Archive for August, 2011

HHS Seeks Comments on Religious Exemption to Contraceptive Coverage Requirement

August 30, 2011

On August 1, 2011 HHS added new women’s health services to the list of preventative care services non-grandfathered health plans are requried to offer without cost-sharing starting with their first plan year on or after August 1, 2012.  Included on the list are contraceptives.   Due to concerns religious organizations often have with covering contraceptives as part of their employee health coverage, HHS allows an exemption to the requirement to cover contraceptives for a “religious employer.”  Under the exemption, a religious employer could continue to offer an employee health plan without coverage for contraceptives.  HHS proposes defining a religious employer as one that:

  • has the inculcation of religious values as its purpose;
  • primarily employs persons who share its religious tenets;
  • primarily serves persons who share its religious tenets; and
  • is a non-profit organization under IRC sections 6033(a)(1) and 6033(a)(3)(A)(1) or (iii) (i.e., churches, church auxiliaries, conventions and associations of churches).

Under the current definition of “religous employer” many organizations with religious affiliations such as hospitals, counseling centers, nursing facilities and clinics would not be considered religious employers that could qualify for the religious exemption.  HHS is currently seeking comments on its definition of “religious employer” as well as the religious exemption.  Comments can be submitted at!submitComment;D=HHS-OS-2011-0023-0002 until September 30, 2011.


HRAs & Annual Limit Restrictions

August 24, 2011

Health reimbursement arrangements (“HRAs”) in effect prior to September 23, 2010 no longer need to apply to HHS for a waiver of the annual limit restrictions in the Affordable Care Act.  Under the Act, group health plans, including HRAs, are subject to annual limit restrictions on essential health benefits until 2014.  Beginning in 2014,  annual limits on essential health benefits are prohibited.  In previous guidance, HHS clarified that an HRA integrated with an underlying medical plan (for example, an HRA subsidizing deductibles or out of pocket maximums imposed by an employer’s major medical plan) complies with the annual limit restrictions if the underlying medical plan complies.  However, stand-alone HRAs (for example, HRAs that reimburse employees directly for insurance premiums or medical expenses) were not addressed and presumably have to comply with the annual limit restrictions.  Until 2014, HHS has allowed plans who by their nature cannot comply with the annual limit restrictions (mini-med plans, HRAs, etc.) to apply for an annual waiver of the restrictions provided the plan was in place prior to September 23, 2010.   In guidance released on Friday, HHS exempts HRAs from the waiver application process, recognizing that by their nature HRAs  have annual limit restrictions far below those required by the Act.  A copy of the guidance is available at   In light of this guidance, stand-alone HRAs no longer need to apply for an annual waiver to be exempt from the annual limit restrictions provided the stand-alone HRA was in effect prior to September 23, 2010.    The new exemption applies only until 2014 at which time the waiver program will end.  HHS will need to issue further guidance on how HRAs will be treated in 2014 when annual limits are no longer allowed on essential health benefits.

Good News for Employers

August 22, 2011

Federal regulators are softening the impact of the employer penalty provisions in the Affordable Care Act.   In its comments in the preamble to the proposed premium assistance rules, the IRS announced upcoming rules that should alleviate the burden of the employer penalty provisions on many employers.  Under the Act, beginning in 2014 employers with 50 or more employees who do not offer any health coverage or who do not offer “affordable” coverage with a “minimum value”  must pay a penalty to the federal government if one of their full-time employees receives a premium assistance subsidy from the federal government.  Coverage is not “affordable” if an employee must spend more than 9.5% of his/her household income on the coverage.   The Act did not provide whether that coverage was limited to single coverage or included family coverage.  Many employers were concerned their coverage would not be affordable because while they paid substantially all of the single premium, they often paid a much lower percentage of the family coverage.  The IRS has announced that it will interpret “coverage” for purposes of the affordability provisions as only single coverage.  Therefore, if an employee’s required contribution for single coverage does not exceed 9.5% of his/her income, even if the required contribution for family coverage exceeds 9.5%, the employee will not qualify for a subsidy and the employer will not be penalized.   This should significantly decrease the number of employees eligible for the subsidy.

The IRS also announced that later this year it expects to issue proposed rules creating an employer safe harbor to the employer responsibility provisions.  Because the Act determines affordability of coverage based on an employee’s household income, it is impossible for an employer to determine whether an employee qualifies for a subsidy and whether the employer will be penalized as the employer does not know an employee’s actual household income, only what the employer pays the employee in wages.  As a result, even if an employer intends to offer affordable coverage to all full-time employees, one or more full-time employees may receive a subsidy and the employer penalized.  To alleviate this problem, the IRS announced it intends to create a safe harbor which exempts an employer from paying a penalty with respect to any employee who receives a subsidy if the employee portion of the single coverage offered by the employer to the employee does not exceed 9.5% of the employee’s current W-2 wages from the employer.  Therefore, an employer will only need to look at the employee’s W-2 income in determining whether it will be penalized based on the coverage offered to that employee.  This should make any penalty an employer pays more predictable and employers should be able to structure coverage to avoid the penalty if they so choose.

In addition to being “affordable”, an employer’s coverage must also have a “minimum value” (60% of total allowed costs) in order for the employer to avoid a penalty.  The IRS announced that it intends to issue rules later this  year that clarify employer coverage may meet this minimum value requirement even if it does not provide coverage of all the essential health benefits listed in the Act and defined by HHS.  For example, pediatric dental is currently listed in the Act as an “essential health benefit.”   It appears that under the IRS’ anticipated rules, employer coverage could still meet the minimum value test even if it does not provide any coverage for pediatric dental benefits.

These comments are welcome news for employers with 50 or more employees as if adopted the rules will decrease the number of employees qualifying for the subsidy and allow the employer to determine in advance whether it will be penalized.  According to the IRS’ comments, the proposed rules implementing these policies should be released later this year.  Employers and interested parties should consider commenting on the rules at that time.

Feds Issue Summary of Benefits and Material Modification Rules

August 18, 2011

 Yesterday the DOL, HHS, and IRS released proposed rules implementing the Affordable Care Act’s requirement that group health plans and insurance issuers provide participants and beneficiaries with a written summary of benefits and coverage (“SBC”).   These rules also discuss a group health plan or issuer’s obligation to notify participants 60 days in advance of any material modifications to the health plan as outlined in the SBC.  Of particular note for employers is the clarification that the 60 day material modification notice will not apply to changes made in connection with an employer’s health insurance renewal, relieving fears that employers would need to change the timing of their insurance renewal processes and open enrollment periods.   Failure to provide an SBC or material modification notice when required results in a fine of $1,000.00 for each participant and beneficiary who failed to receive the SBC.  While these rules are in proposed format, we expect the rules to be finalized prior to their March 23, 2012 effective date.   For more information on the proposed rules, see our in-depth analysis at .  Copies of the proposed SBC templates are available at

HHS & IRS Release Premium Assistance Rules

August 16, 2011

On Friday, the IRS and HHS released proposed rules outlining how the  premium assistance provisions in the Affordable Care Act will be administered starting in 2014.  The proposed rules are particularly important for employers with 50 or more employees who are subject to penalties in 2014 for failing to provide affordable, minimum essential coverage to employees receiving premium assistance from the federal government as they provide insight in to how eligiblity determinations will be made.  A copy of the HHS and IRS rules can be accessed at    and  Davis Brown will be providing an in-depth analysis of the proposed rules in the coming days.

CO-OP Program Update

August 10, 2011

The Affordable Care Act established the Consumer Operated & Oriented Plan (“CO-OP”) Program.  The Program makes federal loans available to new consumer run, non-profit private health insurers in an effort to increase competition in the health insurance marketplace.  Last month HHS issued proposed rules and a funding announcement outlining the requirements of CO-OPS and the loan program.  Today HHS held a conference call to answer questions from parties interested in creating a CO-OP.  Those interested in forming a CO-OP should note the following from today’s call:

  • CO-OPs that receive federal funding cannot restrict members to a specific industry but must accept any willing applicant (for example, a trade association could not establish a CO-OP and restrict membership to association members);
  • Members of the CO-OP (who ultimately control the CO-OP) are the individuals covered by the insurance (not the employers offering the insurance);
  • CO-OPs must offer insurance in the individual market and cannot limit their business to the group market;
  • Start up costs incurred prior to the loan award are not reimbursable from loan funds; however, up to $100,000 in costs directly related to establishing the business plan and feasibility study required by the loan application are reimbursable if a loan is ultimately awarded;
  • Prior to submitting an application, the applicant must have initiated discussion regarding licensure with the applicant’s state Insurance Department but does not need to be licensed at the time the application is submitted; and
  • The first application deadline for CO-OP funding is October 17, 2011.  While applications will continue to be accepted through December 31, 2012, funding is limited and could be exhausted prior to that time.

 The proposed rule and funding announcement can be accessed at    Interested parties who have questions about the Program can submit them to   Responses will be provided in the form of Frequently Asked Questions on CMS’ website.

Affordable Care Act Changes Timing of Medicare Part D Notices

August 9, 2011

Susan J. Freed

Employers who sponsor group health plans covering prescription drugs must provide an annual credible coverage notice to participants who are eligible for Medicare Part D. This notice must be provided each year prior to Medicare Part D’s Annual Coordinated Election Period. Previously, this Election Period started November 15 and ran through December 31. The Affordable Care Act changed this Election Period so that beginning in 2011 it now starts on October 15 and runs through December 7.

Because of the change to the Election Period, an employer’s annual Medicare Part D notice should be sent to Medicare Part D eligible plan participants on or before October 14, 2011. Employers should also ensure that their Part D notices have been updated to reflect the new Election Period. A copy of CMS’ updated model notices can be obtained at

Iowa External Review Changes

August 3, 2011

Susan J. Freed

The Iowa Insurance Division recently adopted emergency rules implementing Iowa’s new external review process for health claim denials and other adverse decisions made by health insurers.  The rules outline the process for appealing a health insurer’s adverse decision to an independent third party, a right given to patients under the Affordable Care Act.

While the new rules are in effect now, the public has an opportunity to comment on the rules on or before August 23, 2011.  A public meeting will also be held on August 23, 2011 at 10:00 a.m.  A copy of the emergency rules, as well as information on the public comment period, is available at

New Preventative Care Services Added

August 1, 2011

Susan J. Freed

Today the U.S. Department of Health and Human Services (HHS) added to the list of preventative care services that non-grandfathered health plans must cover at 100% without cost sharing by the participant.  These include items and services such as:

  • well-woman visits;
  • screening for gestational diabetes;
  • human papillomavirus (HPV) DNA testing for women 30 years and older;
  • sexually-transmitted infection counseling;
  • human immunodeficiency virus (HIV) screening and counseling;
  • FDA-approved contraception methods and contraceptive counseling;
  • breastfeeding support, supplies, and counseling; and
  • domestic violence screening and counseling.

The new requirements go into effect for plan years starting on or after August 1, 2012. For example, a plan that commences on January 1 will need to comply January 1, 2013.  The guidelines are available at

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