Children’s Health Insurance Program Reauthorization Act of 2009 Imposes New Requirements on Group Health Plans
March 2009
Executive Compensation, Benefits, Employment and Labor Focus
Laura L. Chang
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On February 4, 2009, President Obama signed into law the Children's Health Insurance Program Reauthorization Act of 2009 (the "Act"). The Act extends and expands the State Children's Health Insurance Program ("SCHIP") to allow states to subsidize premiums for employer-provided group health coverage for eligible children and their families. The Act applies to both fully insured and self-insured plans, and imposes new notice and disclosure obligations on employers that maintain group health plans. Additionally, the Act provides for new special enrollment rights. Employers are not required to comply with the Act's notice and disclosure requirements until the first plan year after model notices and disclosure forms have been issued. However, the effective date of the Act's premium subsidy and special enrollment provisions is April 1, 2009, and thus requires immediate employer action.
Background
SCHIP was enacted by the Balanced Budget Act of 1997 as Title XXI of the Social Security Act to provide health insurance to uninsured children in families with low incomes that are too high to qualify for Medicaid. SCHIP is jointly financed by the federal and state governments, and administered by the states. States may design their SCHIP eligibility requirements, payment levels for coverage, benefit packages and policies within broad federal guidelines. Some states have been authorized to use SCHIP funds to cover the parents of children receiving benefits from both SCHIP and Medicaid, pregnant women, and other adults.
As SCHIP was set to expire in 2007, a temporary reauthorization of SCHIP was passed in December 2007 to extend the program through April 2009. The Act reauthorizes and extends SCHIP through 2013, and changes the formal name of the "State Children's Health Insurance Program" to the "Children's Health Insurance Program" ("CHIP").
Premium Assistance Subsidy
The Act allows states to offer a premium assistance subsidy, instead of providing health insurance directly, to eligible low-income children and their families for qualified employer-sponsored coverage. The Act defines "qualified employer-sponsored coverage" as a group health plan or health insurance coverage offered through an employer (i) that qualifies as "creditable coverage" as defined under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), (ii) for which the employer contributes at least 40 percent of any premium for such coverage and (iii) that is offered to all individuals in a nondiscriminatory manner. This definition excludes health flexible spending accounts or high deductible health plans.
The premium assistance subsidy may be provided as a reimbursement to the employee or as a direct payment to the employer, with an opt-out option for employers. Thus, employers will need to decide whether or not to opt out, taking into consideration that the amount of subsidy and the mechanics of how it can be received by the employer will vary by state. If an employer chooses to opt out, the premium assistance subsidy will be paid directly to the employee, but the employer must still permit the eligible individuals to enroll in the plan and to pay for coverage through salary reductions. If the premium assistance subsidy is provided and an eligible individual is enrolled in an employer group health plan, the state may also need to furnish supplemental coverage on a secondary basis to ensure that a minimum level of coverage is provided. Employers may need to update their plan documents to reflect this coordination of benefits rule. The effective date of the premium assistance subsidyis April 1, 2009.
The Act also directs states to create a process that will allow the parent of a child receiving a premium assistance subsidy to disenroll the child from the employer's group health plan during any month and enroll the child in the state's CHIP plan. Employers may need to amend their plan documents to reflect this new election right as well.
New Notice Requirement
The Act requires employers with group health plans in states that provide the premium assistance subsidy to provide written notice to their employees informing them of such subsidies. Employers may provide these notices along with other plan documents notifying employees of health plan eligibility, with open enrollment materials, or when furnishing a summary plan description. The Act directs the US Department of Health and Human Services ("HHS") to develop national and state-specific model notices by February 4, 2010. This new notice requirement is effective for plan years beginning after the date on which the model notices are first issued. Failure to comply with this notice requirement may result in penalties of up to US$100 per day, per violation, with respect to any employee.
New Disclosure Requirement
Under the Act, the administrator of a group health plan that covers a Medicaid or CHIP participant must disclose information about the benefits available under the plan to the relevant state upon request. This information will help states to determine the cost-effectiveness of providing the premium assistance subsidy and whether it is necessary for the state to provide supplemental benefits. HHS and the Department of Labor are required to develop a model disclosure form by August 4, 2010, for plan administrators to complete. States may not request the disclosure form until the first plan year that begins after the date on which the model disclosure form is first issued. Failure to comply with this disclosure requirement may result in penalties of up to US$100 per day, per violation, with respect to any employee or beneficiary.
New Special Enrollment Rights
Under existing HIPAA rules, group health plans must allow special enrollment for eligible individuals to enroll in the plan without having to wait until the plan's next open enrollment period under two circumstances: (1) an eligible individual who previously declined coverage because of other health coverage loses eligibility for the other coverage, or (2) an eligible employee acquires a new spouse or dependent by marriage, birth, adoption, or placement for adoption. The special enrollment period under HIPAA is 30 days; that is, to special enroll, an employee or dependent must request special enrollment within 30 days of the loss of coverage, or within 30 days after the marriage, birth, adoption, or placement for adoption, as applicable. HIPAA requires employers to provide a notice of special enrollment rights to all employees, not just those who decline coverage, at or before the time an individual is initially offered the opportunity to enroll in a group health plan.
The Act supplements HIPAA's special enrollment rules by requiring group health plans to permit eligible employees and dependents who are not enrolled for coverage to enroll under two new circumstances: (1) the employee's or dependent's Medicaid or CHIP coverage is terminated as a result of loss of eligibility, or (2) the employee or dependent becomes eligible for a premium assistance subsidy under Medicaid or CHIP. Whereas HIPAA's special enrollment period is 30 days, the special enrollment period under the Act is 60 days; that is, to special enroll under one of the two new circumstances, an employee or dependent must request special enrollment within 60 days after the loss of Medicaid or CHIP coverage, or within 60 days after the employee or dependent is determined to be eligible for a Medicaid or CHIP subsidy, as applicable.
The effective date of the Act's special enrollment provisions is April 1, 2009. In addition to administering these new rules, employers will need to add information regarding the new special enrollment rights to the HIPAA special enrollment notice, and also to amend any plan documents that describe special enrollment rights.
Conclusion
Although employers will not need to meet the notice and disclosure obligations under the Act until the first plan year beginning after the date on which the model notices and disclosure forms are issued, employers do need to take certain immediate action to comply with the Act's premium assistance subsidy and special enrollment provisions, which are effective April 1, 2009. As always, White & Case would be happy to answer any questions you may have, as well as to assist you with implementing any changes required by the Act.
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