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Impact of CHIP Expansion on Employer Health Plans: Key Changes and Considerations

This presentation explores the significant effects of the Children's Health Insurance Program Reauthorization Act (CHIPRA) on employer health plans as of April 1, 2009. The session covers important updates to CHIP, including increased income eligibility, premium assistance for dependent children, and special enrollment events. Presenters Kenneth A. Mason and Lawrence Jenab outline the implications for employers, compliance requirements, and coordination of benefits under employer plans, providing insights into adapting company health policies to meet new regulations.

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Impact of CHIP Expansion on Employer Health Plans: Key Changes and Considerations

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  1. Effect of CHIP Expansionon Employer Health Plans May 12, 2009

  2. Presenters Kenneth A. Mason, JD Partner kmason@spencerfane.com 913-327-5138 Lawrence Jenab, JD MA Associate ljenab@spencerfane.com 913-327-5125

  3. History of CHIP • Created by HIPAA in 1996, as StateChildren’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.

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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).

  18. 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

  19. 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

  20. 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

  21. 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.

  22. Presenters Kenneth A. Mason, JD Partner kmason@spencerfane.com 913-327-5138 Lawrence Jenab, JD MA Associate ljenab@spencerfane.com 913-327-5125

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