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Effect of CHIP Expansionon Employer Health Plans
May 12, 2009May 12, 2009
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Presenters
Kenneth A. Mason, JDPartner
Lawrence Jenab, JD MAAssociate
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History of CHIP
Created by HIPAA in 1996, as State Children’s Health Insurance Program (or “SCHIP”)
Designed to provide health coverage for children in families above Medicaid level, but too poor to purchase private health coverage (up to 200% of poverty level)
Funded by state and federal governments Within federal guidelines, states determine
eligibility, benefits, payment levels, etc.
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Overview of CHIPRA Changes
Children’s Health Insurance Program Reauthorization Act (“CHIPRA”): Signed into law on February 4, 2009 Dropped “State” from name of program Allows states to cover children in families
with incomes up to 300% of poverty level Expected to add 4 million children to the
7 million currently covered under CHIP
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Effects on Employer Plans
States may now provide premium assistance under employer plans
Two new “special enrollment” events New employer notice obligations Employer must respond to state CHIP
agency requests for information Many provisions effective as of 4-1-09
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Scope of CHIPRA Changes
Apply to “employer group health plans” But do not apply to:
Employee-pay all plans Employer must pay at least 40% of “any premium” Presumably, this refers to any premium for coverage
that includes the child (see later examples)
Flexible spending accounts Limited scope dental and vision benefits High deductible health plans
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Premium Assistance
States may now subsidize the cost of coverage for dependent children under employer group health plans
State must determine that this would be cost-effective
Generally, subsidy may cover only incremental cost of covering children
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Example One
Gross Premiums – Insurance company charges the following premiums: Employee-only coverage= $500 Family coverage = $1,000
Employer Subsidy – Employer pays full employee premium, plus 25% of any additional premium for family coverage
So, the incremental cost of covering a child = $375 (75% of $500), which is thus the maximum CHIP subsidy
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Question
Is it sufficient that this employer pays at least 40% (actually, 62.5%) of the total premium, even though it pays only 25% of the dependent premium?
Or would this plan not qualify for premium assistance?
See Example Two
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Example Two
Insurance policy premiums are the same as in Example One
But this employer pays 35% of premium for whatever level of coverage employee elects
So the incremental cost of covering a child is only $325 (65% of $500), which is less than in Example One
But because this employer pays less than 40% of any premium, the plan apparently doesn’t qualify for the CHIP premium subsidy
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More on the Subsidy
An employee and spouse may also qualify for premium assistance Depends on state CHIP guidelines Must be cost-effective for state
State may choose to subsidize less than full premium (under cost-sharing provision)
Child (or parent) may decline to enroll in employer plan, thereby retaining only CHIP coverage
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Still More on the Subsidy
Subsidy may be paid to employee or directly to sponsoring employer
Employer may opt out of receiving direct payments
Doing so may impose hardship on employees, who would have to wait for CHIP reimbursements
Theoretically effective as of 4-1-09
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Special Enrollment Events
Group health plan must allow eligible child (and sometimes parent) to enroll in plan upon becoming eligible for CHIP premium assistance (or similar premium assistance under Medicaid)
Group health plan must allow eligible child (and sometimes parent) to enroll upon loss of coverage under either CHIP or Medicaid
Both provisions effective as of 4-1-09
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Special Enrollment Issues
Health plan must allow at least 60 days to request special enrollment
Note: Existing HIPAA special enrollment events apply 30-day deadline
Health plan documents must be amended to reflect new enrollment events, as well as 60-day deadline
Special enrollment notices should be revised, as well
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Coordination of Benefits
CHIP may still pay claims that are not covered under employer plan
In that event, employer plan must pay primary to CHIP (similar to current COB rule for Medicaid)
Effective as of 4-1-09
May require plan amendment
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Cafeteria Plan Issues
May want to allow mid-year election changes for new special enrollment events (though not required)
Depending on terms of cafeteria plan document, amendment may (or may not) be required
Any amendment should be adopted before election changes are allowed
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More Cafeteria Plan Issues
State’s reimbursement of premiums to employees may undermine pre-tax nature of cafeteria plan election
CHIPRA requires that child be allowed to drop employer coverage as of any month; not clear how this will work in cafeteria plan context (i.e., not a permissible election-change event).
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Notice to Employees
Employer must notify employees of availability of CHIP premium assistance (depending upon state)
Notice may be included in SPD Enrollment materials Separate notice of eligibility
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Model Notices
DOL and HHS are to issue model notices (including state-specific notices) by February 2010
Employers must provide these notices as of first day of plan year after they are issued
Penalty for noncompliance = $100 per participant per violation
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Disclosure to States
Employer must respond to request for information from state CHIP agency
DOL and HHS are to issue model response form
Employers must use that form as of next plan year
Penalty for noncompliance = $100 per participant per violation
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Next Steps
Amend group health plan documents to add CHIP special enrollment events
Review and possibly amend cafeteria plan documents
Review and revise existing special enrollment right notices
Confirm that the insurers or third-party administrators will be able to comply with these new special enrollment requirements as of the April 1st deadline.
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Presenters
Kenneth A. Mason, JDPartner
Lawrence Jenab, JD MAAssociate
