Navigating Health Reform's Ambiguities and Unclear Mandates

Several key pieces of the health reform puzzle are still missing

By Joanne Sammer Dec 6, 2010

updated May 2012

Ever since the Patient Protection and Affordable Care Act was signed into law in March 2010, U.S. employers have been working to comply with the mammoth requirements that health care reform will impose over the next several years. Not surprisingly considering the sheer scope of the overhaul and the amount of regulations and guidance required to implement it, many questions remain, and employers are scrambling to find answers in order to ensure that their plans are in compliance.

Example: Auto Enrollment Confusion

Some key pieces of the puzzle that were still missing in late 2010 included regulations on automatic enrollment procedures and clarification of the effective date for that requirement, how to define full-time employee status, and the specifics on how to measure the 30-hour work week requirement for full-time status.

The reform law requires that employers with more than 200 full-time employees enroll employees automatically in the health care plan (unless the employee demonstrates other coverage, such as through a spouse's plan). But when? The statute provided no effective date. Among the diverse views expressed by health policy experts, some believe that the auto enroll requirement was effective for plans renewing after the date of enactment (March 23, 2010); others say that the effective date will be March 1, 2013, when employers must provide employees with notice about the availability of state-run exchanges set to launch in 2014; and still others say that there will be no effective date until Congress or the federal agencies provide one clearly. (To learn more, see the SHRM Online article "Effective Date of PPACA’s Advance Notice Requirement Is Unclear.")

The issue isn't minor for employers, because automatic enrollment could have a major impact on employer costs. Tracy Watts, a partner with Mercer in Washington, D.C., noted that a typical employer sees an average of 8 to 10 percent of employees opt out of any health insurance coverage. When automatic enrollment becomes a requirement, employers could find themselves covering a significantly larger number of employees, which has major cost implications for the overall plan.

Update: In December 2010, the federal departments overseeing health care reform clarified that the ACA's automatic enrollment requirement for employer plans, originally to take effect in 2014, would not become effective until after the departments issued regulations implementing the requirement; those regulations were still pending

When it comes to determining which employees count as full-time and working at least 30 hours per week, to determine if employees are eligible for required health care coverage starting in 2014, employers need guidance on how to measure the workweek. If there is a "look-back" provision for calculating hours (taking into consideration overtime from previous time periods to determine if the average is 30 hours per week), employers might want to manage their workforces with that look-back provision in mind in the years before the requirement takes effect.

Navigating Gray Areas

As they work through the health care law's ambiguities with legal counsel and benefit consultants, employers should keep in mind the intent of the legislation. The focus of the law is to increase access to coverage; therefore, employers should “make sure decisions are increasing and allowing access to health coverage,” said Dean Hatfield, senior vice president and national health practice leader with Sibson Consulting in New York.

Aside from automatic enrollment and calculating work hours, many other issues regarding compliance with the health care law remain unresolved. Some of the most prominent among these are the following:

Starting on Jan. 1, 2011, over-the-counter (OTC) drugs, such as aspirin, cannot be reimbursed through a flexible spending account (FSA), health savings account (HSA) or health reimbursement arrangement (HRA) unless the patient gets a doctor’s prescription for that medication. It will be up to HR and benefits communicators to explain that requirement to employees and indicate how they can obtain the necessary documentation. For instance, many are unaware that they can request a doctor's prescription for an OTC medication. Employers can use case studies or provide tips explaining what plan participants need to do to obtain reimbursement through their FSAs and HSAs, and why using OTC drugs can be a useful and cost-effective approach (see the SHRM Online article "Incorporating OTC Drugs into Benefit Plans Can Lower Rx Costs.") The Society for Human Resource Management posted this sample notice that HR can use to inform employees of 2011 changes in their FSA plans.

Update: In late December 2010, the Internal Revenue Service issued guidance allowing the continued use of health FSA and HRA debit cards,which require point-of-sale substantiation, to buy prescribed over-the-counter medicines and drugs (see the SHRM Online article "IRS Issues Guidance on FSA and HRA Debit Cards for OTC Drugs").

In May 2012, the IRS has issued guidance on the $2,500 limit on contributions to health FSAs and solicited comments on the "use it or lose it" rule (see the SHRM Online article "IRS Issues Guidance on $2,500 FSA Limit for 2013").

Employers do not have to provide health plan cost information on Forms W-2 until the 2012 tax year, with forms to be issued in 2013. However, employers have the option of providing this information for the 2011 tax year. The IRS has released a draft form that includes the codes that will be used to report the cost of coverage under an employer-sponsored group health plan.

Update:In February 2012, the IRS issued updated frequently asked questions (FAQs) on reporting the cost of employer-provided health care coverage (see the SHRM Online article "IRSIssues Guidance on Reporting Health Coverage Cost on Forms W-2").

Starting Jan. 1, 2011, for nongrandfathered plans, preventive care
is covered at 100 percent. Employers have concerns about the administrative details involved with ensuring that all"preventive care" is covered. For example, a problem could arise if a patient goes to a doctor for several services, including preventive care, and the entire visit is coded as non-preventive care and, therefore, paid at less than the required 100 percent. Would the plan face a penalty in this circumstance? “Those kind of details are still missing when it comes to administering some of these provisions,” said Hatfield. (For more about unresolved issues regarding preventive care, see the box at the end of this article.)

With dependent eligibility audits so common, employers need some clarification when it comes to rescinding benefits of those found to be ineligible. The health care reform law requires 30 days’ notice before rescinding benefits, but there is some question as to when the qualifying event occurs for purposes of determining COBRA continuation coverage.

Strategic Decisions

As employers work through their immediate compliance concerns, they are turning their attention to the bigger picture and the requirements taking hold in 2014 and beyond. Among these:

Maintain or drop health benefits. Some employers question whether insurance exchanges will negate the need for employer-sponsored retiree medical benefits. “Employers with a lot of part-time employees are going to struggle with the pay-or-play equation and whether it might be cheaper for them to not offer health benefits anymore and instead pay the penalties,” said Tom Billet, a consultant with Towers Watson in Stamford, Conn. “Most large companies at least in the near term are going to continue to offer benefits, but there are employers in certain industries that may want to offer benefits to some employees and not to others.” (For a fuller discussion of this issue, see the SHRM Online article "Rethinking Health Care Strategy in the Age of Reform.")

Self-insure or not. With the new requirement that insurance companies must spend 80 to 85 percent of premiums on patient care beginning in 2011 (the so-called medical loss ratio), some self-insured mid-size employers with 5,000 or fewer employees might find fully insured health plans to be more attractive financially than in the past, noted Hatfield.

But others believe the medical loss ratio rules could drive employers away from fully insured arrangements and persuade them to sponsor self-funded plans (see the SHRM Online article "Medical Loss Ratio Rules Could Boost Self-Insuring").

Also, self-insuring avoids other mandates that are imposed on fully insured plans. For instance, beginning in 2014, deductibles for small-group market plans will be limited to $2,000 per individual and $4,000 per family.

"It’s unfortunate that the small-group market has been singled out for these deductible limits," Stephen T. Parente, Ph.D., the Minnesota Insurance Industry Professor of Health Finance at the University of Minnesota’s Carlson School of Management, told HR Magazine.

"Employers that have small profit margins have traditionally offered high-deductible plans," Parente explained. "They may do the math and find they can no longer afford to offer coverage. It’s going to be tricky for them, because paying the penalties under the 'play or pay' provisions could kill a small business. As a result, unless this limit is altered or repealed, we may see more self-funding—even by employers at very small levels, despite the added risk they’d bear," he noted (see the HR Magazine article Unexpected Boost for Consumer-Directed Health Plans).

Determining what are "essential health benefits."Similar to questions regarding "preventive services," there is some uncertainty about what are considered "essential health benefits" that must be included in required coverage starting in 2014. Although regulators have identified broad categories of essential benefits, questions remain concerning the details of which services fit into various categories. Regulations from HHS are expectedin late 2011.

Remaining Compliant

As with any major legal and regulatory change, employers must remain diligent, keep abreast of new developments and be prepared to act quickly when guidance and regulations are released. “We advise employers to be very careful with the gray areas and to be conservative about complying so that they are in a good position to respond when additional information comes out,” said Hatfield.

Despite these efforts, employers might find that they are not in compliance with the new requirements. In those cases, employers could find themselves facing a range of excise taxes, fees and penalties, depending on the problem. For example, excise taxes for violating health care reform group health plan standards can start at $100 per day per affected individual.

However, based on historical trends, there tends to be some leeway for employers that are acting in good faith to comply. “In general, if violations either meet a reasonable diligence standard or are corrected within a certain timeframe, no tax will apply,” said Watts.

Ambiguity Regarding Preventive Services

The U.S. Preventive Services Task Force rates preventive services, and those receiving a grade of "A" or "B" are covered under the preventive care coverage mandate, including (with some limitations) breast and colon cancer screenings, screening for vitamin deficiencies during pregnancy, screenings for diabetes, high cholesterol and high blood pressure, and tobacco cessation counseling. A list of covered preventive services for adults can be found at the government's web site, here.

The fact that nongrandfathered plans must cover "cancer screenings" does not mean, for example, that employees showing no symptoms of colorectal cancer are entitled to a colonoscopy every year covered on a first-dollar basis. It could mean that nonsymptomatic employees over the age of 50 might receive a colonoscopy covered by the plan once every five years, in keeping with widely accepted diagnostic standards.

But the proposed regulations on coverage of preventive services under the health care reform law often are ambiguous with respect to their application to employer-provided health plans, warned the ERISA Industry Committee (ERIC),a Washington, D.C.-based association representing large U.S. employers (see the SHRM Online article “Ambiguity on Preventive Care Regulations Threatens to Increase Costs, Group Contends).

ERIC's September 2010 comment letter expressed support for provisions in the interim final regulationissued by theU.S. departments of Health and Human Services (HHS), Labor, and Treasury in July 2010, which permit employers to apply reasonable medical management techniques to preventive care (see the SHRM Online article "Administration Issues Regulations on First-Dollar Preventive Care"). But the group warned that the regulations impose mandates that are based on recommendations for an audience of health care providers and, as such, are often unclear with respect to their application to health plans.

ERIC recommended that the issuing departments (HHS, Labor and Treasury) add examples to the interim final regulations that illustrate points addressing frequency of service, recommended range of frequencies, settings for coverage of services, and the method and scope of coverage.

(Law firm Faegre & Benson LLP discusses related issues in their posting "First-Dollar Preventive Care Requirements Create Complexity.")

Joanne Sammer is a New Jersey-based business and financial writer.

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