Compliance Alert — Year-End Amendment Deadline Looms for Group Health and Cafeteria Plans
Recent health care reform legislation imposes additional coverage, notice and enrollment requirements on group health plans, including self-insured plans. These new obligations will require changes to open enrollment procedures and most group health and/or cafeteria plans will need to adopt conforming amendments by December 31, 2010. This compliance alert focuses on certain aspects of the health care reform legislation that may require immediate action.
Expanded Coverage For Children Under Age 26
Effective for plan years beginning on or after September 23, 2010, group health plans that provide dependent coverage for children must continue to offer coverage until the participant’s child attains age 26. Group health plans may no longer condition coverage for an otherwise eligible child on factors unrelated to the parent/child relationship, such as whether the child is also a student, married, an adult, resides with the participant, receives financial support or is claimed as a dependent for tax purposes. Employers have some flexibility in how a "child" is defined under the terms of their group health plan (e.g., a stepchild, legally adopted child and/or a child placed for adoption, an eligible foster child). Group health plans, however, are not required to offer coverage to spouses of adult children or to the participant's grandchildren. Accordingly, employers must carefully craft the terms of any plan amendment implementing these requirements, including the manner in which this new coverage requirement will apply to grandfathered group health plans. (For more information on grandfathered group health plans see July 2010 advisory — Health Care Reform Guidance Issued).
Special Notice and Enrollment Rights — Children who become eligible to enroll as a result of this new coverage requirement must be given written notice of their enrollment rights, and must also be given a period of at least 30 days to enroll. These notice and enrollment requirements must be satisfied no later than the first day of the first plan year beginning on or after September 23, 2010. Accordingly, calendar year plans must comply beginning January 1, 2011. In light of these one-time special enrollment rights, employers will also need to revise their open enrollment materials and potentially the length of their open enrollment window (e.g., offering an open enrollment window of at least 30 days or, alternatively, providing a longer enrollment window solely for this coverage option).
Cafeteria Plans
Effective March 30, 2010, cafeteria plans, flexible spending accounts (FSA) and health reimbursement arrangements (HRA) can offer tax-advantaged coverage and reimbursements for an employee's child who has not attained age 27 as of the end of the taxable year. Employers may permit employees to make pre-tax salary reductions for such children in 2010 even if their cafeteria plan has not yet been amended to include such coverage, provided that a retro-active amendment is adopted before year-end. Additionally, after December 31, 2010, expenses for over-the-counter drugs (other than insulin) cannot be reimbursed under an FSA or HRA unless prescribed by a physician. Plans that currently allow for reimbursements of over-the-counter drugs must be reviewed to determine whether any year-end amendments are necessary to the operative plan language to conform with these new limitations on authorized reimbursements.
Under existing IRS guidance, cafeteria plans must be established in writing and be adopted on or before the first day of the first plan year in which the plan is to become effective. Amendments to cafeteria plans must also be in writing and, absent specific relief to the contrary, any such amendment must apply prospectively. To the extent any necessary changes are to be effective January 1, 2011, the amendment implementing such changes must be adopted on or before December 31, 2010. The IRS has indicated that the failure to comply with these written requirements will cause the plan to fail to be a cafeteria plan. Accordingly, timely amending existing cafeteria plans to conform with changes in the tax law is essential to ensure that employee 's continue to receive the desired favorable tax benefits afforded under a cafeteria plan.
CHIPRA Notice
Earlier this year, the DOL published a Model Notice for Employers to Use Regarding Premium Assistance under Medicaid or the Children's Health Insurance Program. The employer's CHIPRA Notice obligation is a requirement imposed by the Children's Health Insurance Program Reauthorization Act of 2009. The notice generally must be given to employees before the later of May 1, 2010 or the beginning of the next plan year. Employers that have not already given this notice may wish to consider doing so as part of their upcoming annual open enrollment.
What Should Employers Do Now?
The IRS, DOL and HHS have issued a variety of guidance covering the changes implemented under the health care reform legislation, including FAQs and Fact Sheets, to assist employers in understanding their rights and obligations. In light of the various decisions and implementation considerations that must be addressed with respect to group health plans, employers must begin to actively address the manner in which they will timely comply with these new requirements, including implementing changes to their open enrollment procedures and adopting required year-end plan amendments.