Category Archives: California Insurance Laws

5 Things California Employers Should Know About the Current State of Health Care Reform

by Amy Evans, HIP, President, Colibri Insurance Services and Christine P. Roberts, Mullen & Henzell L.L.P.

There is still a lot of debate going on at the federal and state levels about health care reform. In Washington, D.C., the Senate is working on a second round of revisions to the American Health Care Act (AHCA), but there is lack of alignment within the Republican party about the new plan, and the current administration is now occupied by other items. At the state level, a Senate bill proposing a state-wide single-payer health care system is making its way through the legislature and generating a lot of conversation about a complete overhaul of health care financing and delivery. With all of the uncertainty and political noise, it can be difficult for employers to know where to put their attention and resources. Here are five things California employers should know about the current state of health care reform.

1) California is leading the discussion about single-payer. California Senate Bill 562 is currently making its way through the state legislation. If enacted, SB 562 would eliminate the private health insurance system in California, including health insurance carriers, health insurance brokers and employer-sponsored health insurance benefits. It would replace them with a state-run, “single-payer” system called the Healthy California program, which would be governed by a 9-member executive board, and guided by a 22-member public advisory committee. At this juncture, funding measures for the bill are vague but include appropriation of existing federal funding for Medicare, Medi-Cal, CHIP and other health benefits provided to California residents, as well as an increase in payroll taxes. The estimated cost for this system is $400 billion annually, which is twice the size of the current budget for the entire state. SB 562 is widely popular in concept but also widely misunderstood, with many confusing it for a universal coverage system that would be supplemented by private and employer-sponsored coverage. The bill is currently in suspense with the Appropriations Committee in Sacramento. The committee chair (who is also the author of the bill) may wait for the results of a detailed study on the bill’s cost and impact, or he may choose to send it to the Senate for a vote. If the bill makes it through the Senate and the Assembly (which it is likely to do because it is such a popular concept), it is anticipated that it will be vetoed by Governor Jerry Brown, who has already expressed concerns about the bill’s financing. Alternatively, the legislature could vote on the bill and then table it until a new governor takes office in 2018. Either way, the bill would become a ballot measure to be approved by voters. Progress of the American Health Care Act in Washington, D.C. will impact SB 562 because the state bill would make use of state innovation waivers, which are slated to expand under the AHCA, but federal retooling of health care reform won’t impede SB 562’s progress to the Governor’s desk. Employers who offer health insurance as a benefit to attract and retain quality employees should be aware of the meaning and impact of this single-payer bill and should continue to track its progress.

 2) “Play or Pay” is still in play. The Affordable Care Act (ACA)’s “play or pay” penalties are still in place, so Applicable Large Employers are required to offer affordable, minimum value health insurance to eligible employees or pay a penalty. The current administration has suggested that they will reduce the penalties to $0 retroactive to 2016, but that has not happened yet. The 1094/1095 reporting requirements also remain in place. There has been some recent talk that penalty notices for 2015 and 2016 may be going out soon, perhaps first to the employers who have the largest penalty assessments.†  However, the Internal Revenue Service is also significantly understaffed so the availability of resources to enforce these penalties remains in doubt. Applicable Large Employers should continue to assess their play or pay options, track employee hours and offers of coverage, and complete 1094/1095 reporting for 2017. They should also address any penalty notifications from the IRS in a timely manner.

3) If there are no penalties, revenue has to come from another source. The extremely unpopular revenue-generating pieces of the ACA, including the individual mandate, the employer mandate, and the Cadillac Tax (currently delayed to 2020) are likely to be cut from the new AHCA, but that would create a shortfall in revenue that would need to made up elsewhere. The employer exclusion is a popular target in current discussions – this is the tax benefit that allows employer contributions to health insurance to be considered separate from employee income. If the employer exclusion is capped or eliminated, it will effectively increase taxes on the approximately 50% of U.S. residents who receive health insurance through their employers, and deliver a huge blow to the employer-sponsored health insurance system. Employers who offer health insurance as a benefit to attract and retain quality employees should be aware of the meaning and impact of capping or eliminating the employer exclusion.

4) 2018 Health insurance renewals will be business as usual. Insurance carriers filed their health insurance plan designs and rates with the regulatory agencies (Department of Insurance and Department of Managed Health Care) for 2018, so any substantive changes to plans (for example, removing Essential Health Benefits) won’t happen until 2019. For employers offering coverage, this means business as usual for 2018 health insurance renewals. Expect increases to premiums to average 10-15%. Also expect lots of plan changes – some plans may be discontinued and participants will be mapped to new plans; benefits many change even if plan names remain the same; carriers may reduce networks and pharmacy benefits and increase deductibles and out of pocket maximums to keep premiums in check.

5) Cost-containment tools are gaining in popularity. As out of pocket costs continue to increase for health insurance participants, we will continue to see a move towards consumer-driven health care, where participants are encouraged to be more involved in the spending of their health care dollars. Health Savings Accounts (HSAs) are growing in popularity again, carriers are providing tools to promote transparency for comparison shopping, and alternative delivery systems like telehealth, nurse on call, minute clinics, free-standing urgent care centers, and even flat-fee house calls are gaining in popularity. Health Reimbursement Arrangements (HRAs), self-funding arrangements and cash-benefit policies can also be effective tools for cost containment. Employers should work with their health insurance brokers and other benefit advisers to assess the value of these tools in their current employee benefits programs.

In closing, employer-provided health benefits rest on shifting legal sands and that is likely to remain the case for some time.   Planning opportunities, and pitfalls, will arise as the reform process moves forward and the informed employer will be in the best position to navigate the changes ahead.

†Hat tip to Ryan Moulder, Lead Counsel at Accord-ACA for this detail.

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Filed under Affordable Care Act, American Health Care Act, Applicable Large Employer Reporting, Benefit Plan Design, California Insurance Laws, California SB 562, Employer Shared Responsibility, Health Care Reform, Post-Election ACA, Single Payer Health Systems

Automatic Enrollment: Another Bone in the ACA Graveyard?

UPDATE:  President Barack Obama signed into law H.R. 1314, the Bipartisan Budget Act of 2015 described below, on November 2, 2015.

In the five years since the Affordable Care Act was enacted, a number of its provisions have died the legislative death known as repeal.  If enacted, the Bipartisan Budget Act of 2015 currently pending in Congress would add another bone to the ACA graveyard, in that it would repeal Section 1511 of the Affordable Care Act, which, through amendment of the Fair Labor Standards Act, would have required employers with more than 200 full-time employees to automatically enroll new full-time employees in their group health plans, subject to later opt-out.  The original effective date of this provision was unclear, but the Department of Labor put its enforcement on hold until regulations issued.  No regulations were issued, and now it looks like this provision, which was never a high-priority ACA item for the government, may never go into effect.

Other ACA measures that have previously been repealed include the mandated expansion of the definition of a “small employer,” for small group market purposes, from 50 to 100 employees. Although originally slated to take effect nationally for plan or policy years beginning on or after January 1, 2016, the PACE Act of 2015 made expansion of the definition is now a state-by-state decision (and as we discussed earlier, California’s expansion is slated to go into effect for 2016).

Another prior ACA casualty of note to employers was repeal of the cap on annual deductible amounts for health plans in the small group market, which happened (essentially retroactively) under the Protecting Access to Medicare Act of 2014.   (The repealed limits would have been $2,000 for an individual and $4,000 for a family.)  The ACA continues to cap annual maximum out-of-pocket amounts, and further requires that, effective for 2016 plan years, that a separate individual out-of-pocket maximum (an “embedded” maximum) applies to each person covered under family coverage, even before the family maximum is reached.

In the ACA’s earlier days, legislators put a stake in the heart of the free choice voucher provisions, which would have required employers who offered a group health plan to provide vouchers to certain employees to enable them to purchase exchange coverage.  The first major ACA casualty was and the public long-term care insurance program for employees, (“CLASS Act”), which was repealed, without ever having gone into effect, in the American Taxpayer Relief Act of 2012.

The last two ACA provisions that employers would most like to see repealed are the Cadillac tax, slated to go into effect in 2018, and nondiscrimination rules for fully-insured group health plans. Plans to implement the Cadillac tax, set forth in Internal Revenue Code § 4980I, appear to be progressing forward, as the IRS has issued two pieces of guidance this year, in the form of Notices 2015-16 and  2015-52, proposing interpretations of the rule and soliciting public comments on a number of points.  The fate of the nondiscrimination rule for insured plans, codified at Public Health Service Act § 2716, and incorporated into the Code via Section 9815, is less certain.  The rule is intended to provide, for non-grandfathered insured plans, a parallel to the nondiscrimination rules applicable to self-insured plans under Code § 105(h). In general terms, such a rule may make certain plan designs, including many executive/management “carve outs” such as special coverage tiers and accelerated plan entry, difficult or impossible to sustain.  In 2011, the IRS delayed enforcement of the rule until regulations were issued and no regulations have issued to date.  And since then, it has not included the rule on its annual list of priority tax guidance projects, including the most recent version for the fiscal year ending June 30, 2016, as updated for the first quarter of that period.  The IRS could still issue nondiscrimination guidance any time, however, and employers with non-grandfathered, insured plans should not assume that repeal will rescue them from this additional compliance burden.

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Filed under Affordable Care Act, Benefit Plan Design, California AB 1083, California Insurance Laws, California SB 125, Health Care Reform, Health Insurance Marketplace, Nondiscrimination Rules for Insured Health Plans, Small Group Coverage, Small Group Expansion

California Scheduled to Expand Small Group Definition Despite PACE Act

On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act which repeals provisions of the Affordable Care Act, and the Public Health Service Act, that effective January 1, 2016 would otherwise mandate expansion of the definition of “small employer” subject to insurance market reforms, from employers with 1 to 50 employees, to those with up to 100 employees. (This is actually a “look-back” test based on employee headcounts over the prior calendar year).  As discussed in this prior post, the market reform provisions, including modified community rating to determine premiums, and prohibitions on dollar limits on essential health benefits, are expected to significantly increase the cost of coverage for employers with 51 to 100 employees who will be joining the small group market for the first time.

Although the PACE Act repeals the federally-mandated expansion of the “small employer” definition, it leaves states the discretion to expand the definition on their own schedule.  As previously reported, California already enacted legislation in 2012, A.B. 1083, that expands the definition of small employer to employers with 1 to 100 employees, effective for plan or policy years beginning on or after January 1, 2016.  And in S.B. 125, earlier this year, California also adopted the use of the ACA’s full-time and full-time equivalent method of counting employees towards the small employer threshold.  When enacting S.B. 125, California had the opportunity to postpone small group expansion but did not do so.  Therefore the California small group market expansion will occur in 2016 unless California legislators take quick action by the end of the year to repeal the expansion, now codified in the California Insurance and Health and Safety Codes, or extend its effective date.  Of course, if is possible that the California legislature will not make any changes to the small employer definition, and small group expansion will occur in 2016.

We will continue to monitor developments on this topic.

Please note that an additional provision of S.B. 125 – changing open enrollment under the California state health exchange – Covered California, to match the November 1 – January 31 open enrollment period used by the federally-facilitated exchange, is scheduled to take effect November 1, 2015.

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Filed under Affordable Care Act, Benefit Plan Design, California Insurance Laws, California SB 1034, California SB 125, Covered California, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace, PACE Act of 2015, PPACA, Small Group Coverage, Small Group Expansion, State Exchange

California Adopts FT/FTE Counting Method to Determine Small Group Market Eligibility

Update:  Governor Jerry Brown signed SB 125, discussed below, on June 17, 2015.

In 2016, when California’s small group insurance market expands to include employers of up to 100 employees, employers in the state will use the same method of counting full time and full-time equivalent employees towards that threshold, as is required under the ACA’s employer shared responsibility rules.  This will be the effect of Senate Bill 125, which has been enrolled and sent to Governor Brown for signature.  It is expected that he will sign the bill into law, and the bill is effective upon enactment.

Current California Insurance and Health and Safety Code provisions define a “small employer” as an employer that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one, but no more than 50, ‘eligible employees,’ the majority of whom were employed within California.”   An “eligible employee” is in turn defined as “any permanent employee who is actively engaged on a full-time basis  . . . with a normal workweek of an average of 30 hours per week [or at least 20, at the employer’s option] over the course of a month” at the employer’s regular place of business, and who has met any applicable waiting period requirements.”   When it first enacted ACA-compliant measures in the 2011-2012 legislative session (AB 1083), California opted to postpone expansion of this definition — from employers of up to 50, to up to 100 employees — until January 1, 2016, which is the latest expansion date that the ACA allows.

Notably, the current manner of counting employees towards the 100 employee threshold does not take into account full-time equivalent (FTE) employees, which are counted towards the definition of an Applicable Large Employer (ALE) subject to ACA employer shared responsibility (or “pay or play”) duties, as set forth in Internal Revenue Code § 4980H, and final regulations thereunder.  FTEs are determined by totaling hours of service worked in a month by employees (including seasonal workers) who average under 30 hours of service per week (but not exceeding 120 hours/month for any single employee), and dividing the total by 120, such that 10 employees averaging 15 hours per week would result in 5 FTEs.  ACA health exchange regulations require that the ACA definition apply for purposes of policies that are sold on the small group exchange (SHOP) but not with regard to non-exchange policies.  SB 125 makes the ACA counting method applicable to all small group market policies sold in the state, whether or not offered on SHOP:

“For plan years commencing on or after January 1, 2016, the definition of small employer, for purposes of determining employer eligibility in the small employer market, shall be determined using the method for counting full-time employees and full-time equivalent employees set forth in Section 4980H(c)(2) of the Internal Revenue Code.”

California Insurance Code § 10753(q)(3); California Health and Safety Code § 1357.500(k)(3), both as amended by SB 125.  Both measures apply only to nongrandfathered health plans.

As a result, and with one important exception noted below, California employers will only need to do one set of calculations to be able to determine their status as Applicable Large Employers subject to ACA pay or play rules, and their status with regard to California’s small or large group markets.

The exception is with regard to counting employees of related entities.  Both California Code provisions amended by SB 125 require employers to count employees employed by “affiliated companies” that are eligible to file a combined tax return for purposes of state taxation.  However, the test for joint filing under the California Revenue and Taxation Code is not the same as “controlled group” status under federal law, which is expressly incorporated into the employee counting rules in Code Section 4980H(c)(2).  It is possible that this was an unintended drafting discrepancy that future guidance will resolve, but in the meantime, California employers with related entities should consult their state and federal law tax advisors to make sure they are counting employees properly for California small group eligibility and ACA shared responsibility purposes.

This exception aside, SB 125 brings welcome simplification at a time when employers with between 51 and 100 employees are calculating the likely costs and complications of losing access to large group coverage, and entering a market subject to rating restrictions and mandated coverage of essential health benefits.  Although legislative measures are afoot to allow states to further postpone, past 2016, the expansion of the small employer definition, California is unlikely to adopt any such change, should it become available.

SB 125, which was sponsored by California Senator Ed Hernandez (D-West Covina) also changes the annual open enrollment period for California’ state health exchange, Covered California™ , from October 15-December 7 of the year preceding the coverage year, to November 1 of the year preceding the coverage year, through January 31 of the new coverage year.  This is also consistent with the ACA, specifically with the Final HHS Notice of Benefit and Payment Parameters for 2016.  The new open enrollment period will first apply on November 1, 2015 through January 31, 2016, for the 2016 coverage year.

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Filed under Affordable Care Act, California AB 1083, California Insurance Laws, Covered California, Employer Shared Responsibility

Waiting Period Uncertainty Remains for Some California Employers

Recently enacted California Senate Bill 1034 prohibits California insurers and HMOs from imposing any waiting or affiliation period on group health coverage, other than that imposed by the employer sponsoring the group health plan.  As described in earlier posts, SB 1034 negates the effect of a prior law, AB 1083, that for 2014 imposed a maximum 60-day eligibility waiting period on California group health insurance policies and HMO contracts.   As a result, many California employers with insured group health plans have been foreclosed from using the maximum 90-day eligibility waiting period permitted under the ACA, which went into effect for plan years beginning on and after January 1, 2014.

The repeal under SB 1034 does not go into effect until January 1, 2015.  Employers with calendar year plans/policies that currently are subject to the 60-day limit can make a clean transition to the 90-day maximum waiting period effective January 1, 2015.  However, many employers who chose “early renewal” in 2013 in order to lock in pre-ACA rates for an additional 11 months will start new policy/plan years on December 1, 2014, raising the question of whether carriers will require compliance with the 60-day waiting period limit (a) for the balance of the 2014 calendar year; (b) for the entire 2014-2015 policy year; or (c) not at all, once the 2013-2014 policy year has come to a close.  Early renewal was most prevalent among small group plans, although it also was available to some large employers who were grandfathered into small group coverage. 

In the wake of the repeal measure, the major players in the California group coverage market are taking a cautious approach with regard to transition guidance.  Some carriers stopped enforcing the 60-day waiting period earlier this year when repeal of AB 1083 appeared certain, and logically these carriers would not hold employers to compliance through 2014.  Other carriers that followed the letter of California law in this regard will hopefully announce soon whether they will require compliance through December 31, 2014 or the end of 2014-2015 policy years.   We will post updates as further word from carriers becomes available.

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Filed under 90-Day Waiting Period, Affordable Care Act, California AB 1083, California Insurance Laws, Health Care Reform, PPACA

California Progresses Towards Parity with ACA Waiting Period Rule

Editor’s Note:  Governor Brown signed SB 1034 into law on August 15, 2014.

California Senate Bill 1034, which will remove the 60-day limit on eligibility waiting periods under California insurance and HMO group health contracts earlier mandated by Assembly Bill 1083, is in the late stages of legislative approval in Sacramento. Senate and Assembly Floor and committee votes have been unanimous in the bill’s favor. As discussed in an earlier post, once passed the bill will:
• permit California-licensed carriers and HMOs to administer employer-imposed eligibility waiting periods so long as they do not exceed the ACA’s 90-day limit, and
• prohibit such carriers and HMOs from imposing any separate, additional affiliation or waiting periods.

Pending passage of this bill, it appears that California carriers and HMOs are writing coverage without requiring that employers limit waiting periods to 60 days in accordance with AB 1083 as codified in the California Insurance and Health and Safety Codes. Those provisions went into effect on January 1, 2014 but almost immediately met resistance from brokers and benefit advisors and their clients.

Passage of SB 1034, which is slated to take effect on January 1, 2015, will permit employers with California-issued or renewed group health coverage to simply follow the ACA’s 90-day maximum limit on eligibility waiting periods (which apply to all employers, not just “applicable large employers” with 50 or more full-time employees, counting full-time equivalents). This will simplify these employers’ lives in number of ways:

• It will remove any doubts that they may impose “substantive” eligibility requirements such as licensure or attainment of a job level (e.g., assistant manager or higher), separate and apart from the 90-day waiting period, provided that the substantive requirement is not designed to avoid compliance with the 90-day limit. The federal waiting period regulations make it quite clear that this is permitted, but the separate California waiting period rules introduced a measure of uncertainty. That will no longer be the case.
• It will permit ALEs to use a “limited non-assessment period” of up to three full calendar months after hiring a full-time employee, such that an offer of coverage can be postponed until the first day of the fourth full calendar month after hire.

On this last point, the final ACA 90-day waiting period regulations state that a 3-month period cannot be substituted for 90-days. However, separate regulations were proposed, and finalized, that permit employers to impose a bona fide and employment-based orientation period of up to one month, beginning immediately after hire or after transfer to a new, benefitted job position. After the one month orientation period is up, the eligibility waiting period of up to 90 days would begin to elapse. Therefore, if properly administered, the orientation period may be combined with the 90-day waiting /limited non-assessment period to cover the entire period between the date of hire, and the first day of the fourth full month after hire.

Note in this regard that the orientation period cannot simply be an arbitrary stretch of time but instead must be used for the new hire/transfer and the employer to evaluate each other, and for the new hire/transfer to undergo orientation and training for his or her position. There are other implementation details to be aware of, and employers should get expert benefit advice in order to ensure compliance with these brand new rules.

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Filed under 90-Day Waiting Period, Affordable Care Act, Benefit Plan Design, California AB 1083, California Insurance Laws, Health Care Reform, PPACA

California Bill Would Repeal 60-Day Cap on Waiting Periods

California Senate Bill 1034 sponsored by Senator Bill Monning (D-Carmel) would repeal language in the Health & Safety and Insurance Code that currently limits waiting periods under small and large group HMO contracts and health insurance policies to a maximum of 60 days.  The new bill, if enacted, would prohibit insurers and HMOs from imposing any waiting or affiliation period under group coverage in the small and large-group markets.

This would allow California employers to follow the Affordable Care Act’s maximum 90-day limit on eligibility waiting periods, recently confirmed in final regulations issued by the Departments of Labor, Treasury and Health and Human Services (the “Departments”).  In the preamble to the final regulations, the Departments make clear that state insurance laws may impose more stringent waiting period rules than the federal standard.

I previously wrote about the waiting period rule, found in California Assembly Bill 1083 (also sponsored by Sen. Monning when he was an Assemblymember), and the confusion it created for California employers who originally understood the rule to apply only to small group coverage.  AB 1083 was modified by Special Sessions bills SBX 1 2 and ABX 1 2 but the changes did not affect the 60-day cap on waiting periods.  AB 1083, as amended, went into affect with respect to plan years on or after January 1, 2014.

One of the most significant disconnects between California law and the ACA in this respect is with regard to substantive eligibility requirements.  The federal 90-day waiting period regulations define “waiting period” as the time period that must elapse before coverage begins for an “otherwise eligible” employee, and make it clear that employers may impose substantive eligibility requirements on employees – such as attainment of a certain job level – in order to receive group health coverage.  In such instances, the maximum 90-day waiting period would not begin to elapse until the employee first attained the required job level.  This dovetails neatly with the common 90-day “introductory” or “orientation” period employers use to gauge whether or not a new employee will work out on a long term basis.  Successful completion of the introductory period generally triggers eligibility for a number of employment benefits and not just group health insurance.

By contrast, the California Insurance and Health and Safety Code rules containing the 60-day limit do not reference application of any substantive eligibility criteria and would appear on their face to be triggered at hire.   I have counseled clients that state laws governing insurance policies and HMO contracts cannot deprive them of their right as employers to impose substantive eligibility requirements on group health coverage, but none of them welcome the complexity of layering employer-based eligibility rules over rules bolted onto the coverage itself.

The disconnect between the ACA and California law increased as a result of the final waiting period regulations, and a companion proposed regulation, published last month.  Specifically, the final regulations recognize a “reasonable and bona fide employment based orientation period” as a permissible substantive eligibility condition, completion of which would trigger the 90-day maximum waiting period.  The companion proposed regulation identifies one month as a reasonable orientation period, such that an employer could assess a new hire for 30 days before the 90-day waiting period began to elapse.

SB 1034 is on the radar screen of insurance and HMO regulators in the state for several weeks and, to date, no opposition to the bill has been raised.   The California Department of Insurance may or may not register a position on the bill and any opposition raised by the California Department of Managed Health Care generally would not appear until further along in the legislative process.   I am tracking the Bill’s progress and will continue to provide updates on its status.  If passed, it would go into effect for plan (policy) years beginning January 1, 2015.

UPDATE:  It has come to my attention that, notwithstanding the fate of SB 1034, at least one large insurer in California has removed 60-day waiting period language from their large group contracts so that employers in this market can impose the full 90-day waiting period permitted under the Affordable Care Act.   Apparently they have interpreted the waiting period language to be binding on carriers but subject to override by the employer purchasing the  large group policy.  I do not know if this is an isolated instance or a trend but it is welcome news to the many employers in the state in the large group market.

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March 7, 2014 · 6:41 pm