Earlier this year, Congress enacted health care reform, a change of historical proportions that will affect companies and the health care benefits they provide to their employees going forward. Significant changes will take place during the next decade. Companies need to start planning for the myriad and complex provisions of health care reform and the financial decisions that come with them. Failure to do so will bring about costly consequences, as an employer that does not comply with health care reform is fined $100 per day, per employee.
While some executives may feel they have a grasp on what health care reform means for their company, there are several details that may surprise them:
* Are you aware that if your plan expresses your employees' cost-sharing as a percentage (such as a co-payment), your plan will lose its grandfathered status if you make any increase in the employees' percentage that was in effect on March 23, 2010, no matter how small?
* Are you aware that if a participant in your plan has already reached a lifetime maximum, your plan must provide the participant the right to re-enroll in coverage and the re-enrollment right must be provided no later than the first plan year beginning on or after Sept. 23, 2010?
* Are you aware that if you mistakenly enroll a participant in your plan, you may not rescind the coverage retroactively, unless there was fraud or an intentional misrepresentation of a material fact?
* Have you developed an understanding of whether some of your employees may qualify for the health care tax credit (which will cause penalties to be imposed on you) and the actions you can take to avoid the penalties?
Health care reform will test a company's ability to adapt to change. Grant Thornton has created a three-step approach that is designed to get executives asking the right questions and planning ahead for their particular situations:
STEP ONE: Companies should obtain a list of the new requirements for health care benefit plans, along with the date that the requirements go into effect. The U.S. Department of Health and Human Services has created a website (www.healthcare.gov) that provides information regarding the new requirements.
STEP TWO: Companies should develop an understanding of the requirements and address key questions:
* What does the company need to do to implement and comply with the new requirements?
* Who is ultimately responsible for ensuring the company's compliance?
* Are all involved parties (such as the company's health insurance company and human resources personnel) working together in a manner that ensures no aspect of any requirement, no matter how small, is overlooked?
* Are there key decisions that need to be made in connection with implementing certain requirements?
Developing an understanding of the requirements and addressing key questions is where the challenge of health care reform really unfolds. Consider, for example, the seemingly straightforward requirement for plans to cover children up to age 26. In implementing this new requirement, companies should consider the following:
* Decide whether to exclude from the plan a child who is eligible to enroll in another employer-sponsored plan (allowed only until 2014).
* Decide on the specific date the plan will stop covering children (e.g., the day the child turns age 26, the last day of the plan year in which the child turns age 26 or some other day beyond age 26).
* Decide whether to increase the employees' share of the cost of covering children in order to minimize the impact of this change on costs. But be careful: This could create a plan modification that causes additional health care reform rules to apply (rules that otherwise don't apply to plans that were in existence when health care reform was enacted).
* Adopt a written amendment to the cafeteria plan before the first day of required coverage. (Health care plans are almost always part of a cafeteria plan. The amendment to the cafeteria plan must be made to preserve the tax-free status of the plan for employees.).
* Given the potential increase in costs related to dependent coverage, consider conducting periodic dependent eligibility audits to ensure the plan is covering the appropriate individuals.
A similar list of considerations can be compiled for all the new rules, resulting in an almost overwhelming list of considerations. Companies have a great deal of work ahead.
STEP THREE: Implement the requirements on a timely basis and monitor ongoing compliance. The list of considerations above for covering dependents up to age 26 provides an excellent example of this. According to Eddie Adkins, a Compensation and Benefits partner in Grant Thornton's Washington National Tax Office, "The list identifies four specific actions that companies should take. Multiply that by 24, which is the number of new rules for plans, and you start to get an idea of the implementation burden. If companies don't put together a similar implementation list for each and every requirement, there's just no way that they are going to be able to comply with all these new rules. And that's just the beginning. As with any legal requirement, a system must also be put in place to monitor ongoing compliance. In other words, it isn't good enough to follow a new rule today. You have to keep doing it, day after day and year after year."
Health care reform will be a challenge, but in today's world, companies are no stranger to change and its accompanying challenges. To prepare for the provisions that go into effect next year, the time to get started is now.
Brian Wallace is managing partner at Grant Thornton's Reno office. Contact him at 775.332.1768.
*Numerous additional rules that are not listed here apply to new plans that go into effect after March 2010, as well as to existing plans that are modified in certain respects after March 2010.
