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HCR Update: Clarification on Non-Discrimination & Carve-Outs

Nov 12, 2010

Health Care Reform Update

November 12, 2010


Clarification on nondiscrimination and carve-outs      

In September 2010 the Internal Revenue Service issued an IRS Notice about the nondiscrimination provision of the health care reform law, which applies to nongrandfathered, fully insured plans. The notice states that HHS and DOL "have reviewed this notice and have advised the Department of the Treasury and the Internal Revenue Service that they agree with it." The IRS requested comments on the notice by November 4.  

To summarize the language in the IRS notice and the health care reform law:

·         The rules for determining compliance for fully insured plans are the same as the rules that apply for self-insured plans. These rules are outlined in Internal Revenue Code Section 105.

·         Penalties for noncompliance by fully insured plans are different from penalties for self-insured plans. Penalties may include a $100 per person per day penalty for each violation. The penalty could be imposed on the group, the insurer and "other." (It's our understanding that "other" may include third-party administrators. We do not believe it includes brokers. However it has not been clearly defined.) 

Our approach to this provision remains unchanged from the guidance we provided in September:

·         Executive Plans - We will continue to offer the existing plans on a grandfathered basis, eliminating annual limits on "essential health benefits."

·         Management-Only/Class Plans (for example, salary vs. hourly employees) - We do not develop plans only for a specific set of employees. Additionally, we do not track or record the compensation information of employees in health plans to determine if a plan is only being offered to highly compensated individuals. Therefore, we are relying on the employer or group to ensure compliance with this requirement of the health care reform law.  

We realize your clients continue to inquire about the impact of this provision, particularly as it pertains to management carve-out plans. We will provide more clarification and guidance when the regulations are finalized. In the meantime, these articles provide more details that may be useful to customers. These external links should not be relied upon as legal/benefits advice. 

Employee Benefit News:




Early Retiree Reinsurance Program -- new application available      

Last week the Department of Health and Human Services announced and posted a revised application for the Early Retiree Reinsurance Program.  

According to HHS, plan sponsors that have already submitted an application should not submit another application.  

Plan sponsors that have not yet submitted an application and still wish to apply should use the latest information posted on the ERRP website, Just click on "apply now" to find a link to the application, instructions for completing the application, and "dos and don'ts" for completing the application.


Correction: Grandfathering and off-cycle renewals  

Underwriting will be reviewing every group with more than 100 employees at renewal to determine if it can maintain grandfathered status. Last week, we stated it was 100 members when it should have said "employees." 

When a new policy is issued, underwriting will compare the plan's benefits with the plan in place on March 23, 2010, to determine if any changes caused a loss of grandfathered status. 

Attached is the corrected the fact sheet.

Getting to the bottom of your health care costs       

Did you know: Health costs to rise in 2011

According to a September 2010 survey released by global human resources consultants Hewitt Associates, companies' health costs will rise about 9% on average in 2011 as a result of the aging workforce, growing medical costs and health law-related changes. The survey of 350 medium to large firms found companies "will spend $9,821 per employee on average for insurance next year, up from $9,028 this year."

This content is provided solely for informational purposes: it is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

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