Dec 28, 2008

Benefits for Domestic Partners | Plan Provisions and Taxation

In the mid-1980s, the plans of a few employers began to define the term dependent broadly enough to include unmarried domestic partners. For example, one plan covers unmarried couples as long as they live together, show financial interdependence and joint responsibility for each other's common welfare, and consider themselves life partners. This type of requirement is fairly typical, as is the additional requirement that the employee's relationship must have lasted some specified minimum period of time, such as 6 or 12 months. The employee must usually give the employer an affidavit that these requirements have been satisfied.

By the late-1990s, an estimated 10 percent of employers provided medical expense benefits to domestic partners. (A smaller percentage of employers offer other types of group benefits.) Most plans provide benefits to domestic partners engaged in either heterosexual or homosexual relationships. Some plans provide benefits only to persons of the opposite sex of the employee, and a small number of plans limit benefits only to persons of the same sex. The rationale for the latter is that persons of opposite sexes can obtain benefits by marrying, whereas this option is not available to persons of the same sex.

The number of employees obtaining coverage for domestic partners has been relatively small, with many employers experiencing enrollment of less than 1 percent when only partners of the same sex are covered. Some employers have experienced enrollment of up to 4 percent if partners of either sex are covered. (Enrollments of partners of the opposite sex are more than double the enrollments of partners of the same sex.) This low enrollment is due primarily to two factors. First, the domestic partner is probably also working and has medical expense coverage from his or her employer. Second, some employees are unwilling to make their living arrangement or sexual preference known in the workplace.

Despite predictions that domestic partners would have adverse claims experience (primarily due to AIDS), the claims experience has been good. This is probably due in part to the fact that domestic partners, on the average, tend to be younger and therefore probably healthier than employees in general. Also, same-sex partners have few maternity claims. Most, if not all, insurers that levied surcharges on premiums for domestic partners when the coverage was new have now dropped the surcharges.

Dec 20, 2008

Portability | Plan Provisions and Taxation

Some of the most significant parts of HIPAA are the provisions dealing with "portability" of medical expense coverage. These provisions are not for the purpose of allowing an employee to take specific insurance from one job to another. Rather, they put limitations on preexisting-conditions exclusions and allow an employee to use evidence of prior insurance coverage to reduce or eliminate the length of any preexisting-conditions exclusion when the employee moves to another medical expense plan. These provisions should minimize job lock for employees by eliminating the fear that medical expense coverage will be lost if an employee changes jobs.

The portability provisions apply to almost all group health insurance plans (either insured or self-funded) as long as they have at least two active participants on the first day of the plan year. Note that the same definition of group health plan mentioned in the initial discussion of HIPAA applies to the portability provisions.

Limitations on Preexisting Conditions
Restrictions for preexisting conditions are limited to a maximum of 12 months (18 months for late enrollees). In addition, the period for preexisting conditions must be reduced for prior creditable coverage as defined below. It should be noted that there is nothing in the act that prohibits an employer from imposing a probationary period before a new employee is eligible to enroll in a medical expense plan. (Note: HIPAA refers to the probationary period as a waiting period. However, the term probationary is consistent with the terminology and is therefore used in this discussion.) However, any probationary period must be applied uniformly without regard to the health status of potential plan participants or beneficiaries. In addition, the probationary period must run concurrently with any preexisting-conditions period. For example, an employee might be subject to a preexisting-conditions period of seven months because of prior coverage. If the employer's plan had a three-month probationary period for enrollment, the length of the preexisting-conditions period after enrollment could be only four months. An HMO is also permitted to have an affiliation period of up to two months (three months for late enrollees) if the HMO does not impose a preexisting-conditions provision and if the affiliation period is applied without regard to health status-related factors.

Under the act, a preexisting condition is defined as a mental or physical condition for which medical advice, diagnosis, care, or treatment was recommended or received within the six-month period ending on the enrollment date. No preexisting-conditions exclusions can apply to pregnancy or to newborn children or, if under age 18, to newly adopted children or children newly placed for adoption, as long as they become covered for creditable coverage within 30 days of birth, adoption, or placement. In addition, the use of genetic information as a preexisting condition is prohibited unless there is a diagnosis of a preexisting medical condition related to the information.

The 12-month limitation for preexisting conditions applies if an employee enrolls when he or she is initially eligible for coverage. It also applies in the case of special enrollment periods that are required by the act for employees and dependents who lose other coverage and for new dependents. Anyone who does not enroll in an employer's plan during the first period he or she is eligible or during a special enrollment period is a late enrollee and can be subject to a preexisting-conditions period of 18 months.

Creditable Coverage
The act defines creditable coverage as coverage under an individual policy, an employer-provided group plan (either insured or self-funded), an HMO, Medicare, Medicaid, or various public plans, regardless of whether the coverage is provided to a person as an individual, an employee, or a dependent. However, coverage is not creditable if there has been a break in coverage of 63 days or more.

In determining the length of a person's preexisting-conditions period, the period of prior creditable coverage must be subtracted. Assume, for example, that an employer's plan has a preexisting-conditions period of 12 months. If a new employee has 12 months or more of creditable coverage, the preexisting-conditions period is satisfied. If the period of creditable coverage is only seven months, then the preexisting-conditions period runs five more months. Note, however, that if the employee has been without coverage for at least 63 days between jobs, the full preexisting-conditions period applies.

Employers have two ways in which they can apply creditable coverage: on a blanket basis to all categories of medical expense coverage or on a benefit-specific basis. For example, if an employee had prior coverage that excluded prescription drugs, this particular coverage could be subject to the full preexisting-conditions period, while the period for other benefits would be reduced because creditable coverage had applied to them. For administrative ease, an employer usually picks the first method.

The act requires that an employer automatically give persons losing group coverage a certificate that specifies the period of creditable coverage under the plan they are leaving, including any period of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). In addition, the employer must provide the certificate to anyone who requests it within 24 months after coverage ceases. If an individual is eligible for COBRA coverage, the certificate must be provided no later than the time when a COBRA election notice must be provided. In other cases, the employer must provide the certificate within a "reasonable" time. This certificate of creditable coverage must include the following information:

  • The date the certificate was issued

  • The name of the health plan that provided the coverage

  • The name and identification number of individual(s) whose coverage has ceased

  • The name, address, and telephone number of the administrator responsible for the certificate

  • A statement that the individual(s) had at least 18 months of creditable coverage or the date any probationary period began and the date coverage began

  • The date coverage ended

    One certificate may include coverage for the employee and all dependents, or the employer may issue separate certificates for each person.

    Sample certificates of creditable coverage are readily available, including blank ones that can be downloaded from the Internet. This has led to a high incidence of fraudulent certificates. As a result, many plans contact the prior employer to verify the accuracy of any certificates they are given.

    State Options
    The act's provisions on portability generally override state laws. However, state laws that provide greater portability are not overridden. For example, a look-back period of less than six months might be required, or the maximum preexisting-conditions period could be less than 12 months.
  • Dec 11, 2008

    Federal Rules for Children's Coverage | Plan Provisions and Taxation

    Until the passage of the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), provisions regarding eligibility were determined by the employer, provider underwriting practices, and/or any applicable state laws. OBRA '93 brought the federal government into the picture with a series of rules designed to better guarantee that benefits are available to children. Some of these rules pertain to eligibility.

    Coverage for Adopted Children
    One rule is in the form of an amendment to ERISA. If a work-related group medical expense plan provides coverage for dependent children of participants or beneficiaries, it must provide benefits for adopted children or children placed for adoption under the same terms and conditions that apply to natural children. For purposes of this change, a child is defined as a person under the age of 18 at the time of adoption or placement for adoption. Placement for adoption occurs at the time in the adoption process when the plan participant or beneficiary assumes and retains the legal duty for the total or partial support of a child to be adopted.

    In addition to providing coverage, a plan cannot restrict benefits because of a preexisting condition at the time coverage is effective as long as the adoption or placement for adoption occurs while the parent is eligible for plan participation.

    Medical Child Support Orders

    Two other rules have as their goal the shifting of Medicaid cost from the government to the private sector by requiring employer-provided benefit plans to pick up more of the cost of providing medical expense benefits to the children of divorced and separated parents. The first of these rules amended ERISA by requiring employer-sponsored medical expense plans to recognize qualified medical child support orders by providing benefits for a participant's children in accordance with the requirements of such an order.

    The act defines a medical child support order as a court judgment, decree, or order that (1) provides for child support with respect to the child of a group plan participant or provides benefit coverage to such a child, is ordered under state domestic relations law, and relates to benefits under the plan or (2) enforces a state medical support law enacted under the new Medicaid rules discussed below. The support order then becomes qualified if two additional requirements are met. First, the order must create or recognize the right of the child to receive benefits to which the plan participant or other beneficiary is entitled under a group plan. Second, the order must include such information as the name and last known mailing address of the plan participant and the child, a reasonable description of the coverage to be provided the period for which coverage must be provided and each plan to which the order applies. However, a qualified order cannot require a plan to offer any benefit that is not already available under the plan unless the benefits are necessary to meet the requirements of a state medical child support law established under the Social Security Act.

    When a plan administrator receives a medical child support order, the administrator must promptly notify the participant and each child named under the order and inform them of the plan's procedure for determining if the order is a qualified medical child support order. Under the act, all group plans must establish reasonable written procedures for determining whether these orders are qualified.

    Changes in Medicaid Rules

    Under the final rule that is discussed, states were encouraged (under threat of losing some Medicaid reimbursement) to adopt a series of laws relating to medical child support. One of these laws prohibits plan administrators from denying enrollment of a child under a parent's insurance plan on the grounds that (1) the child was born out of wedlock, (2) the child is not claimed as a dependent on the parent's federal income tax return, or (3) the child does not reside with the parent or in the insurer's service area. In addition, a second law provides that if a court orders a parent to provide medical support, the parent's plan must enroll the child without regard to any enrollment restrictions. If the parent fails to enroll the child, enrollment can be made by the child's other parent or by the state Medicaid agency. The employer is required to withhold from the parent's compensation any payments that the parent must make toward the cost of coverage.

    Dec 3, 2008

    ELIGIBILITY | Plan Provisions and Taxation

    The eligibility requirements for medical expense coverage are essentially the same as those discussed earlier for group term insurance—an employee must usually be in a covered classification, must satisfy any probationary period, and must be a full-time employee. Coverage is rarely made available to part-time employees. In addition, medical expense contracts often contain an actively-at-work provision. This provision may be waived, particularly for larger employers for whom adverse selection tends to be less of a problem than for smaller groups because any adverse selection for a large group is reflected in future premiums through the experience-rating process.

    Eligibility requirements may vary somewhat if an employer changes providers for a plan's benefits. Note that the following discussion refers to the employer's plan with benefits paid by the previous provider as the "old plan" and the employer's plan with benefits paid by the new provider as the "new plan." In actuality, the employer still has the same medical expense plan. It has only been modified with the use of a new provider and, possibly, a different level of benefits. This is a material modification to a group health plan, and ERISA requires that participants be notified of this change by a summary of material modification.

    Even though it has been adopted by only a few states, most providers follow the procedures established by the National Association of Insurance Commissioners (NAIC) Group Coverage Discontinuance and Replacement Model Regulation for medical expense coverage (and possibly other group coverages). This regulation stipulates that coverage be provided (but possibly limited) under a new plan to anyone who (1) was covered under the old plan at the date it was discontinued and (2) is in an eligible classification of the new plan. Employees actively at work on the date coverage is transferred are automatically covered under the new plan and are exempt from any probationary periods. If the new plan contains a preexisting-conditions provision, benefits applicable to an individual's preexisting conditions are limited to the lesser of (1) the maximum benefits of the new plan (ignoring the preexisting conditions) or (2) the maximum benefits of the old plan.

    Employers often negotiate with the provider of benefits to ensure that for employees who are covered under the old plan but who are not actively at work on the date coverage is discontinued (such as an employee disabled by illness or injury or employees suffering temporary interruptions of employment) are included in the new plan. However, their benefits are frequently limited to the old plan's level until they meet the new plan's actively-at-work requirement.

    Two final points should be made concerning the transfer of coverage. First, the new plan will not pay benefits for expenses covered by the old plan under an extension-of-benefits provision (discussed later); second, when applying any deductibles or probationary periods under the new plan, credit is often given for the satisfaction (or partial satisfaction) of the same or similar provisions during the last three months of the old plan. For example, assume that coverage is transferred in the middle of a calendar year and the new plan contains the same $200-a-year calendar deductible as the old plan. If an employee has already satisfied the deductible under the old plan, no new deductible is required for the remainder of the calendar year, provided that (1) the expenses used to satisfy the deductible under the old plan satisfy the deductible under the new plan and (2) the expenses were incurred during the last three months of the old plan. If only $140 of the $200 was incurred during those last three months, an additional $60 deductible is required under the new plan for the remainder of the calendar year.

    Dependent Eligibility
    Typically, the same medical expense benefits that are provided for an eligible employee are also available for that employee's dependents. Conversely, however, dependent coverage is rarely available unless the employee also has coverage. As long as any necessary payroll deductions have been authorized, dependent coverage is typically effective on the same date as the employee's coverage. If coverage under a contributory plan is not elected within 31 days after dependents are eligible, future coverage is available only during an open enrollment period or when satisfactory evidence of insurability is provided. However, if an employee was previously without dependents (and therefore had no dependent coverage), any newly acquired dependents (by birth, marriage, or adoption) are eligible for coverage as of the date they gain dependent status.

    The term dependents most commonly refers to an employee's spouse who is not legally separated from the employee and any unmarried dependent children (including stepchildren and adopted children) under the age of 19. However, coverage is usually provided for children to age 23 if they are full-time students. In addition, coverage may also continue (and is required to be continued in some states) for children who are incapable of earning their own living because of a physical or mental infirmity. Such children are considered dependents as long as this condition exists, but periodic proof of the condition may be required. If an employee has dependent coverage, all newly acquired dependents (by birth, marriage, or adoption) are automatically covered.

    Some persons that meet the definition of a dependent may be ineligible for coverage because they are in the armed forces or they are eligible for coverage under the same plan as the employees themselves. This latter restriction, however, may not apply to a spouse unless the spouse is actually covered under the plan. Some plans also exclude coverage for any dependents residing outside the United States or Canada.

    Medical expense plans may contain a "nonconfinement" provision for dependents, which is similar to the actively-at-work provision for employees. Under this provision, a dependent is not covered if he or she is confined for medical care or treatment in a hospital or at home at the time of eligibility. Coverage, however, becomes effective when the dependent is released from such confinement. Until the passage of HIPAA, a nonconfinement provision was commonly found in medical expense plans. However, many legal and benefit experts feel that such a provision violates HIPAA, because it involves the use of health status as a basis for eligibility. In addition, some states do not allow the provision in insured contracts. As a result, many providers no longer include a nonconfinement provision, and an employee's dependents are eligible for coverage at the same time the employee is eligible.

    When coverage is transferred, dependents are treated the same as employees, except that any actively-at-work provision may be replaced by a nonconfinement provision.
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