Effect of CHIP Expansion on Employer Health Plans

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