Legislative Webinar - August 6, 2010

Coverage of Adult Children,
Grandfathering, and the MLR
Presented by Sharon Alt

TODAY’S AGENDA

• Coverage of Adult Children to Age 26
• Grandfathering Rules
• Minimum Medical Loss Ratio (MLR)

Source: www.HealthCare.gov

Coverage of Adult Children
a.k.a. “The Slacker Mandate”

Quote: Greg Scandlen, President, Consumers for Health Care Choices

Coverage Under your Parent’s Health
Insurance Until Age 26

• Until now, most young adults “aged off” their parent’s
health insurance when they turned 19 or graduated from
college. This is about to change.
• Under the Affordable Care Act, starting as early as
September 2010, if you’re currently covered under your
parent’s policy, you may be able to remain covered up to
age 26. You don’t need to live with your parents to be
eligible for this coverage. You can also remain covered if
you’re married.


Coverage Under your Parent’s Health
Insurance Until Age 26

• Even if you already “aged off” of your parent’s policy, you
will have a chance to rejoin. Starting as early as
September 2010, job-based health plans and insurance
policies must give young adults who qualify an
opportunity to enroll that continues for at least 30 days
(many insurers started this protection early).
• Job-based health plans and insurance policies must
provide written notice about this special enrollment
opportunity.


Protecting Young Adults and Eliminating
Burdens on Families and Businesses

• Young adults have the highest rate of uninsured of any
age group.
• Young adults have the lowest rate of access to employer-
based insurance.
• Young adults’ health and finances are at risk.


Providing Relief for Young Adults

• Plans and issuers that offer dependent coverage must offer
coverage to enrollees’ adult children until age 26, even if the
young adult no longer lives with his or her parents, is not a
dependent on a parent’s tax return, or is no longer a student.
• There is a transition for certain existing group plans that
generally do not have to provide dependent coverage until
2014 if the adult child has another offer of employer-based
coverage aside from coverage through the parent.
• The new policy providing access for young adults applies to
both married and unmarried children, although their own
spouses and children do not qualify.
• Effective for plan or policy years beginning on or after
September 23, 2010.

Providing Relief for Young Adults

All Eligible Young Adults will have a Special
Enrollment Opportunity.
For plan or policy years beginning on or after
September 23, 2010, plans and issuers must give
children who qualify an opportunity to enroll that
continues for at least 30 days regardless of
whether the plan or coverage offers an open
enrollment period. This enrollment opportunity and
a written notice must be provided no later than the
first day of the first plan or policy year beginning
on or after September 23, 2010.


Same Benefits/Same Price

• Any qualified young adult must be offered all of
the benefit packages available to similarly situated
individuals who did not lose coverage because of
cessation of dependent status. The qualified
individual cannot be required to pay more for
coverage than those similarly situated individuals.
• The new policy applies only to health insurance
plans that offer dependent coverage in the first
place: while most insurers and employer-
sponsored plans offer dependent coverage, there
is no requirement to do so.


Access to Insurance:
What Young Adults and Parents Need to Do

Check for Immediate Options
Private health insurance companies that cover the majority
of Americans have volunteered to provide coverage earlier
than the implementation deadline for young adults losing
coverage as a result of graduating from college or aging out
of dependent coverage on a family policy. This stop-gap
coverage, in many cases, is available now. Ask your
employer and insurer about this option.


Access to Insurance:
What Young Adults and Parents Need to Do
Watch for Open Enrollment
If early coverage is not an option with your employer or
insurance company, then young adults will qualify for an
open enrollment period to join their parents’ family plan or
policy beginning on or after September 23, 2010. Insurers
and employers are required to provide notice for this special
open enrollment period.


New Tax Benefits for Adult Child Coverage

The new regulation complements guidance issued by the
Treasury Department on April 27, 2010, on the tax benefits
provided for such coverage through the Affordable Care Act.

• Under a new tax provision in the Affordable Care Act and
the Treasury guidance, the value of any employer-provided
health coverage for an employee's child is excluded from
the employee’s income through the end of the taxable year
in which the child turns 26.
• This tax benefit applies regardless of whether the plan is
required by law to extend health care coverage to the adult
child or the plan voluntarily extends the coverage.


Key Elements

• Tax benefit continues beyond extended coverage
requirement
• Available immediately
• Broad eligibility
• Both employer and employee shares of health
premium are excluded from income


Companies Responding to Secretary
Sebelius’ Call for Early Implementation

• The law says that the extension of dependent coverage
for children is effective for plan years beginning on or
after six months after the enactment of the law – that
means plan years beginning on or after
September 23, 2010.
• However, the Administration has urged insurance
companies and employers to prevent a gap in coverage
for young adults aging off of their parents’ policy prior to
this effective date.


Companies Responding to Secretary
Sebelius’ Call for Early Implementation

Early implementation by health plan insurers will avoid
gaps in coverage for new college graduates and other
young adults and save on insurance company
administrative costs of un-enrolling and re-enrolling them
between May 2010 and the start of the plan or policy year
beginning on or after September 23, 2010.


Model Notice on DOL Website

Plans must provide a notice of the enrollment opportunity to
individuals whose coverage ended, or who were denied
coverage (or were not eligible for coverage) under a group
health plan or health insurance coverage because, under
the terms of the plan or coverage, the availability of
dependent coverage of children ended before the
attainment of age 26.
The notice must be provided no later than the first day of the
first plan year (in the individual market, policy year)
beginning on or after September 23, 2010.
http://www.dol.gov/ebsa/dependentsmodelnotice.doc


Grandfathering Rules
Is Grandfather Dead?

Quote: Craig Keohan, Chairman Emeritus of ABA’s HSA Council

News Release: June 14, 2010

U.S. Departments of Health and Human
Services, Labor and Treasury Issue
Regulation on “Grandfathered” Health
Plans under the Affordable Care Act
Allowing Americans to Keep Current Health Plans or
Choose a New Plan While Extending Important New
Benefits to All Consumers
The U.S. Departments of Health and Human
Services, Labor and Treasury today issued a
new regulation that makes good on President
Obama’s promise that Americans who like their
health plan can keep it.

Source: www.DHHS.gov

Kathleen Sebelius (HHS)

The Affordable Care Act gives American families more
control over their health care by providing greater benefits,
cost savings and protections.
Today, with the announcement of the new ‘grandfather’
rule, we’re providing the market stability and flexibility to
ensure that families and businesses can make the choices
that work best for them.


Grandfathered Plans

While the Affordable Care Act requires all health plans to
provide important new benefits to consumers, under the
law, plans that existed on March 23, 2010 are exempt from
some new requirements.


Consumer Protections: All Plans

All health plans – whether or not they are grandfathered
plans – must provide certain benefits to their customers for
plan years starting on or after September 23, 2010
including:

• No lifetime limits on coverage for all plans;
• No rescissions of coverage when people get sick and
have previously made an unintentional mistake on their
application; and
• Extension of parents’ coverage to young adults under
26 years old.


Consumer Protections: Employer Plans

For the vast majority of Americans who get their health
insurance through employers, additional benefits will be
offered, irrespective of whether their plan is grandfathered,
including:

• No coverage exclusions for children with pre-existing
conditions; and
• No “restricted” annual limits (e.g., annual dollar-amount
limits on coverage below standards to be set in future
regulations).


Michael Mundaca (Treasury)

The Affordable Care Act positions consumers, instead of
insurance companies, as decision makers when it comes
to their health care.
The rule we’re announcing today preserves individuals’
ability to keep their current plan and provides strong
consumer protections that give Americans more control
over their health insurance choices.


“Routine Changes” are Okay

Grandfathered health plans will be able to make routine
changes to their policies and maintain their status. These
routine changes include:

• Cost adjustments to keep pace with medical inflation,
• Adding new benefits,
• Making modest adjustments to existing benefits,
• Voluntarily adopting new consumer protections under
the new law, or
• Making changes to comply with state or other federal
laws.


“Routine Changes” are Okay

Premium changes are not taken into account
when determining whether or not a plan is
grandfathered.
Plans WILL lose their grandfathered status if they
choose to make significant change that reduce
benefits or increase cost to the consumers.


“Significant Changes” are Not

If a plan loses its grandfathered status, then consumers in
these plans will gain additional new benefits including:

• Coverage of recommended prevention services with no
cost sharing; and
• Patient protections such as access to OB-GYNs and
pediatricians without a referral by a separate primary
care provider.


Compared to their Policies in Effect on
March 23, 2010, Grandfathered Plans:

Cannot:
• Significantly cut or reduce benefits
• Raise co-insurance charges
• Raise co-payment charges
• Significantly raise deductibles


Compared to their Policies in Effect on
March 23, 2010, Grandfathered Plans:

Cannot:
• Significantly lower employer contributions
• Add or tighten an annual limit on what the insurer pays
• Change insurance company


Protecting Against Abuse of
Grandfathered Health Plan Status
To prevent health plans from using the grandfather rule to
avoid providing important consumer protections, the
regulation provides for:

• Promoting transparency;
• Revoking a plan’s grandfathered status if it forces
consumers to switch to another grandfathered plan that,
compared to the current plan, has less benefits or higher
cost sharing as a means of avoiding new consumer
protections; or
• Revoking a plan’s grandfathered status if it is bought by
or merges with another plan simply to avoid complying
with the law.


Projected Impact: Large Employer Plans

The 133 million Americans with employer-sponsored health
insurance through large employers (100 or more workers)
—who make up the vast majority of those with private health
insurance today—will not see major changes to their
coverage as a result of this regulation.
Note: By 2011, between 71% and 87% of large employers
will remain grandfathered. By 2013, between 36% and 66%
are expected to maintain their grandfathered status.


Projected Impact: Small Employer Plans

The roughly 43 million people insured through small
businesses will likely transition from their current plan to one
with the new protections over the next few years.
Note: By 2011, between 58% and 80% of small employers
will remain grandfathered. By 2013, between 20% and 51%
are expected to maintain their grandfathered status.


Projected Impact: Individual Health Market

The 17 million people who are covered in the individual
health insurance market, where switching of plans and
substantial changes in coverage are common, will receive
the new protections of the Affordable Care Act sooner
rather than later.


Projected Impact: Special Types of Plans

Fully-insured health plans subject to collective bargaining
agreements will be able to maintain their grandfathered
status until their agreement terminates.


MLR
Minimum Medical Loss Ratios
MLR.. Does that mean Money Lost Rapidly?

Public Reporting of the Ratio of Incurred Claims
to Earned Premiums (Medical Loss Ratio)

PPACA sections 1001 and 10101 added Section 2718 of the
PHS Act, which, among other provisions, requires health
insurance issuers offering individual or group coverage to
submit annual reports to the Secretary on the percentages
of premiums that the coverage spends on reimbursement
for clinical services and activities that improve health care
quality, and to provide rebates to enrollees if this spending
does not meet minimum standards for a given plan year.

Source: www.HealthReform.gov

Public Reporting of the Ratio of Incurred Claims
to Earned Premiums (Medical Loss Ratio)
Section 2718(a) requires that each report include the
percentage of total premium revenue -- after accounting for
collections or receipts for risk adjustment and risk corridors
and payments of reinsurance -- that the coverage spends:

• On reimbursement for clinical services provided to
enrollees;
• For activities that improve health care quality; and
• On all other non-claims costs, including an explanation of
the nature of these costs, and excluding federal and state
taxes and licensing or regulatory fees.


Uniform Definitions

Section 2718(c) of the PHS Act directs the National
Association of Insurance Commissioners (NAIC) to
establish uniform definitions of the activities being reported
to the Secretary under Section 2718(a), and standardized
methodologies for calculating measures of these activities
no later than December 31, 2010.


Uniform Definitions – Section 2718(C)

Section 2718(c)
• Specifies that NAIC’s responsibilities relating to this
provision are to define which activities constitute the
activities that improve quality (under Section
2718(a)(2)).
• Directs that the uniform methodologies that NAIC
develops are to be designed to take into account the
special circumstances of smaller plans, different types of
plans, and newer plans.
• Specifies that the uniform definitions and standardized
methodologies that NAIC develops are to be subject to
the certification of the Secretary.


Minimum Medical Loss Ratios

The “applicable minimum standards” are as follows:
• 85% for coverage offered in the large group market
(or a higher percentage that a given state may have
determined by regulation); and
• 80% for coverage offered in the small group market
or in the individual market (or a higher percentage that
a given state may have determined by regulation), except
that the Secretary may adjust this percentage for a state
if the Secretary determines that the application of the
80% minimum standard may destabilize the individual
market in that state).


Annual Rebate for Failure to Meet MLR

Section 2718(b)(1)(A) requires that the annual
rebate be paid to each enrollee on a “pro rata
basis”. Section 2718(b)(1)(B)(i) specifies that
the total amount of the annual rebate required
under this provision shall be equal to the product of:

• The amount by which the applicable minimum
standard exceeds the actual ratio of the issuer’s
expenditures to its premium revenue as described
above; and
• The total amount of the premium revenue
described above.


Enforcement

PPACA requires the Secretary to publish regulations for
enforcing the provisions of this section, and specifies that the
Secretary may provide for appropriate penalties.


Effective Dates

Section 1004(a) of the PPACA
provides that the provisions of
Section 2718 of the PHS Act shall
become effective for plan years
beginning on or after the date that is
six months after the date of
enactment of PPACA. (The date of
enactment of PPACA is
March 23, 2010).


Thank You

Additional Questions can be
submitted through
HealthcareExchange.com

Legislative Webinar - August 6, 2010

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