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

2. Copyright 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. Copyright 2009 3 History of CHIP  Created by HIPAA in 1996, as State Children’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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 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. Copyright 2009 22 Presenters Kenneth A. Mason, JD Partner kmason@spencerfane.com 913-327-5138 Lawrence Jenab, JD MA Associate ljenab@spencerfane.com 913-327-5125