In addition to transforming the rules governing the benefits that health plans must offer, the Affordable Care Act substantially alters the way that plan sponsors and health insurers must describe and report those benefits. From new claim appeal procedures, to standardized benefit summaries, to additional governmental reporting, the Act will almost certainly increase administrative costs and complexities for employers. And like many other aspects of the Act, determining precisely how — and even when — to comply with some of the new reporting and disclosure obligations will be difficult. Although regulations will likely answer some of these questions, plan sponsors should start revising many of their procedures immediately.
The following discussion summarizes seven of the Act’s most significant reporting and disclosure changes. Unless otherwise noted, these changes will apply to all plans, whether grandfathered or not. The new requirements are summarized in the order in which they become effective.
AUTOMATIC ENROLLMENT NOTICE
The Act amends the Fair Labor Standards Act to require that large employers maintaining one or more health plans automatically enroll any new, full-time employees in one of those plans. These employers must also automatically continue the enrollment of current employees. State wage withholding or other laws that would otherwise prevent automatic enrollment are preempted. These requirements apply to employers with more than 200 full-time employees, regardless of a plan’s insured, self-funded, or grandfathered status. Plan sponsors will obviously need to provide an explanation of the automatic enrollment rules to new and current employees, and how they may opt out of such coverage. Unfortunately, the effective date of this automatic enrollment requirement is unclear. The Act can be read to make it applicable only after the DOL has issued implementing regulations.
CLAIM APPEAL PROCEDURES
New plans — but not grandfathered plans — must also adopt enhanced procedures for handling appeals of denied claims. Claimants must be allowed to present evidence and testimony as part of the appeal process, coverage must be continued during the appeal, and plans must provide for an external review of the claim denial. To satisfy the external review requirement, insured plans must comply with state insurance regulations governing such reviews, and self-funded plans will be required to comply with standards to be established by HHS.
These enhanced appeal procedures must be described in plan documents and summary plan descriptions (“SPDs”). They are effective for plan years beginning on or after September 23, 2010 (i.e., January 1, 2011, for calendar-year plans).
Also for plan years beginning on or after September 23, 2010, employers must comply with various “transparency” requirements. For instance, they must submit certain information about their health plans to HHS. These disclosures must include information concerning claim-payment policies, plan enrollment, denied claims, cost sharing and rating policies, out-of-network coverage, and participants’ rights. This information must also be made available to the public.
FORM W-2 REPORTING
Employers must soon begin reporting the cost of health coverage on their employees’ Forms W-2. Beginning in 2011, employers must include the aggregate cost of such coverage, determined in a manner similar to the way that COBRA premiums are calculated. Although regulations are to be issued in this area (which should be useful in the COBRA context, as well), the cost of coverage will include both employer and employee contributions, but will exclude pre-tax employee deferrals to health savings accounts, Archer medical savings accounts, and health flexible spending accounts. This information must be provided on Forms W-2 for the 2011 tax year, which are to be issued by January 31, 2012.
UNIFORM SUMMARY OF BENEFITS AND COVERAGE
Beginning generally in 2012, plan administrators and insurers must provide those who apply for coverage, and those who are enrolled, an additional disclosure document summarizing the plan’s benefits and explaining its coverage. This “mini-SPD” must satisfy uniform standards for format and content. It is in addition to, and not in place of, the SPD required by ERISA.
The new summary must be provided (in either paper or electronic format) prior to the individual’s initial enrollment, and then annually thereafter during open enrollment. This summary may be no longer than four pages, must use a minimum of 12-point font, and must be understandable by the average plan participant (written in a “culturally and linguistically appropriate manner”). Using uniform definitions to be established by regulations, the summary must contain information about cost sharing, continuation of coverage, and limitations on coverage. The Secretary of HHS is to issue a model summary by March 23, 2011, with plan administrator compliance required by March 23, 2012. Penalties of up to $1,000 per enrollee may apply for each willful failure to provide this summary.
NOTICE OF PLAN MODIFICATIONS
Under ERISA’s current “summary of material reduction” standards, health plan administrators must notify participants of plan changes that “materially reduce” benefits within 60 days after the reductions become effective. Notice of changes that enhance benefits (or that do not materially reduce them) need not be provided until 210 days after the close of the plan year in which the change was adopted. These rules have been changed by the Act.
All group health plans — whether insured, self-funded, grandfathered, or not even subject to ERISA — will now have to provide notice of any “material modifications” at least 60 days before they become effective. These modifications might include premium or cost-sharing increases or coverage changes. Failure to provide this notice may result in penalties of up to $1,000 per enrollee.
Although the effective date of this requirement is unclear, advance notice of material changes should be provided at least with respect to changes occurring on or after March 23, 2012. A safer approach would be to comply with this requirement immediately.
NOTICE CONCERNING EXCHANGES
Beginning March 1, 2013, employers must provide new and current employees with information about the statewide exchanges created by the Act. These notices must describe the exchanges, the federal premium assistance that may be available to purchase exchange-based coverage (if the employer’s plan is not “affordable”), and information about “free-choice vouchers” and premium credits. Note that the deadline for providing this notice may be up to ten months before the exchanges are even to become effective.