Carter's Benefits

eNewsletter Volume 3, Issue 5 May 2010

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Changes Are Coming Fast

If you’re feeling confused about health reform, you’re not alone. Although the
rules for how the new health care reform law will be implemented are still being written, here are some changes that have begun to take place over the last 30 days.

  1. IRS Promotes Small Business Tax Credits
  2. Carriers begin to "Cease Rescissions" for patients with Pre-Existing Conditions
  3. Department of Labor posts FAQ's addressing the effect of health care reform on COBRA
  4. IRS Provides guidance on tax treatment of employer provided health benefits for children under age 27
  5. IRS Issues chart of average small group market premiums for calculating small business health care tax credit for 2010
  6. IRS expands 1099 usage. Creates more paperwork for you
  7. Internet Portal

The second part of this months newsletter delves deeper into the benefit requirements that will go into effect in 2014.

Guaranteed Issue
Guaranteed Renewability
Enhanced Wellness
Benefit Requirements

IRS Promotes Small Business Tax Credits

IRS began mailing millions of postcards to small businesses and small tax-exempt organizations, informing them that they may be eligible for a tax credit if they provide health insurance to their employees. Employers are encouraged to visit the IRS website to determine if they will qualify.

While it's up to the groups to determine eligibility and to file for the credit with their tax returns next year, you should be aware of the IRS's promotional efforts, such as this announcement.

IRS AFFORDABLE CARE ACT TAX PROVISIONS A direct link to the IRS website with information on who qualifies and examples.

Carriers begin to "Cease Rescissions" for patients with Pre-Existing Conditions

The Patient Protection and Affordable Care Act, prohibits coverage rescissions after 6 months of enactment. This would effectively be September 23, 2010. All insurance markets will be prohibited from canceling or rescinding coverage except in the case of fraud or intentional misrepresentation. This would apply to grandfathered plans.

The Los Angeles Times (4/28, Girion) reports, "Stung by criticism and facing tougher federal regulation, two of the nation's largest health insurers say they will stop the practice of dropping sick policyholders." We should begin to see more carriers follow suit


[DOL Web page: Health Care Reform and COBRA]
Available at
The DOL's web page on health care reform now contains a page of frequently asked questions (FAQ's) about health care reform and COBRA. Three of the four questions ask about specific COBRA issues: (1) was the COBRA premium subsidy extended by
health care reform, (2) was the 18 month COBRA maximum coverage period
extended by health care reform, and (3) was COBRA eliminated or changed
by health care reform. The answer to all of these questions is "No." The
fourth FAQ addresses how health care reform affects an individual's
group health plan coverage. The DOL explains generally that the health
care reform legislation makes many changes to employer-sponsored group
health plans. The DOL also provides resources (agency websites) where
more information about the health care reform changes may be found.


[IRS Notice 2010-38 (Apr. 27, 2010)]
Notice 2010-38:
News Release:
Fact sheet:

Recent health care reform legislation generally requires group health plans offering dependent coverage for children to continue providing that coverage for adult children until age 26. The legislation also extends the Code Section 105(b) income exclusion for medical care expense reimbursements under an employer-provided accident or health plan to employees' children who are under age 27 as of the end of the taxable year. The IRS has now issued guidance on the tax treatment of employer-provided health benefits for these children.


[Rev. Rul. 2010-13 (May 3, 2010)]
Available at
Recent health care reform legislation created a new federal income tax credit, which is available to eligible small employers that make nonelective contributions toward their employees' health insurance premiums. For taxable years beginning before 2014, the maximum small business health insurance tax credit is 35% (25% for tax-exempt eligible small employers) of the lesser of (1) the employer's nonelective contributions toward certain employees' health insurance premiums, and (2) the nonelective contributions the employer would have made if each such employee had been enrolled in a plan with a premium equal to the average small group market premium in the employer's State.

In Revenue Ruling 2010-13, the IRS provides a chart of the average premium to use in part (2) of the tax credit calculation. These average premiums were determined by HHS for single (employee-only) and family (anything other than single) coverage for the small group market in each of the 50 States and the District of Columbia for the 2010 taxable year. The average single coverage premium ranges from a low of $4,215 for
Idaho to a high of $6,204 for Alaska; the average family coverage premium ranges from a low of $9,365 for Idaho to a high of $14,138 for Massachusetts. According to the IRS, HHS recognizes that there may be areas within some States with meaningfully higher premiums than those reflected in the chart. Consequently, HHS may provide additional premium rates for certain areas within some States that are higher (but not lower) than those in the chart.

IRS Expands 1099 usage. Creates more paperwork for you

Section 9006 of the health care bill — just a few lines buried in the 2,409-page document — mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year…

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations.

Taken together, the two seemingly small changes will require millions of additional forms to be sent out.

Coming in July 2010

Internet Portal. Requires HHS (in consultation with states) to establish a mechanism (including an Internet website) through which individuals and small employers can identify affordable coverage options, effective by 7/1/10.

  • Required Information. Requires websites to provide information on at least the following coverage options (to the extent practicable): private insurance
    coverage; Medicaid and CHIP coverage; state high risk pool coverage; coverage under the new high risk pool program; and coverage within the small group
    market, including reinsurance for early retirees (PPACA § 1102) and small business tax credits (PPACA § 1421).
  • Standardized Formats. Directs HHS to develop a standardized format for presenting this information within 60 days of enactment. Requires such format to
    require information on MLRs, eligibility, availability, premiums and cost-sharing, and to be consistent with the standards adopted for uniform coverage
    explanations under PHSA § 2715. Permits HHS to contract out this requirement. (PPACA §§ 1103(a), 10102(b))

2014 Major Changes to Benefit Requirements:

With 2014 being a major year of change, it is only fitting to re-visit some of the more important and dramatic changes coming to health care in 2014. Some of this information was not provided in the previous newsletter.

Guaranteed Issue Requires guaranteed issue during annual open enrollment and special enrollment periods for qualifying events in accordance with regulations promulgated by HHS consistent with ERISA §603 (COBRA special enrollment periods). Modifies current HIPAA provisions requiring guaranteed issue in the small group market (current PHSA § 2711, re-designated as PHSA § 2731) but eliminates current small group law exceptions for failure to meet participation/contribution requirements and exceptions for association coverage). Applies to individual and group markets (but not to grandfathered plans). (PPACA §§ 1201, 1562(c)(8)(D)-(E); PHSA § 2702)

Guaranteed Renewability Requires guaranteed renewability starting in 2014 (Note: Unlike the guaranteed issue provision, this does not eliminate the HIPAA group participation/contribution requirements). Applies to all insured markets (but not to grandfathered plans). (PPACA § 1201, PHSA § 2703)

Wellness Programs
Premium Variation for Participation in Employer Wellness Programs. Permits employers to vary premiums by as much as 30% for employee participation in certain health promotion and disease prevention programs. Effective 1/1/14.

  • Programs Not Subject to Requirements
    • Programs where participation is not based on a health status factor.
    • Programs that do not link rewards to a standard related to a health status factor – so long as participation is made available to all “similarly situated
    • Programs that do not provide rewards – so long as participation is made available to all “similarly situated individuals.” Specific programs listed as not subject to requirements:
      • Programs that reimburse some/all of fitness membership costs.
      • Diagnostic testing programs that provide rewards for participation and do not base any rewards on outcomes.
      • Programs that encourage preventive care through waivers of cost-sharing (e.g., for well baby care).
      • Programs that reimburse the costs of smoking cessation programs, regardless of whether the individual quits smoking.
      • Programs that provide rewards to individuals for attending a periodic health education seminar.
  • Requirements. The following requirements apply to programs that condition rewards based on satisfying a standard related to a health status factor:
    • 30% Limit. Rewards for such programs may not exceed 30% of the cost of employee-only coverage, determined based on the total amount of
      employer and employee contributions (or, if dependents are eligible for the program, 30% of the cost of coverage in which an employee and any
      dependent are enrolled). Allows HHS to increase this ceiling to 50%.
    • Rewards
      • Allows the reward to take the form of premium discounts or rebates, the absence of a surcharge, a waiver of cost-sharing mechanisms or the value of a benefit that would not otherwise be covered under the plan.
      • Plan shall give individuals eligible for the program the opportunity to qualify for the award at least once a year.
      • The full reward must be available to all similarly situated individuals.
      • Plans must provide a reasonable alternative standard (or waiver of the applicable standard) for obtaining the reward for an individual for
        whom it is unreasonably difficult due to a medical condition or for whom it is medically inadvisable to attempt to satisfy the standard. Permits plans, “if reasonable under the circumstances,” to seek verification, such as a statement from an individual’s physician, that a health status factor makes it medically inadvisable or unreasonably difficult for the individual to satisfy or attempt to satisfy the program standard.
      • Requires plans to disclose in all plan materials that describe the terms of the wellness program the availability of any alternative standard or the possibility of a waiver of the program standards. (Plan materials that disclose the availability of a wellness programs without describing its terms do not require such disclosure.)
    • Program Design. Requires the wellness program to be “reasonably designed to promote health or prevent disease” – that is, it must have a
      “reasonable chance” of improving health or preventing disease in participating individuals; must not be overly burdensome; must not be a subterfuge for discriminating based on a health status factor; and is not “highly suspect” in the method chosen to promote health/prevent disease.
    • Grandfather Clause. Grandfathers all existing wellness programs established prior to the date of enactment of this section and that complied with all applicable regulations.
  • Individual Market Wellness Program Demonstration. By 7/1/14, directs HHS, in consultation with Treasury and DOL, to establish a 10-state demonstration project under which participating states apply the wellness provisions described above (for the group market) to individual market coverage.
  • Permits expansion of the demonstration starting on 7/1/17, if the demonstration efforts are found to be effective. To participate in the demonstration,
    requires participating states to: 1) design their projects to avoid any coverage decreases or any increase in federal costs related to available individual tax
    credits; 2) ensure that consumer protection standards are met; 3) ensure that premium discounts under the program do not create undue burdens for
    individuals, do not lead to cost-shifting and are not a subterfuge for discrimination.
  • Reporting. Requires HHS to report to Congress on the effectiveness of wellness programs within 3 years of the date of enactment, including collecting data from employers on their wellness programs. (PPACA § 1201; PHSA § 2705)

Benefit Requirements

  • Individual and Small Group Markets. Requires all insurers in the individual and small group markets to meet the same requirements as Exchange plans
    with respect to:
    • Providing coverage of the essential benefits package
    • Meeting cost-sharing requirements for essential benefits
    • Offering at least one of the Bronze, Silver, Gold or Platinum benefit plans (or a catastrophic plan). (See “Qualified Health Plans” section for more
      details.) Effective 1/1/14. (PPACA § 1201; PHSA § 2707(a))
  • Group Markets. Requires all group health plans to meet cost-sharing limits required under § 1302(c)(1)-(2), which limit deductibles to $2,000 for individuals and $4,000 for families and limit annual out-of-pocket maximum to HDHP levels for HSA plans. Effective 1/1/14. (PPACA § 1201; PHSA § 2707(b))
  • Insured Plans. Requires insurers who offer any level of coverage (Bronze, Silver, Gold or Platinum) re: the essential benefits package to also offer coverage at that level for child-only plans. (PPACA § 1201; PHSA § 2707(c))

These requirements do not apply to grandfathered plans.

* This information has been provided by Blue Cross and Blue Shield of Texas. Adapted from the document BCBSA Detailed Reform Summary" revised April 22, 2010.

Next Month I will take a closer look at the Health Insurance Exchanges. I will go into deeper discussion of the coverage levels and options.

How does Carter's Benefits help ?
Carter's Benefits has immediately begun to notify clients of the changes as they occur. We will continue to stay on top of the changes as they are ever evolving. In a consultative role, Eddie Carter has begun hosting live seminars to update employers and Human Resource Managers on these changes. If you would like to host a meeting with your local community or civic organization, please contact me for details.

Eddie Carter,
Benefit Consultant



If you have questions or would like more information please give us a call or send us an email.  Our email address is Questions@CartersBenefits.Com

Carter's Benefits
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