Health Care Reform Overhaul Update

Last week, Health & Human Services Secretary Kathleen Sebelius issued a letter to the National Association of Insurance Commissioners expressing concerns about the approach some carriers have considered for child-only health insurance coverage. In particular, while endorsing the idea of open enrollment periods, she rejected the idea of denying sick children outside the open enrollment period, but accepting healthy kids year-round.

While Congress is in recess until the upcoming elections, we continue to closely monitor activity in Washington, contributing comments on a variety of issues directly as well as through trade organizations. Regulators continue to issue guidance and seek industry input.

Carved-Out Plans

Some employers may have structured their benefit offerings so that one type of plan is available for one group of employees, but another plan for other groups. For example, management may be offered only a PPO, while hourly workers can only take HMO coverage. This is sometimes called a “carved-out plan.” In other cases, “executive medical” policies may provide benefits supplementing the underlying group health plan by covering deductibles, copayments, etc.

Beginning with plan years on or after Sept. 23, 2010, the Affordable Care Act prohibits nongrandfathered fully insured group health plans from discriminating in favor of highly compensated individuals. Specifically, the Affordable Care Act requires that such fully insured plans satisfy the requirements of and rules similar to those of Internal Revenue Code Section (“IRC”) 105(h). Historically, the nondiscrimination requirements of IRC Section 105(h) only applied to self-insured plans.

Recently, the Department of Treasury published Notice 2010-63 requesting comments in preparation for possibly issuing guidance on applying IRC Section 105(h) to fully insured plans. The Notice indicates that group health plans that fail to comply with the nondiscrimination requirements of IRC Section 105(h) are subject to an excise tax of $100 per day per individual discriminated against for each day a plan is noncompliant.

Depending on the facts and circumstances and the nondiscrimination tests applied, some fully insured carved-out and executive-medical type plans may be found to discriminate in favor of highly compensated individuals.

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