Employee Benefits Update May 2014

DEPARTMENTS ISSUE UPDATED MODEL COBRA NOTICES AND ADDITIONAL GUIDANCE ON ACA IMPLEMENTATION

On May 2, 2014, the Department of Labor, Health and Human Services and the Treasury (Departments) issued additional Frequently Asked Questions (FAQs) regarding Affordable Care Act (ACA) implementation. The informal guidance addresses issues related to Consolidated Omnibus Budget Reconciliation Act (COBRA) model notices, limitations on cost-sharing, coverage of preventive services, health flexible spending account (FSA) carryover and excepted benefits and summaries of benefits coverage.

Updated COBRA Model Notices

Updated versions of the model COBRA general notice, election notice and Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA) notice are now available. These updated model notices better explain an individual's health coverage options in the ACA Marketplace. Use of the models (once appropriately completed) is generally considered to constitute compliance with the content requirements of these three notices. The model general notice and election are available at www.dol.gov/ebsa/cobra.html , and the CHIPRA notice is available at http://www.dol.gov/ebsa/compliance_assistance.html . To properly use the model notices, the plan administrator must complete it by filling in the blanks with the appropriate plan information.

In general, a group health plan administrator is required to provide individuals with three different notices explaining certain rights related to available health insurance coverage. The COBRA general notice is provided to covered employees and spouses at the time of commencement of coverage under the plan. The COBRA election notice is provided to qualified beneficiaries (individuals covered by a group health plan on the day before a qualifying event) after a COBRA qualifying event (e.g., termination of employment) has occurred. Certain employers are required to provide a CHIPRA notice to all employees regarding the availability of premium assistance for the purchase of certain insurance coverage.

Limitations on Cost-Sharing

The ACA prohibits a non-grandfathered group health plan from imposing any annual costsharing in excess of certain statutory limitations. For 2015, the maximum out-of-pocket limit that a plan may impose on in-network essential health benefits is $6,600 for self-only coverage and $13,200 for family coverage.

The FAQs also provide specific guidance on the treatment of balance billed charges, mandatory generic drug provisions and reference-based pricing.

If a plan chooses to count out-of-pocket spending for out-of-network items and services towards the annual out-of-pocket maximum, the plan may use any reasonable method for counting such costs. The FAQs give the example of a plan that covers 75% of the usual, customary and reasonable amount (UCR) charged for out-of-network services and the participant pays the remaining 25% of UCR plus any amounts charged in excess of UCR. This plan may reasonably count the 25% of UCR paid by the participant toward the out-of-pocket maximum without including any amount charged over UCR paid by the participant. Self-insured plans and plans with large group market coverage have discretion to define "essential health benefits." Accordingly, if a plan covers only generic drugs, if medically appropriate and available, while providing an option to elect a brand name drug at a higher cost sharing amount, the plan may treat only the generic drug as an essential health benefit counted toward the out-of-pocket maximum. For example, if a participant elects the brand name drug, the plan may provide that all or some of the amount paid by the participant does not count towards satisfaction of the annual out-of-pocket maximum. The FAQs remind plans subject to the Employee Retirement Income Security Act (ERISA) that the Summary Plan Description (SPD) should explain which covered benefits will not count towards an individual's out-of-pocket maximum...