Rules issued for state run high risk health insurance pools

On July 30, the Department of Health and Human Services released an interim final rule on the Pre-existing Condition Insurance Plan Program. This program is being established as a result of the health reform law, which requires the HHS secretary to create a temporary high risk health insurance pool program – either directly or through the states – to provide affordable coverage to uninsured individuals with pre-existing conditions. The program will be in effect until January 1, 2014, when the health insurance exchanges begin to operate. The rule went into effect on July 30. Comments will be considered until 5 p.m. on September 28.

The Pre-Existing Condition Insurance Plan exists to address “the challenges of people with pre-existing conditions… In general,” HHS said, “high risk pools provide coverage of last resort for people who, because of their health, are denied coverage by private insurers or are unable to purchase coverage in the individual market except at substantially surcharged premiums due to their health status, and are ineligible for public coverage.”

Currently, 35 states have high risk pools, which provide coverage to about 200,000 individuals, or about one percent of the individual market nationwide.

Key issues addressed in the interim final rule include:

Eligibility – Eligible individuals must:

  • Be a U.S. citizen, a U.S. national, or be lawfully present in the U.S.
  • Not have had insurance coverage for the previous six months.
  • Have a pre-existing condition that an insurer refused to provide coverage for, or have a rider that excludes coverage for that condition.

Premiums – Must be set so they:

  • Equal the standard rate for anyone in the population with the same health conditions.
  • Do not vary by age by more than 4 to 1.

State role – States are given flexibility in how to implement high risk pools.

  • They may operate a new high risk pool alongside their current state high risk pool.
  • If they don’t already operate a high risk pool, they may establish a new one.
  • They may build on other existing coverage programs designed to cover high risk individuals.
  • They may contract with a current HIPAA carrier of last resort, or another carrier, to provide subsidized coverage.
  • They may do nothing, in which case HHS will provide a coverage program.

Funding

  • The law appropriates $5 billion in federal funding to support this program.
  • The formula for allocating funds to each state is “almost identical” to what was used for the Children’s Health Insurance Program (CHIP): a combination of factors, including nonelderly population, nonelderly uninsured and geographic cost.
  • Also like CHIP, funds will be reallocated after no more than two years, based on an assessment of actual enrollment.

EMPLOYER W2 HEALTH INSURANCE REPORTING REQUIREMENTS – Employer-Provided Health Coverage

Beginning in tax year 2011, the Affordable Care Act (PPACA) requires employers to report the value of the health insurance coverage provided to employees on each employee’s annual Form W-2. This reporting is for informational purposes only, to show employees the value of their health care benefits. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income and it is not taxable.

For taxable years beginning after December 31, 2010, employers will be required to calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees’ Form W2s. 1 This new reporting requirement applies for employees’ tax years beginning after December 31, 2010. Because employees are entitled to request their Form W2 early if they terminate employment during the year, payroll systems need to be updated for this change by January 2011.

While most W2s for tax year 2011 will be issued in January 2012, W2s reflecting the new health insurance information must be available no later than February 1, 2011 for any terminating employee. It is important to note that the aggregate cost of an employee’s health benefits will not be included in the employee’s taxable income. The W2 reporting will be a way to track coverage values for the 40% excise tax (starting in 2018) on “high cost” employer based medical coverage above certain thresholds (the so called “Cadillac plan tax”) The coverage costs (whether under an insured or self insured plan) that must be reported under the new requirement include:

• Medical plans

• Prescription drug plans

• Dental and vision plans, unless they are “stand alone” plans (i.e., an employee may elect only dental or only vision and is not required to also enroll in medical coverage)

• Executive physicals

• Onsite clinics if they provide more than de minimis care (The term de minimis means (as provided by IRC Sec. 132(e)(1)) any property or service, the value of which is (after taking into account the frequency with which similar fringe benefits are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable. In other instances where the IRS was interpreting whether a medical clinic provided de minimis benefits, an on-site nurse who provided emergency services was considered a de minimis benefit, while a clinic at a hospital that provided full scale medical treatment was not considered de minimis).

• Medicare supplemental policies

• Employee assistance programs

If an employee enrolls in employer sponsored health insurance coverage under multiple plans, the aggregate value of all such health coverage (except certain benefits, discussed in section below) must be disclosed. For example, if an employee enrolls in employer-sponsored health insurance coverage under a major medical plan, a dental plan and a vision plan, the employer is required to report the total value of the combination of all of these health related insurance policies. For this purpose, employers generally use the same value for all similarly situated employees receiving the same category of coverage (such as single or family health insurance coverage).

Employers will not be required to provide a specific breakdown of the various types of coverage, but must only report an aggregate cost. For example, if an employee enrolls in medical, dental and prescription drug coverage, the employer only has to report the total value of all coverage, not a value for each individual benefit.

Benefits Exempt from Form W2 Reporting Requirements

The following employer provided benefits are not required to be reported on Form W2 under the new health care law:

• Long term care, accident or disability income benefits

• Specific disease or illness policies (such as cancer policies), and hospital (or other) indemnity insurance

policies where the full premium is paid by the employee on an after  tax basis

• Archer MSA or HSA contributions of the employee or the employee’s spouse

• Salary reduction contributions to a Health FSA

To determine the value of health insurance coverage, the employer will calculate the applicable premiums for the taxable year for such health coverage for the employee under the rules for COBRA continuation coverage under IRC Sec. 4980B(f)(4) (and accompanying Treasury regulations). The value that the employer is required to report is the aggregate premium calculated under the COBRA rules, not the portion of the premium that the employee has to pay. If the employer’s plan provides for the same COBRA continuation coverage premium for both individual coverage and family coverage, the employer plan would be required to calculate separate individual and family premiums and the employer would report the value of the coverage the employee received. For example, if one employee received family coverage, the employer would report the premium amount for family coverage for that employee. For another employee that receives individual coverage, the employer would report the premium amount for individual coverage.

This information is for educational purposes only.  Please refer to your tax advisor for additional infirmormation or guidance.

Update on Health Insurance Exchanges

As part of the recent Health Insurance Reform legislation establishes state-based health insurance exchanges.  The exchanges are designed to assist individuals and small businesses in purchasing health insurance and to reduce health care costs.

There are four levels of benefits available with different out of pocket expense choices.  The  Bronze tier plans will cover at least 60 percent of costs; silver plans 70 percent; gold plans 80 percent; and finally, rich platinum plans will cover at least 90 percent of costs. Catastrophic plans will be available to individuals who are exempt from the individual mandate because no affordable plan is available to them or they are under the age of 30.. To encourage health plans to participate fully in the exchange, each plan that wants to  become a qualified health plan must offer at least one plan in both the silver and gold benefit tiers.

While the federal Department of Health and Human Services (HHS) must provide guidance on how exchanges will be established, each state that chooses to institute an exchange must create two different exchanges that must  be operational by Jan. 1, 2014. The American Health Benefit Exchange will serve individuals, including those receiving premium reduction and cost-sharing subsidies. Small businesses will be able to purchase coverage through Small Business Health Options Program (SHOP) exchanges. Initially, only firms with up to 50 employees will be eligible to purchase coverage through SHOP exchanges. Beginning in 2016, they will be expanded to allow larger employers with up to 100 employees to participate. In parts of the country with separate and distinct insurance markets, states will be allowed to form geographically distinct sub-exchanges, or even partner with neighboring states to structure regional exchanges. States have also been granted the authority to merge their individual and small-group markets to enhance the size and strength of their risk pools.

An option that may is available to groups with 50-450 employees are Health Insurance Cooperatives.  Cooperatives are plans that are run by the member groups, with the claims paid by funds held by the member group.  Any funds left will be retained by the member group, instead of the carriers or government.  Wellness features and cost controls are included in coverage.  For more information on our Cooperative please call our office at (888) 474-6627.

Well Workplace University – Level 1 Certification

Some time ago I realized that leading a health conscious lifestyle today will affect my health in later years.  I returned to regular exercise and my wife made sure we consumed a healthy diet.

Future health care costs are affected by today’s lifestyle.  Since I have felt a responsibility to my clients, I realized the need to become a Wellness Facilitator during the next decade of my work.  Adopting “result oriented” wellness progarms will be recognized as a productive way to reduce future health insurance costs.

To truly help employers, I felt the need to learn as much as possible about implementing and managing workplace wellness.  WELCOA University provides three levels of  wellness certification, and is recognized as the place for wellness education.  Level 1 is now completed and I am pursuing Level 2.  If you have any questions about wellness or would like to set up a wellness program for your firm, please call me at (888) 474-6627 x116.