This alert is a summary and cannot include all details that may be relevant to your situation.  As always, please contact us if you want more information on these developments or other employee benefits matters.