Shirazi Notice – May 2013

 open book

IN THIS ISSUE:

Legislative Alerts

Department of Labor Announces the Model Notice to Employees of Coverage Options
IRS Issues 2014 HSA Limits

Health Care Reform

Health Reform Employer Impact Analysis Tool
Broad Choice of Health Plans in the Colorado Health Insurance Marketplace
The Health Care Law: Taxes, Elimination of Deductions, and New Fees
New FAQs Explain Plan for Summaries of Benefits and Coverage
Know the Rules and Penalties of the Individual Mandate
Essential Health Benefits (EHBs)
Cost-sharing Requirements
Recorded Webinar: Employer Duty to Provide Coverage – What Do I Need to Do Next?

Carrier Updates

Rocky Mountain Health Plans (RMHP) New Health Insurance Industry Fee
Colorado Child-Only Health Coverage Open Enrollment in July
myCigna.com Replaced myCignaforHealth.com
Options for Anthem Individual Members During ACA Transition

Wellness in the Workplace

PPACA’s Final Wellness Incentive Rule Released

LEGISLATIVE ALERTS:

Department of Labor Announces the Model Notice to Employees of Coverage Options

Beginning January 1, 2014, individuals and employees of small businesses will have access to affordable coverage through a new competitive private health insurance market – the Health Insurance Marketplace. The Marketplace offers “one-stop shopping” to find and compare private health insurance options. Open enrollment for health insurance coverage through the Marketplace begins October 1, 2013. Section 1512 of the Affordable Care Act creates a new Fair Labor Standards Act (FLSA) section 18B requiring a notice to employees of coverage options available through the Marketplace.(1)

Timing and Delivery of Notice
On January 24, 2013, the Department of Labor issued guidance stating that the notice requirement will not take effect on March 1, 2013. On May 8, 2013, the Department issued that employers are required to provide the notice to each new employee and each current employee at the time of hiring beginning October 1, 2013. For 2014, the notice must be provided within 14 days of an employee’s start date.

Each employee must be provided with a notice, regardless of plan enrollment status or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees.

The notice is required to be provided automatically, free of charge. It may be provided by first-class mail. It may also be provided electronically if the Department’s electronic safe harbor rules are met.

Form and Content of Notice
The notice to inform employees of coverage options must include information regarding the existence of a new Marketplace as well as contact information and description of the services provided by a Marketplace.

The notice must also inform the employee that the employee may be eligible for a premium tax credit under section 36B of the Code if the employee purchases a qualified health plan through the Marketplace; and a statement informing the employee that if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Model Notice
Model language is available on the Department’s website www.dol.gov/ebsa/healthreform. There is one model for employers who do not offer a health plan and another model for employers who offer a health plan to some or all employees.

Model Notice for employers who do not offer a health plan

Model Notice for employers who offer a health plan to some or all employees

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IRS Issues 2014 HSA Limits

The IRS has released the 2014 limits for health savings accounts (HSAs) and high-deductible health plans (HDHPs). The deductible amounts from 2013 have remained unchanged, but the out-of-pocket and contribution amounts have increased.

The following chart sets out the limits for 2014 as compared to the 2013 limits.

Minimum deductible amounts for the qualifying high deductible health plan (HDHP)                                                           
Individual coverage 2013

 

$1,250

2014

 

$1,250

Family coverage $2,500 $2,500
Maximum contribution levels
Individual coverage $3,250 $3,300
Family coverage $6,450 $6,550
Catch-up contribution allowed for those 55 and over $1,000 $1,000
Maximums for HDHP out-of-pocket expenses
Individual coverage $6,250 $6,350
Family coverage $12,500 $12,700

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HEALTH CARE REFORM:

Health Reform Employer Impact Analysis Tool

Beginning in 2014, rules go into effect that may have a significant effect on employer sponsored health plans. Employers are confused by how these changes will impact them. Compounding the uncertainty is the fact that the rules will have dramatically different effects on different employers based on factors such as the employer size, employee demographics, and current plan designs.

The Health Reform Impact Analysis Tool uses the employer’s unique information to estimate the financial impact of various health reform rules including:

  • The employer “shared responsibility rules” and possible employer penalties.
  • The potential cost of expanded eligibility requirements.
  • The effect expanded Medicaid eligibility rules will have on employer plans.
  • The cost of not offering a health plan to all full-time employees and pay applicable penalties including factors such as replacement income and tax impacts on the employer.

How it Works
The Tool analyzes data from an employee census, current plan, and employer contribution information. The data from the U.S. Census related to household size and income are applied to calculate the range of costs an employer can expect to experience related to each health reform provision.

What-if Scenarios
Once employers understand how the rules affect their current plans, their next question will be “so what happens if I change ____?” The Tool takes the analysis one step further, and allows the employer to consider the impact of various changes to plan design, employer contributions and eligibility rules.

Census Template Instructions
For the software to generate a customized report, a census must be completed as accurately as possible. The census template includes the template for your census data on the first tab and the description page for the required tab is on the second tab.

Download the Census Template

Please follow the instructions on the second tab carefully to ensure your report is generated accurately.

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Broad Choice of Health Plans in the Colorado Health Insurance Marketplace

The Division of Insurance has released information from files submitted by health insurance carriers requesting approval to provide health plans in the individual and small group markets in Colorado. This is the beginning of the review process by the Division of Insurance, which regulates insurance companies in the state. Ten carriers requested approval to provide a total of about 150 health plans for individuals and families through the marketplace. And six carriers requested approval to provide nearly 100 health plans to small employers through the marketplace.

Division of Insurance news release
FAQs – Division of Insurance review of health insurance plans
Plans submitted by health insurance carriers

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The Health Care Law: Taxes, Elimination of Deductions, and New Fees

With the new health care law comes new taxes, eliminations of deductions and new fees. The U.S. Chamber of Commerce has published a chart displaying the impact of all of health care reform’s provisions and the 10 year revenue estimates from 2013-2022. You can view the entire publication here.

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New FAQs Explain Plan for Summaries of Benefits and Coverage

The Department of Labor issued new FAQs explaining the plan for 2014 summary of benefits and coverage forms. For plan years beginning on or after January 1, 2014, new questions on Page 6 of summary of benefits and coverage template will be added.

The summary of benefits and coverage template for 2014 was updated to include the following two questions on Page 6:

Does this coverage provide minimum essential coverage?

The Affordable Care Act requires most people to have health care coverage that qualifies as “minimum essential coverage.”This plan or policy [does/does not] provide minimum essential coverage.

Does this coverage meet the minimum value standard?

In order for certain types of health coverage (for example, individually purchased insurance or job-based coverage) to qualify as minimum essential coverage, the plan must pay, on average, at least 60% of allowed charges for covered services. This is called the “minimum value standard.” This health coverage [does/does not] meet the minimum value standard for the benefits it provides.

Please note that the new template is not required until January 1, 2014. For example, if a plan renews in November 2013, the new summary template would not be required until the 2014 open enrollment or 30 days before the effective date (around October 2014).

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Know the Rules and Penalties of the Individual Mandate

The individual mandate starts in January 2014 and is an important part of the Affordable Care Act.

The individual mandate requires people legally living in the U.S. to buy a minimum amount of health coverage unless they are exempt. In general, people who don’t have to file taxes due to low income are exempt from the individual mandate.

But how does it work? And what are the penalties for people who don’t get coverage?

How the individual mandate works
When your clients file their 2014 taxes in 2015, they’ll need to report whether or not they had health coverage in 2014. If they did have coverage, they will need to report if they qualified for a tax credit or subsidy. Health coverage includes a group plan, an individual plan, Medicare or Medicaid. If they don’t have health coverage, they could face a tax penalty. Each year, the penalty increases.

What are the tax penalties?
If a person doesn’t have a health plan, he or she will pay a tax penalty as follows:.

  • 2014: Penalty is the larger amount – $95 or 1% of taxable earnings
  • 2015: Penalty is the larger amount – $325 or 2% of taxable earnings
  • 2016: Penalty is the larger amount – $695 or 2.5% of taxable earnings

What happens if your employees can’t pay for a plan?
Your employees may qualify for a tax credit through the exchange based on their incomes. People earning between 100% and 400% of the federal poverty level can qualify if they are not eligible for other sources of minimum essential coverage, including government-sponsored programs such as Medicare and Medicaid.

This includes:

  • Individuals with modified adjusted gross incomes of $11,490 to $45,960 a year
  • Families of four with modified adjusted gross incomes of $23,550 to $ 94,200 a year.

Your employees may qualify for cost-sharing subsidies based on their income. This includes:

  • Individuals with modified adjusted gross incomes of $11,490 to $28,725 a year.
  • Families of four with modified adjusted gross incomes of $23,500 to $58,875 a year.

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Essential Health Benefits (EHBs)

Effective for new and renewing plans on and after January 1, 2014, all non-grandfathered, fully insured small group and individual health plans must cover essential health benefits (EHBs).

Also effective for new and renewing plans on and after January 1, 2014, all health plans, regardless of group size or funding type, must apply all member cost share for in-network services and out-of-network emergency services to the in-network out-of-pocket (OOP) maximum, which cannot exceed $6,350/$12,700.

All copayments, coinsurance and deductible amounts for EHBs must apply to the out-of-pocket maximum. No annual or lifetime dollar limits are allowed on EHBs, but other types of limits can be put in place, including:

  • visit limits (e.g., 20 visits per calendar year)
  • day limits (e.g., 30 days per lifetime)
  • occurrence limits (e.g., 1 wig per calendar year)
  • per episode or per service limits (e.g., $1,500 per hearing aid)

Definitions

  • Essential health benefits (or EHB) package: the covered benefits and related limits of a health plan offered by an issuer based on the EHB-benchmark plan; provides at least the ten statutory categories of benefits, limits cost sharing for such coverage, subject to offering catastrophic plans and provides distinct levels of coverage (the “metal levels”).
    • Base-benchmark plan: the plan selected by a state from (or through the default process) before adjustments are made to meet the benchmark standards. (Details can be found in the Code of Federal Regulations §156.110.)
    • EHB-benchmark plan: the standardized set of EHBs that must be included in all non-grandfathered, fully-insured small group and individual health plans beginning in 2014.
  • State selection: serves as a reference plan and reflects the services and related limits offered by a typical employer plan in that state; applies to at least 2014 and 2015 benefit years.
  • Default base-benchmark plan: states that did not make a benchmark plan selection defaulted to the plan with the most enrollments in the state’s small group market.

Final rule: EHB package
EHB-benchmark must provide coverage of at least the following categories of benefits:

  1. Ambulatory patient services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health and substance use disorder services, including behavioral health treatment
  6. Prescription drugs
    1. Must cover the greater of either one drug in every United States Pharmacopeia (USP) category and class, or the same number of prescription drugs in each category and class as the EHB-benchmark plan
    2. Must have procedures in place that allow a member to request clinically appropriate drugs not covered by the health plan
    3. Does not require coverage of all drugs in protected classes as defined in Medicare Part D
  7. Rehabilitative and habilitative services and devices
    1. The final rule allows states with benchmark plans that do not include coverage for habilitative services to determine which services are included in that category.
    2. States that decline to specify habilitative services are required to either provide parity by covering habilitative services benefits that are similar in scope, amount and duration to benefits covered for rehabilitative services, or is determined by the issuer and reported to HHS.
  8. Laboratory services
  9. Preventive and wellness services and chronic disease management
  10. Pediatric services, including oral and vision care
    1. Pediatric services means services for individuals under the age of 19
    2. Benchmark plans that do not provide coverage for pediatric oral and vision services are required to cover these services from one of the following:
      1. The Federal Employees Dental and Vision Insurance Program (FEDVIP) with the largest enrollment
      2. Pediatric oral or vision benefits available under a state’s separate children’s health insurance plan (CHIP)

Large group and self-funded (ASO) health plans do not need to offer all 10 categories of essential health benefits, or meet actuarial value requirements that non-grandfathered small group and individual policies have to meet. The rule is still important to large group and self-funded (ASO) plans because they are subject to many rules tied to EHBs such as:

  • The out-of-pocket maximum applies to EHBs
  • EHBs covered by a large group or self-funded (ASO) plan cannot have annual or lifetime dollar limits

Questions and Answers
Q. What if a base-benchmark plan in a state’s small group market does not cover one or more of the ten required EHB categories? 

A. The base-benchmark plan will need to be supplemented by adding a particular category in its entirety from another base-benchmark plan option in that state.

Q. Do EHBs need to be included in plans for self-insured or large group plans? 

A. No. Self-insured and large group plans are not required to cover essential health benefits. However, the plan cannot apply any annual or lifetime dollar limits to any EHB that is covered under such plans, and must count cost sharing on EHBs toward the out-of-pocket maximum for all non-grandfathered plans..

Q. How does the EHB policy affect self-insured group health plans, grandfathered group health plans, and the large group market health plans? 

A. The health care reform law does not require large group health plans, self-funded (ASO) plans and/or grandfathered health plans to offer EHBs. If those plans do cover a benefit that is an EHB, annual and lifetime dollar limits cannot apply, but non-dollar limits like frequency or visit limits can be applied. Non-EHBs can have annual and lifetime dollar limits applied.

Q. How would employers sponsoring such plans determine which benefits are EHB when they offer coverage to employees living in more than one State? 

A. The Departments will work with those plans that make a good faith effort to comply with the rule and do not apply annual or lifetime dollar limits to benefits thought to be EHBs, based on the categories in the rule.

Q. How will EHB compliance be determined for self-insured, large group market or grandfathered group plans? 

A. Large group and self-funded (ASO) employers will be considered compliant with the rule as long as they use an approved definition of EHB coverage. The Departments plan to use their enforcement discretion and work with plans that make a good faith effort to apply an approved definition of EHB to ensure there are no annual or lifetime dollar limits on EHBs. Our standard large group plans will follow the small group EHB definition in each state.

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Cost-sharing Requirements


Summary
Effective for new and renewing plans on and after January 1, 2014, all health plans, regardless of group size or funding type must apply all member cost share for in-network services and out-of-network emergency services to the in-network out-of-pocket (OOP) maximum, which cannot exceed the following limits allowed by the Affordable Care Act (ACA):

  • Yearly limit on cost-sharing beginning in 2014
    • 2014: $6,350 individual / $12,700 family
    • 2015 forward: increased for cost of medical inflation
  • Yearly limit on deductibles (applies only to non-grandfathered fully-insured small group plans) beginning in 2014
    • 2014: $2,000 individual / $4,000 family
    • 2015 forward: increased for cost of medical inflation

One year safe harbor for separate service providers
The Departments have said that, only for the first plan year beginning on or after January 1, 2014, where a group health plan or group health insurance issuer uses more than one service provider to administer benefits that must apply the yearly limit on out-of-pocket maximums, separate out-of-pocket limits can be used. We believe this means the following:

No plan can have a medical OOP maximum more than the OOP maximum allowed. The 2014 OOPs maximum is $6,350 (individual) / $12,700 (family).

  • All plans must either…
    • combine their pharmacy plan cost shares with the medical cost shares under a single OOP maximum no more than $6,350 (individual) / $12,700 (family), or
    • establish a separate OOP maximum for their pharmacy plan that is no more than $6,350 (individual) / $12,700 (family).
  • “More than one service provider” means any vendor or administrator responsible for the administration of a set of essential health benefits, including a pharmacy benefit manager.
  • The safe harbor applies to our preferred vendors, including ESI.
  • The one year safe harbor applies to both small and large group markets, which has been confirmed by HHS.
  • Large group plans are not required to cover pediatric vision or pediatric dental services because they are not required to cover all essential health benefits. If a large group does offer coverage for vision or dental services to their employees and their dependents through separate vision or dental plans, these benefits are considered “excepted” and not subject to the ACA cost share rules related to out of pocket.

 Questions and Answers

Q. Do plans have to apply all covered services toward the out-of-pocket maximum? 

A. No, but any covered service that is an EHB must be applied to the out-of-pocket maximum. In the individual and small group markets, non-EHBs may not be applied to the OOP max. In the large group market, non-EHB services may be applied to the out-of-pocket maximum.

Q. Do all EHB cost share types have to be applied to the out-of-pocket maximum? 

A. Yes. All plan cost shares for in-network EHB services, including plan deductibles, fixed copayments, and coinsurance percentages must be applied to the out-of-pocket maximum.

Q. Do the cost-sharing requirements combine in- and out-of-network services? 

A. No, only cost-sharing for in-network services count toward the OOP limit and annual deductible limit. Services from a provider outside of a plan’s network do not count toward the annual limit on cost-sharing or to the annual limits on deductibles, except for emergency services.

Q. Do the annual limits on deductibles in the small group market also apply to large group and self-funded plans? 

A. No. The limitation (or cap) on deductibles only applies to non-grandfathered, fully-insured small group plans.

Q. To what plans do the out-of-pocket annual limits apply? 

A. The out-of-pocket annual cost-sharing limits apply to for all non-grandfathered health plans [individual, small group, large group and self-funded (ASO)].

Q. Is there any transitional relief for group health plans on applying an out-of-pocket annual limit accumulator? 

A. Yes. It is referred to as the out-of-pocket maximum “enforcement safe harbor.” Group health plans have until their plan year beginning on or after January 1, 2015 to aggregate all out-of-pocket costs into one accumulator. In 2014, while benefit plans can have separate out-of-pocket maximums (e.g., medical can have an OOP max of $6,350 for self-only coverage, and Rx can have a separate OOP max of $6,350 for individual coverage) no plan can have an OOP max that exceeds the HDHP limit on cost-sharing.

Q. Does the out-of-pocket maximum enforcement safe harbor mean that group health plans do not have to apply cost-sharing requirements like copayments and coinsurance, to the OOP maximum in 2014? 

A. No. All group health plans are required to apply cost shared including copayments and coinsurance toward the out-of-pocket maximum. The enforcement safe harbor means that groups with separate service providers do not have to combine all cost-sharing requirements for all benefits toward one out-of-pocket maximum accumulator until 2015.

Q. If the enforcement safe harbor does not allow group health plans to postpone applying cost-sharing requirements to the OOP maximum in 2014, what does it do? 

A. The enforcement safe harbor provides relief for group health plans from having to combine all out-of-pocket cost shares from separate service providers into one accumulator until 2015. Beginning in 2015, a member’s total out-of-pocket costs cannot exceed $6,350 individual / $12,700 family for all benefits combined.

Q. Can separate service providers have a deductible higher than the yearly limit on cost sharing? 

A. No. Service providers that currently have an out-of-pocket maximum can continue to have a separate OOP maximum for 2014, but no OOP maximum can exceed the yearly limit on cost sharing ($6,350 individual /$12,700 family in 2014). For example, major medical can have an OOP maximum of $6,350, prescription coverage can have an OOP maximum of $6,350, and dental can have an OOP maximum of $6,350 if the plans previously had an OOP maximum.

Q. If a group has all their benefits with one carrier, does that mean they need to combine all OOP cost-sharing requirements toward a single OOP maximum in 2014? 

A. No. Our understanding is that if a group has all their benefits with us, the pharmacy, vision, and dental benefits are administered by “separate service providers” from the major medical plan administrator (for example, ESI administers the pharmacy benefits). So those plans would also be eligible for the one-year enforcement safe harbor and would not have to accumulate all benefit cost shares toward one OOP maximum until 2015. Additional information will be provided when it is released by the Departments.

Q. Is there any provision for the yearly deductible amount for fully-insured small group plans to be more than the $2,000 / $4,000 maximum? 

A. Yes, health insurance coverage may be more than the yearly deductible limit if the plan cannot reasonably reach a given level of coverage (actuarial value or metal tier) without exceeding the deductible limit.

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Recorded Webinar: Employer Duty to Provide Coverage – What Do I Need to Do Next?

Last week Mark W. Major presented a two-hour webinar covering some in-depth topics regarding the employer duty to provide coverage and the next steps an employer needs to make to ensure they meet the requirements of health care reform.

You can catch the entire recorded presentation, along with downloadable presentation materials, on our website. All webinars are archived on our website, so if you ever miss a presentation, please be sure to check here to watch it at a time that is convenient to you.

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CARRIER UPDATES:

Rocky Mountain Health Plans (RMHP) New Health Insurance Industry Fee

In order to help fund the Affordable Care Act’s (ACA) expanded coverage provisions for individuals below 400% of the FPL, the Federal Government has imposed a new fee on all fully-insured group and individual health plans. Thee fee is referred to as the Health Insurance Providers Fee.

In 2014, the total to be paid nationally is $8 billion, increasing each year to $14.3 billion in 2018 and indexed thereafter. The 2014 fee is based on 2013 premiums.

In order to pay the fee, RMHP will begin collecting the fee starting July 2013. This fee will continue as described below, based on the line of business:

Line of Business

Per Member Per Month Fee

Duration

Small Group HMO Plans

$3.47

July 2013 through the 2014 health plan anniversary.

Large Group HMO Plans

$3.41

July 2013 through the 2014 health plan anniversary.

Small Group PPO Plans

$6.39

July 2013 through the 2014 health plan anniversary.

Large Group PPO Plans

$5.93

July 2013 through the 2014 health plan anniversary.

SOLO/Individual Plans

$4.12

July 2013 through December 31, 2013.

The variation is fees in tied to RMHP’s projected “2013 net written premium” for each line of business as reported to the IRS.

You can read more about this required fee here.

There will be another assessment RMHP will need to pay starting in 2014. The Reinsurance Fee on health plans requires $25 billion collected nationally over a three-year period starting in 2014. This fee will apply to both fully-insured and self-insured plans. RMHP will include this fee in their 2014 premiums.

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Colorado Child-Only Health Coverage Open Enrollment in July

The next Open Enrollment period for Child-Only health coverage is July 1 – 31, 2013, followed by a 30-day waiting period with a policy effective date of August 31, 2013. Applications must be received during the Open Enrollment period.

To apply, please contact Allie Perkins in our office at aperkins@shirazibenefits.com or 970.584.1719.

Qualified applicants under the age of nineteen are accepted on a guarantee issue basis without any limitations or riders based on health status. However, a carrier may deny coverage to an applicant for enrollment in a child-only plan if other creditable coverage is available, which can include current enrollment in a high-risk pool plan.

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myCigna.com Replaced myCignaforHealth.com

Get ready to say hello to myCigna.com. myCigna.com will replace myCignaforHealth.com and is your new spot for managing your health and health care expenses.

This change took place on Wednesday, June 5th, 2013.

All Cigna members that are currently registered on myCignaforHealth.com will need to re-register on myCigna.com. For those clients that already have a myCigna.com login, there is no need to re-register.

The first time you use myCigna.com and after you have registered, your information, including plan details and claims history for up to two years, will automatically show up when you log in.

We have had several questions from employers wondering if Cigna will send out a notice to members individually. The answer to that is “no,” but when a member goes to the old site (myCignaforHealth.com), it will automatically re-direct them to the new site (mycigna.com).

New Features

  • Snapshot of your balance and deductible
  • Easy to use on your mobile device
  • Search engine quickly finds what you’re looking for
  • Cigna Care Designation identifies doctors that meet our costs and quality measures
  • Available in Spanish

Top 5 Reasons to Register on myCigna.com

  1. Find a doctor or service
  2. Manage and track claims
  3. Get a cost estimate
  4. Compare cost and quality for doctors and hospitals
  5. Use health tools and resources

Need some answers to some of the most common questions about the myCignaforHealth.com transition to myCigna.com? Check out the FAQs.

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Options for Anthem Individual Members During ACA Transition

Anthem will be providing details on their transition strategies for Individual members in the next few weeks, but here are some highlights we want share now:

Will all Anthem clients be required to move to an ACA compliant plan on 1/1/2014?

No! Anthem plans to allow non-grandfathered members to remain on their current policy until the last day of their 2013 policy year, should they wish to do so in 2014. To assist you in making your plan selections, pending DOI approval, Anthem will be offering the following two options to many of their non-grandfathered members in Colorado:

  • Remain on your current policy until your next renewal in 2014
  • Accept an early renewal offer and keep your current coverage until December 1, 2014

Of course, you will also have the option to enroll in an ACA compliant plan during open enrollment, or any special enrollment opportunity.

What happens when a current non-grandfathered Anthem Individual member moves to a new Anthem ACA-compliant plan next year?

You will have the option of purchasing, on a guaranteed issue basis, any of the individual products Anthem is then actively marketing in the state (either on- or off-exchange). Additionally, Anthem will provide you with a suggested ACA compliant plan. In compliance with Colorado bulletins, you will need to affirm or confirm the plan selection to finalize enrollment.

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WELLNESS IN THE WORKPLACE:

PPACA’s Final Wellness Incentive Rule Released

On May 29, federal regulators released the final rule outlining the guidelines for how employers may use incentives for employee wellness programs pursuant to the Patient Protection and Affordable Care Act (PPACA). The rule, which applies to group health benefit plans starting in 2014, was largely unchanged from the proposed interim final version which detailed the financial incentives and penalties available to employers.

Many employers already offered incentives for employees participating in wellness programs. The main change in the new rule is an increase in the maximum incentive levels for several PPACA designated programs. For smoking cessation efforts, employers will be allowed to offer a reward or penalty of up to 50% of an employee’s health plan cost. For all other wellness programs, the number will be 30%, up from the current 20%. These increases are intended to promote healthy behavior which in turn, advocates claim, reduce health care spending.

Types of Wellness Programs
PPACA’s wellness rule outlines two types of wellness programs: (1) participatory programs and (2) health-contingent programs.

Participatory programs simply require employees (or in some cases, their dependents) to take part in a program offered by his or her employer and do not depend on the health-status of an employee. Examples of such programs include reimbursement for membership in a fitness center, participation in a regular health-education seminar.

Health-contingent programs usually require an employee to meet a health standard such as smoking cessation, participating in a health-related activity, or maintaining low blood pressure. Individuals who meet these standards can be rewarded and those who don’t can be offered the opportunity (i.e., through taking a fitness course) to reach the same standard.

Health-contingent programs are divided into activity-based and outcome-based programs. Activity-based programs simply require an employee participate in a program related to improving one’s health such as a walking regimen. There must be a “reasonable alternative standard” for receiving the reward for people who cannot participate if doing so would be “unreasonably difficult” or if it is otherwise medically inadvisable to participate. Outcome-based programs require individuals to reach or maintain a specific health outcome. Individuals are tested for a health standard and those who meet this standard are given the reward. Those who do not meet the standard are given the opportunity to participate in an action to meet the initial standard. For outcome-based programs, a “reasonable alternative standard” must be provided for those who cannot reach the main goal. For example, if a worker cannot quit smoking, a reasonable alternative standard could be the use of a nicotine-replacement therapy.

Some Concerns
Wellness incentives have provoked some criticism by those who say that such programs, particularly health-contingent programs, discriminate against certain employees. Older employees, for instance, tend to have more health issues than younger workers and may therefore be forced to pay a larger share of their health plan. Regulators have attempted to rectify this potential problem by adopting the “reasonable alternative standards.”

Example
The final rule provides an example of how this reward/penalty might work:

An employer sponsors a group health plan. The annual premium for employee-only coverage is $6,000 (of which the employer pays $4,500 per year and the employee pays $1,500 per year). The plan offers employees a health-contingent wellness program with several components, focused on exercise, blood sugar, weight, cholesterol, and blood pressure. The reward for compliance is an annual premium rebate of $600…[T]he plan also imposes an additional $2,000 tobacco premium surcharge on employees who have used tobacco in the last 12 months and who have not enrolled in the plan’s tobacco cessation program (Those who participate…are not assessed the $2,000 surcharge).

The total of all the rewards (including the absence of a surcharge for participating in the tobacco program) is $2,600…which does not exceed the applicable percentage of 50% of the total annual cost of employee-only coverage ($6,000 x 50%=$3,000). Tested separately, the $600 reward for the wellness program [excluding] tobacco use does not exceed the applicable percentage of 30 percent of the total annual cost of employee-only coverage ($6,000 x 30%=$1,800).

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