The one-year anniversary of the Patient Protection and Affordable Care Act has come and gone, and federal agencies continue to issue clarifying guidance on several of its provisions, including the grandfathered health plan rules and the requirement to report the cost of employer-provided health coverage on employees' Forms W-2.
On April 1, the Departments of Labor, Health and Human Services, and Treasury released a sixth set of frequently asked questions regarding PPACA's grandfathered health plan rules. A grandfathered health plan is a group health plan or individual health insurance coverage in which at least one individual was enrolled on March 23, 2010. Grandfathered health plans are exempt from many, but not all, of the PPACA mandates. For instance, grandfathered health plans are not required to comply with the nondiscrimination testing requirements applicable to fully insured plans or the new appeals process rules under PPACA.
The interim final regulations addressing grandfathered health plan status issued by the federal government in June 2010 contain complex anti-abuse rules regarding the transfer of employees from one grandfathered health plan to another. Under the regulations, transferring employees from one grandfathered health plan (a transferor plan) to another (a transferee plan) can cause the transferee plan to relinquish grandfathered status. This rule only applies, however, if there is no bona fide employment-based reason to transfer the employees. The FAQs provide a nonexhaustive list of circumstances that the government will consider to be bona fide employment-based reasons to transfer employees between plans, including:
* When a benefit package is being eliminated because the issuer is exiting the market.
* When a benefit package is being eliminated because the issuer no longer offers the product to the employer (for example, because the employer no longer satisfies the issuer's minimum participation requirement).
* When low or declining participation by plan participants in the benefit package makes it impractical for the plan sponsor to continue to offer the benefit package.
* When a benefit package is eliminated from a multiemployer plan as agreed upon through the collective bargaining process.
* When a benefit package is eliminated for any reason and multiple benefit packages covering a significant portion of other employees remain available to the employees being transferred.
The agencies acknowledge that there may be many other circumstances in which a benefit package is considered eliminated for a bona fide employment-based reason. Therefore, the agencies have provided employers with some flexibility to transfer employees between health plans without jeopardizing their grandfathered health plan status.
The FAQs also address the timing of a relinquishment of grandfathered health plan status. A grandfathered health plan will cease to be grandfathered when an amendment that causes a loss of grandfathered status becomes effective, regardless of when the amendment is adopted. For example, if a plan sponsor with a calendar year plan adopts an amendment that will cause a loss of grandfathered status on July 1, 2011, but the amendment does not become effective until Jan. 1, 2012, the plan would cease to be a grandfathered health plan on Jan. 1, 2012.
W-2 reporting clarification
On March 29, the Internal Revenue Service issued Notice 2011-28, which addresses the new Form W-2 reporting requirements under PPACA. Under PPACA, employers are required to report the cost of employer-sponsored health coverage provided to employees. Technically, this requirement became effective for taxable years beginning on or after Jan. 1. However, in late 2010, the IRS issued Notice 2010-69, which made this reporting requirement voluntary for Forms W-2 issued for 2011, primarily to provide employers with additional time to update their payroll systems to comply with this new reporting requirement.
In Notice 2011-28, the IRS reiterates that employers are not required to begin reporting the cost of employer-sponsored health coverage until Forms W-2 issued for 2012, which are generally furnished to employees in January 2013. In addition, the IRS emphasizes that the requirement for employers to include the aggregate cost of employer-sponsored health coverage on employees' Forms W-2 does not make such coverage taxable to the employee. Rather, the reporting requirement is for informational purposes only - "to provide useful and comparable consumer information to employees on the cost of their health care coverage."
Importantly, Notice 2011-28 provides small employers with an additional grace period for compliance with this reporting requirement. For purposes of this grace period, small employers are employers who issued less than 250 Forms W-2 during the previous year. These small employers will not be required to report the cost of employer-sponsored health coverage on employees' Forms W-2 prior to January 2014.
Generally, employers are required to report the aggregate cost of applicable employer-sponsored coverage, which is defined in Notice 2011-28 as coverage under any group health plan (including a self-insured plan) that is excludable from an employee's gross income under the federal tax code, excluding the following types of coverage:
* Long-term care.
* Coverage only for accident, or disability income insurance, or any combination thereof.
* Coverage issued as a supplement to liability insurance.
* Liability insurance, including general liability insurance and automobile liability insurance.
* Workers' compensation or similar insurance.
* Automobile medical payment insurance.
* Credit-only insurance.
* Coverage under a separate policy, certificate or contract of insurance that provides benefits, substantially all of which are for treatment of the mouth or for treatment of the eye.
* Coverage only for a specified disease or illness, or hospital indemnity (or other fixed indemnity) insurance, provided that the payment for such coverage is not excludable from gross income.
* Amounts contributed to an Archer MSA or health savings account.
* Salary reduction contributions to a health flexible spending arrangement.
* Coverage under a multiemployer plan.
* Coverage under a health reimbursement arrangement.
* Coverage provided under a self-insured group health plan that is not subject to any federal continuation coverage requirements (e.g., a self-insured church plan).
* Coverage provided by the federal government, or a state or local government, to members of the military and their families.
The aggregate reportable cost generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pretax or after-tax contributions.
Calculation methods should be used on a consistent basis
Employers may calculate the reportable cost under a plan using the COBRA premium for that coverage for the applicable period. Employers with fully insured plans may calculate the reportable cost using the premium charged for the employee's coverage for the applicable period.
Notice 2011-28 also provides alternative methods to calculate the reportable cost of coverage for employers who subsidize the cost of coverage or charge employees a composite rate.
While employers are not required to use the same calculation method for every plan, they must use the same method with respect to a plan for every employee receiving coverage under that plan. That is, employers are required to use the calculation methods on a consistent basis. -K.B.
Contributing Editor Kate Bongiovanni is an associate in the tax section of Smith, Gambrell & Russell, LLP. She practices in employee benefits law, with a specific concentration in health and welfare matters, including compliance with health care reform legislation, ERISA, HIPAA, FMLA and COBRA. She can be reached at
Payer claims processing remains mixed bag
Several major commercial insurers are paying claims faster, but their claims processing error rates are increasing, according to an annual report of insurer performance from the American Medical Association. The fourth annual National Health Insurer Report Card tracks the performance of Aetna, Anthem Blue Cross Blue Shield, CIGNA, Health Care Service Corp., Humana, The Regence Group and United Healthcare, along with Medicare. The study analyzed a random sample of 2.4 million electronic claims for about four million medical services submitted in February and March of 2011 from more than 400 practices in 42 states. The findings:
* Studied commercial insurers had an average claims processing error rate of 19.3%, up 2% from last year. UHC led the way with an accuracy rate just above 90% while Anthem was at the bottom with 61%.
* Studied insurers made no payments on nearly 23% of submitted claims, most commonly because patients with high deductible plans had not hit their out-of-pocket limit and were responsible for payment. The AMA advocates real-time claims processing services, which would alert providers to collect payment at the point of care.
* Aetna, Anthem, HCSC and UHC have cut their denial rates substantially in the past year, while Cigna continues to have the lowest rate at .68%. Lack of patient eligibility continues to be the leading reason for denials.
* Cigna had the highest rate of claims requiring prior authorization, topping 6%.
* UHC has improved its rate of reporting correct contract fees for four straight years and most of the other commercial insurers have improved over time but dipped this year. Anthem was the exception, scoring 14% lower this year than it did four years ago.
This article by Joseph Goedert originally appeared in Health Data Management, a SourceMedia publication.
