0COBRA Subsidy Extended
The temporary federal COBRA subsidy initially provided by the American Recovery and Reinvestment Act of 2009 was first extended to apply to involuntary terminations of employment through February 28, 2010. Eligibility for the subsidy has now been extended by the Temporary Extension Act of 2010 and the Continuing Extension Act of 2010 (together, the “Acts”) to apply to losses of health insurance coverage in connection with involuntary terminations occurring on or before May 31, 2010, as well as to certain losses of health insurance coverage in connection with a reduction in hours that are followed by an involuntary termination of employment. The rules regarding the subsidy provisions prior to the Acts are summarized in Goodwin Procter’s February 20, 2009 and December 23, 2009 Employee Benefits Updates.
New Extended Eligibility for COBRA Premium Subsidy for Involuntary Terminations
In order to be eligible for the subsidy, an eligible health plan participant’s loss of health coverage must be due to (i) an involuntary loss of employment (other than by reason of gross misconduct) between September 1, 2008 and May 31, 2010 or (ii) a reduction in hours occurring between September 1, 2008 and May 31, 2010 that is followed by an involuntary termination between March 2, 2010 and May 31, 2010. Prior to the Acts, eligibility for the subsidy expired for involuntary terminations of employment after February 28, 2010 and was not available if a reduction in hours was the triggering COBRA event. Covered family members are also eligible for the extension of the subsidy if they lose health insurance coverage due to the employee’s involuntary termination or qualifying reduction in hours followed by an involuntary termination of employment.
Generally Applicable Rules
Other than as described above, the existing rules regarding the amount of, eligibility for and administration of the COBRA subsidy remain unchanged. These rules include circumstances which make an otherwise eligible individual ineligible for the subsidy and provide the mechanism for reimbursement of the subsidy extended by the employer (or the insurance carrier in the case of subsidized state law continuation coverage for small groups). The maximum period of subsidized COBRA coverage remains at 15 months, followed by unsubsidized coverage for up to three more months, for a total of 18 months of COBRA coverage from the date of the COBRA qualifying event.
The Department of Labor (“DOL”) recently published four updated model notices and guidance covering terminations through May 31, 2010, available here. The DOL guidance includes detailed instructions regarding which notices must be provided in various scenarios, as well as the related deadlines. Any employer that has employees who terminated employment on or after September 1, 2008 should review this guidance carefully; in certain cases, new notices will be required for individuals who terminated on or after September 1, 2008.
0Health Care Reform Mandates Extended Coverage for Children Until Age 26 and Exempts from Taxation Medical Benefits for Children up to Age 27
The recently enacted Patient Protection and Affordable Care Act, as amended by the 2010 Health Care Reconciliation Act (together, the “Health Care Reform Acts”), imposes a new requirement on group health plans that provide for coverage of dependents of a covered individual. The Health Care Reform Acts require that such plans must extend such dependent coverage to children of a covered individual until the child reaches 26 years of age. This coverage requirement is unrelated to the status of the child as an employee’s tax dependent. Currently the requirement is scheduled to become effective for group health plan years beginning on or after September 23, 2010, although prior to 2014 certain grandfathered plans are required to extend this adult child coverage only if the child is not eligible for health coverage through his or her employer. More information is available here.
In connection with this new requirement, the Health Care Reform Acts have amended the Internal Revenue Code to provide that employer coverage of a child of an employee in a qualifying group health plan may be provided on a tax-free basis until the end of the tax year in which the child attains age 27, even if the child is not a tax dependent of the employee. For this purpose, “child” is defined broadly to include an employee’s son, daughter, stepson, stepdaughter, legally adopted child or foster child placed with the employee by court order. The amendments to the Internal Revenue Code became effective March 30, 2010; after that date, federal income tax should no longer be imputed by an employer on the value of coverage to an employee’s child who has not attained age 27 by the end of the tax year. (The imputed income rules continue to apply through March 30, 2010.)
Massachusetts law already requires extended coverage of children for two years following loss of tax dependent status, or age 26, if earlier, for any insured group health plan that provides dependent coverage. The value of employer-provided extended coverage for employees’ non-tax dependent children mandated by law is not subject to Massachusetts income tax. Employers operating in states other than Massachusetts should consult tax advisors in their states of operation to determine if employees will be subject to state income tax in connection with the extension of coverage to non-tax dependent children.
Finally, the Internal Revenue Service recently published guidance permitting employers to allow employees to make mid-year changes to their Section 125 pre-tax elections to take advantage of this opportunity to cover adult children in their employer’s plan. Such enrollment is permitted for any period of coverage beginning on or after March 30, 2010, as long as the employer’s cafeteria plan document is amended retroactively to provide for such coverage by the end of the 2010 plan year for the cafeteria plan.0Early Retiree Reinsurance Program Becomes Effective June 1, 2010
The Department of Health and Human Services (“HHS”) has issued interim final rules relating to the Early Retiree Reinsurance Program introduced by the Health Care Reform Acts. The program will make available $5 billion in financial assistance to employers to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare. The program will end in 2014, when individuals will be able to choose from additional coverage options through the health insurance exchanges. It is expected that applications for reimbursement for qualifying expenses will be accepted on a first-come first-served basis until the designated funding is exhausted.
Each employer plan seeking reimbursement under the program must be certified by the HHS; applications will be available by the end of June. In order to become certified, a plan must have in place cost-saving programs for chronic high-cost conditions and meet certain other conditions. Reimbursements to employers under the program must be used for plan purposes and plans will be subject to audits by the HHS. Both self-funded and insured plans may apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions and other employers. For more information, contact your health plan insurer or third-party administrator.
0Department of Labor Publishes Model Notice Regarding Eligibility For Premium Assistance Under Medicaid or CHIP
The Children’s Health Insurance Program Reauthorization Act of 2009 (the “Act”) has expanded the availability of health care assistance for children and some adults and has imposed new obligations on employers, including the distribution of a notice regarding assistance available under Medicaid or the State Children’s Health Insurance Program (“CHIP”). The requirements of the Act were highlighted in the Goodwin Procter’s March 30, 2009 Employee Benefits Update, “Children’s Health Insurance Program Reauthorization Act Imposes New Group Health Plan Enrollment Rights and Obligations on Employers.”
On February 4, 2010, the DOL published a model notice for employers to use to satisfy this requirement and issued an updated model notice on April 16, 2010. The model notice is available here. Highlighted below are details of this new notice requirement.
Notice Requirement
The Act requires employers that provide medical coverage to employees who reside in states participating in premium assistance programs under Medicaid or CHIP to send a special notice to employees regarding the availability of state premium assistance opportunities (the “CHIP Notice”). The CHIP Notice must be provided to all employees eligible for coverage in the employee’s group health plan and residing in a participating state (even if the employee is not enrolled in the plan). The most recent model notice lists the 40 states that are currently participating in preliminary assistance programs under Medicaid or CHIP. While the notice is required to be delivered only to employees residing in participating states, for administrative simplicity, employers may choose to send it to all eligible employees. The location of the employer or its health plan service providers is not relevant in determining whether the employer must provide the notice.
Effective Date
The CHIP Notice requirement is effective for the first plan year beginning after February 3, 2010. For health plans with plan years beginning between February 4, 2010 and April 30, 2010, the notice must be provided by May 1, 2010. For employers whose next health plan year begins on or after May 1, 2010, the notice must be provided by the first day of such plan year. (January 1, 2011 is the deadline for calendar year plans.)
Distribution Methods
The CHIP Notice may be distributed with other plan materials, such as an open enrollment package or a summary plan description, as long as:
- It is a separate document the importance of which is made evident
- The materials are provided by the applicable distribution deadline for the CHIP Notice
- It is distributed to all eligible employees
Delivery may be by first-class mail, or electronically if the DOL requirements regarding electronic delivery are satisfied.
Annual Requirement
The CHIP Notice must be provided annually. As the DOL expects to update the notice and related information periodically, employers should check the DOL website each year before distributing the notice.
Employers may be assessed penalties of $100 a day for failure to comply with the notice and disclosure requirements of the Act. The $100 penalty applies for each violation per participant or beneficiary.
0HITECH Requirements Are Effective
The new federal data breach notification requirements, introduced by the HITECH Act that was part of the American Reinvestment and Recovery Act signed into law by President Obama in February 2009, are now effective.
Generally, the breach notification rules require employers that sponsor group health plans (including medical reimbursement arrangements) to notify individuals, the regulators and, in certain cases, the media, when unsecured protected health information is breached. Generally, a breach occurs when there is an unauthorized acquisition or disclosure of protected health information In addition, the HITECH Act generally prohibits the sale and marketing of protected health information.
Notification of breaches of unsecured information must be made without unreasonable delay, but in no event more than 60 days after an employer becomes aware of the breach. Both the HHS and the Federal Trade Commission will assess sanctions for failure to provide the required notice for breaches discovered after February 22, 2010.
The new breach notification rules apply only to information that is “unsecured.” HHS has issued guidance specifying encryption and destruction as the technologies and methodologies that render protected health information unusable, unreadable or indecipherable to unauthorized individuals and, thus, secured. Certain limited exceptions for unintentional breaches may also apply.
Under the HITECH Act, group health plan business associates are also subject to these requirements, although the effective date of the application of these rules directly to business associates has been postponed. Employers should insure that their policies and practices, as well as their agreements with service providers and business associates, incorporate these restrictions. Employers should discuss with their health plan business associates and insurers the feasibility of encrypting all protected health information to the extent possible, and should review the terms of their business associate agreements and their procedures for incident response in the event that a breach occurs.