Chaz

If the coverage is under an insured health plan, historically, there were no nondiscrimination tests that applied and it was perfectly okay. Under PPACA, however, insured plans will have to satisfy the same nondiscrimination rules (found in the Code, not ERISA) as self-insured medical plans and it is likely that this arrangement will no longer pass muster. An important caveat to this rule is that, if the plan is "grandfathered," the new nondiscrimination rules do not apply and the arrangement can continue indefinitely as long as the grandfathered status is maintained.

The self-insured medical plan nondiscrimination rules can be Treas. Reg 1.105-11, the DCAP rules can be found at Code Section 129 (there are no regs yet), and I don't recall off the top of my head where the life insurance tests rules are but they are probably somewhere in Code Section 79.

Those are the only cafeteria plan nondiscrimination tests but there are other tests for the underlying benefits, such as the self-insured (and soon, under PPACA, fully insured) medical plan nondiscrimination tests, and life insurance and DCAP nondiscrimination tests.

The interim final rule on grandfathered plans has a requirement that, in order to maintain status as a grandfathered plan, a plan or insurer must include a statement in "any plan materials provided to a participant or beneficiary describing the benefits provided under the plan or health insurance coverage" that the plan believes it is a grandfathered plan. The interim final rule provides a model notice to use. What exactly is encompassed by "any plan materials provided to a participant or beneficiary describing the benefits"? Obviously, this would include an SPD or a certificate of coverage. But what about other communications, such as an EOB, summary of benefits, open enrollment information, COBRA notices, etc.? Do these documents have to include the statement?

I still haven't resolved this question. Does anyone have any thoughts?

JPod's comment is well-taken. Whatever you do should be coordinated with your insurer (assuming the benefit is fully insured; you didn't say). Of course, the insurer is not likely to want to cover individuals not meeting the eligibility requirements to begin with so it probably won't be an issue. You should probably run this by your counsel, but I have suggested to clients that they stick to the same deadline for everyone. You can extend the deadline a few times but make it clear that after X date, absent sufficient proof, coverage will end. There is no way around the negative PR that the DEA will result in, but if you communicate the process clearly and apply the rules consistently, it is more likely that the only employees who will be affected will be the ones with ineligible dependents. I have seen DEAs where it turned out that 20-30% of dependents were ineligible.

The DEA packet should clearly explain (1) the dependent eligibility requirements, (2) what needs to be submitted for proof of dependent status, (3) the deadline for submitting the proof, (4) without such proof, coverage will end on X date, and (5) the consequences of the end of coverage (i.e., no claims will be paid after that date). If this information is clearly communicated (emphasis on clearly, especially with respect to the last one), you should be a better response. There isn't much else you can do (absent a personal visit to their doorstep) to ensure compliance. Is it possible that a number of the non-responders do not in fact have eligible dependents?

The interim final rule re grandfathered plans under PPACA states: if an employer or employee organization enters into a new policy, certificate, or contract of insurance after March 23, 2010 (because, for example, any previous policy, certificate, or contract of insurance is not being renewed), then that policy, certificate, or contract of insurance is not a grandfathered health plan with respect to the individuals in the group health plan. Most employer group plans that I am familiar with enter into insurance contracts for one (sometimes two) years. For a calendar year plan, the policy, certificate, and contract all will state that the plan starts on January 1, 20XX and ends the following December 31. Is a rollover of the contract to the next year considered a "renewal" and not a "new policy, certificate, or contract of insurance" such that the grandfathering status can remain (assuming nothing else in the policy changed)? Or will all policies lose the possibility of grandfathering upon their expiration date? I think the former result is the correct one, but the language isn't clear to me and I have had one health insurance expert tell me that the latter is the correct interpretation. Does the result change if the insurer modifies the language of the rollover communication to state that it is a renewal and not a new policy, etc.? Thoughts?

Whether a voluntary plan is subject to ERISA is a facts and circumstances determination but, in general, I advise clients NOT to permit employees to pay for AFLAC-type benefits on a pre-tax basis through a cafeteria plan. I believe that a number of court decisions have found that doing so takes the benefit outside of the DOL safe harbor making it much more likely that the employer will be deemed to have "endorsed" the plan.

The requirement starts the first plan year after September 23, 2010. For calendar year plans that means it is effective January 1, 2011. There is no difference if the plan is fully insured or self insured (although some insurers are offering the coverage earlier than required).

In my experience, most single employer self-insured plans "pay as you go," not just governmental plans. That's why I think this would be a big change (and why I am skeptical). I thought too that the statement was out-of-date but the memo purports to have written after the law was passed. Here is a link to the memo: http://www.memun.org/public/news/HealthCareReform.pdf

We still need guidance on what changes will stop a plan from being grandfathered and how long the grandfathering status will last even without changes (possibly forever?) but I recall (without checking the statute) that the plan has to be in effect on the date of enactment to be eligible to be grandfathered.

Loss ratio rules do not apply to self-insured plans.

A client forwarded me a memorandum from the National League of Cities summarizing the PPACA? It contains the following bullet item: "Local governments that self-insure must, after two years, demonstrate to the Secretary of Health and Human Services that their self-insurance plans are sufficiently funded or capitalized to cover all likely medical claims." A Google search shows various permutations of this always in connection with state and local governments (but perhaps the principle applies to all self-insured plans). I cannot find anything close to this in the new law, whether for local governments specifically or for self-insured plans in general. I imagine, if the PPACA contains this requirement, it would be a really big deal. Can anyone shed any light on this? What the heck am I missing?

In a nutshell, traditionally, executive-only medical benefits were not subject to the nondiscrimination rules if the benefits were made through a fully insured policy. Now, under the PPACA, effective January 1, 2011, fully insured plans will be subject to the nondiscrimination rules (i.e., you can't discriminate in favor of key or highly compensated employees). The rules will not apply, however, to "grandfathered plans." There are two issues to consider if you want the Presidents to pay for a portion of the premiums on a pre-tax basis (these wouldn't be an issue if the company pays 100% of the premium or the Presidents pay for it after-tax.): 1-A cafeteria plan cannot be made primarily for the benefit of non-employees. 2-You would have to pass the cafeteria plan nondiscrimination tests.

I agree with your reading of the new law, which seems to say that, effective now, there need not imputed income for coverage of employees adult children. There are a lot of items in the new law that we need guidance on; this is one of them.

I've seen it both ways. I can't say "PPACA" without tying my tongue up in knots.

Under Section 9003 of ACA (I guess that's what we're calling the health care act), FSAs will generally no longer be permitted to reimburse for any over-the-counter "medicine or drug." Two questions: 1-Currently, I am able to be reimbursed under my FSA for contact lens solution. Will I be able to continue doing so because lens solution is not a "medicine or drug"? 2-Section 9003 applies to "amounts paid with respect to taxable years beginning after December 31, 2010." How is that applied to FSAs with grace periods? For example, can I be reimbursed for Tylenol that I purchase in 2011 during the grace period if I use amounts left over in my account from 2010? Any thoughts are appreciated.

Sorry to keep revisiting this. J Simmons (can I call you "J"?) -- What are your thoughts on DOL Adv. Op. 96-12A? http://www.dol.gov/ebsa/programs/ori/advisory96/96-12a.htm In this opinion, the DOL stated "[T]he function of the Pre-Tax Plan is to provide a method by which employees may receive tax-favored treatment of contributions that are in any case required under the Group Health Plan. The provision of this tax-favored treatment, however, is not the equivalent of the provision of a benefit enumerated under section 3(1), and it does not appear that the Pre-Tax Plan itself provides any enumerated benefit. It is therefore the position of the Department that the Pre-Tax Plan, as currently structured, does not constitute, in itself, a separate employee welfare benefit plan within the meaning of section 3(1)." To me, that agrees with my point that a POP is not an ERISA plan (although the underlying plan is).

But the POP was not established for the purpose of providing medical, surgical, or hospital care or benefits. The medical plan was, but not the POP.

I still see a distinction between the underlying health benefit, which of course is subject to ERISA and the payment mechanism. It's not worth discussing any longer and you may be right but I have never heard anyone use that argument before. Two quick follow-ups: (1) ERISA 2510.3-1(a)(2) states the term "welfare benefit plan" only includes "plans which provide benefits described in Section 3(1(A)" of ERISA. What are the benefits that the POP provides that are described in section 3(1)(A) and that are different than the benefits provided under the underlying plans? (2) Are you saying an employer will have to file a Form 5500 for BOTH the underlying plans and the POP?

I guess I didn't make clear that my post was actually addressing two separate points. 1-My first point was that although ERISA requires applicable plans to have a summary plan description, the POP mechanism isn't an ERISA plan. So, while you need to describe eligibility, claims procedure, etc. for the underlying plans, technically or theoretically, you DON'T need an SPD to describe that participants can pay their premiums on a pre-tax basis through the cafeteria plan. 2-I agree with you with respect to my second, unrelated, comment. If an employer permits participants to pay for AFLAC benefits on a pre-tax basis through a cafeteria plan, the AFLAC benefits are likely to be considered part of an ERISA plan because there is too much employer involvement. (I seem to recall that there was conflicting case law on this issue but I haven't checked recently to see if a consensus was established.) If there is too much involvement, COBRA, HIPAA, SPD and 5500 requirements (I know, no Form 5500 required for this employer), etc. attach to these voluntary benefits because the plans now become ERISA plans.

I am afraid that I will have to be the one who disagrees with J Simmons on this, but only slightly and only on a technical point: While Code Section 125 requires a cafeteria plan to have a plan document, there is NO requirement to have or to distribute an SPD for a POP. A POP merely a mechanism that permits participants to pay for qualified benefits on a pre-tax salary reduction basis. It is not, in and of itself, subject to ERISA, which is the law that requires distribution of SPDs. The underlying health benefits offered under a POP, including a health FSA, ARE subject to ERISA and DO require an SPD, which is why, in all practical sense, most cafeteria plans have an SPD. So, your medical, dental, vision, etc. plans should be part of one or more documents that comprise an SPD, in addition to the health FSA. Hence your wrap plan/SPD. I would be hesitant to include the AFLAC policies in your cafeteria plan. While it is not entirely settled, it is possible that offering such plans in your cafeteria plan will take these policies outside the DOL safe harbor from ERISA.

I have a similar circumstance: Part-timers' hours are being reduced from 30 to 20. There is no loss of eligibility but some of the part-timers will not have enough pay to pay for the amount of their benefits election. Is a solution to withhold the benefits amount from each affected employee's pay check, bill the employee for the difference, and cut off the benefits if and when the employee does not pay the full amount? Any other thoughts?

Ha! What new health care legislation?