Multi-Employer Plans: Musings on the Patient Protection and Affordable Care Act (PPACA)1
By: Rhona Lyons, Schuchat Cook & Werner, (314) 621-2626, firstname.lastname@example.org
The following are some musings related to issues being discussed in the limited world of self-insured multi-employer Taft-Hartley construction industry plans in the mid-west. This is not an exhaustive list of concerns and does not necessarily reflect concerns for single employer plans, insured plans, or even multi-employer plans in other areas of the country.
1. The external appeal procedure. The Trustees of multi-employer plans are well versed in the Firestone2abuse of discretion standard of review. The Trustees take their role of ultimate decision maker seriously and are wary of having their decisions reviewed by an outside third party that is unfamiliar with the plan of benefits and that can consider documents outside the record on appeal. In addition, there is concern about the potential costs to the Fund from paying claims that are approved by the Independent Review Organization (IRO) during the external review procedure and from an increase in the number of appeals. At this point, no one knows if there will be an increase in appeals or to what extent the IROs will overturn the decisions of the Funds. Finally, there are concerns about the administrative costs of upgrading systems to comply with providing the information that will be required on EOBs and claim denials. As with the concerns about handling urgent claims when HIPAA3 was first effective, the external appeal procedure may turn out to be much ado about nothing. However, until the impact is known there are concerns.
2. Retiree Coverage: Retiree-Only Plans. While there may be differences in the benefits (different co-pays or co-insurance amounts), many plans provide retiree coverage in a situation where there is one plan number, one SPD, one Form 5500 annual report and set of financial statements, and combined assets. This raises the question of whether the benefits provided to the retirees can be considered as being provided by a retiree-only plan and are therefore exempt from the PPACA requirements4 or by a separate plan of benefits. A retiree-only plan is a plan that covers fewer than two participants who are current employees.
If the retirees were in a retiree-only plan they would not be covered by the PPACA and the plan would not have to make changes to comply with the PPACA on terms such as coverage of adult children5 and the elimination of lifetime and annual limits on essential benefits.6 While coverage of adult children might not be much of an issue for retiree groups, the cost of providing coverage to retirees is generally higher than the costs for the active group and many plans had annual and lifetime limits. The elimination of limits on essential benefits for this group could be a large financial cost.
The issues include whether the retiree plan of benefits as it currently exists qualifies as a retiree-only plan, and if not, whether a retiree-only Plan (with lesser benefits or greater cost sharing) could be set up. There are many unanswered questions about how separate the retiree coverage has to be for it to be a separate plan: Does there need to be different plan number? A different 5500? Different financial statements? Segregated assets? Separate SPD? Different board of Trustees? If the assets have to be separate, would transferring assets from the existing plan covering the active employee group be allowed?
A decision to set up a new retiree-only plan needs to include consideration of the anti-abuse provisions of the PPACA. The interim final regulations:
contain a second anti-abuse rule designed to prevent a plan or issuer from circumventing the limits on changes that cause a plan or health insurance coverage to cease to be a grandfathered health plan under paragraph (g) (described more fully in section II.F of this preamble). This rule in paragraph (b)(2)(ii) addresses a situation under which employees who previously were covered by a grandfathered health plan are transferred to another grandfathered health plan. This rule is intended to prevent efforts to retain grandfather status by indirectly making changes that would result in loss of that status if those changes were made directly.7
Assuming the Trustees determine that the Plan cannot, or does not want to, set up a retiree-only plan then the next question is whether the retiree coverage can be considered a separate benefit (separate plan of benefits) such that grandfathered status could be relinquished for this group but not for the active participants in the plan. Are the different eligibility rules and different sources of funding (retiree premiums rather than employer contributions) sufficient to make the retiree coverage a separate plan?
3. Retiree Coverage: The Costs of Coverage. For plans that subsidize the cost of retiree coverage, and many multi-employer plans subsidize up to 50% or more of the cost, the increasing costs of medical coverage raise questions about whether and how to limit or reduce the subsidy. If the retiree coverage is not already a retiree-only plan (and a retiree- only plan cannot be established) and the retiree coverage is not a separate plan of benefits, then the question becomes: how much can the plan increase the premium paid by the retirees without a loss of grandfathered status?
A plan will lose grandfathered status if there is any increase in a percentage cost-sharing requirement (such as coinsurance); if there is an increase in fixed-dollar co-payments of more than the greater of 15% or $5 plus medical inflation since March 23, 2010; or if there is an increase in the deductible or out-of-pocket maximum by more than 15% plus medical inflation since March 23, 2010. Grandfathered status will also be lost if an employer or employee organization decreases its contribution rate for coverage under a group health plan or group health insurance for any tier of coverage (e.g. individual, family) by more than 5 percentage points below the contribution rate on March 23, 2010 .8 In connection with determining how much the premium increased there are a number of issues:
- Is the plan’s subsidy of the retiree costs an employer or employer organization contribution? The regulation does not refer to the plan sponsor’s contribution. If the plan sponsor’s subsidy is not implicated by this provision then contribution rates can be increased without limitation.
- Even if the subsidy generally must be considered an “employer” contribution, can any part of the subsidy be classified as retiree contributions (for example a reallocation of other benefits dedicated for retiree coverage based on a vote of the membership)? And, if it can, are there issues of imputed income as to those amounts?
- Assuming the whole subsidy must be considered an “employer” contribution, how is the percent of the cost of coverage paid by the retirees on March 23, 2010 determined? Is it the percentage of the March claims (incurred or paid) that were covered by the premiums received that month? Is it the percentage of claims for the twelve months ending in March 2010? Is it the percentage of claims for the six months before and/or the six months after March 23, 2010?
4. Coverage of adult children. Any feelings about providing coverage to adults able to work aside, the expense of covering adult children may be more of an issue for the multi-employer plan in the construction industry than it is for single employer plan because these plans often provide family coverage to every eligible participant. Where participants don't have to pay for additional dependents any financial disincentive to adding another dependent that is build into plans with single, single plus one, and single plus two rates does not exist.
Like all grandfathered plans, the Trustees of multi-employer plans need to figure out how to verify eligibility (lack of availability of employer-provided coverage) and how to track changes in the adult child’s employment status which could cause a change in eligibility. The issue is more dramatic in richer plans and those where the parent is not paying an additional premium to cover another dependent because it is more likely that the parent will want the child to be covered.
5. Coverage of adult children: eligibility. Some multi-employer plans that provide family coverage to all participants based on a negotiated employer contribution allow dependents to be added at any time on the theory that the contribution is being received to cover all eligible members of the family. This enrollment rule will need to be applied to adult children to the same extent it is applied to younger children.9There is also an issue about whether terminating an adult child’s coverage upon finding out that the child had other employer-provided coverage available is an impermissible rescission.
6. Adult Child Coverage: Imputed Income. As with all plans there is an issue of determining whether the value of group health coverage provided to adult children who are not dependents for state law purposes is imputed income. There is also the issue of whether ERISA preempts the state law definition for self-insured plans. Unique to multi-employer plans, however, is the additional issue of how to implement the treatment of imputed income where the welfare plan is not the employer and is not associated with a single employer.
7. Essential Benefits. As with all grandfathered plans there is the issue of determining what are essential benefits for the annual and lifetime limit rules. Specifically, there are issues defining pediatric oral and vision care (what age is covered by pediatric, what oral and vision care is essential). Insured plans are used to covering benefits deemed essential by state law and some single-employer self-insured plans administered by an insurance company follow those same rules because that is the product that is purchased. Many multi-employer self-insured plans, however, have more variation and creativity in the existing benefits and are faced with more decisions in determining what is and what is not an essential benefit.
8. Rescissions. Multi-employer plans have various rules for establishing eligibility. For many plans, contributions have to be received for a minimum number of hours for the prior month, quarter, rolling six months, etc. for there to be coverage during the month or other benefit period. Contributions, however, are often not due until the 15th or 20th day of a month for work in the prior month. In that situation, it may be impossible to know if an individual has coverage for the month until the middle or end of the month or other benefit period. If contributions are not received and eligibility was lost as of the beginning of the month, is that an impermissible rescission?
As Trustees make good faith efforts to comply with the PPACA and to determine if they want to retain grandfathered status and, if they do, what needs to be done to keep grandfathered status, they will be grappling with these and other issues.