Health plans

Scope

Many employers offer employees and their families health plans as a benefit.

Regulatory citations

• None

Key definitions

• Group health plan: An employee welfare benefit plan established or maintained by an employer or by an employee organization (such as a union), or both, that provides medical care for participants or their dependents directly or through insurance, reimbursement, or otherwise.

Summary of requirements

Most private sector health plans are covered by the Employee Retirement Income Security Act (ERISA). Among other things, ERISA provides protections for participants and beneficiaries in employee benefit plans (participant rights), including providing access to plan information. Also, those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct under the fiduciary responsibilities specified in the law.

Health plans are not a federally mandated benefit; employers are not required to offer them to their employees. However, if they do, there are different types of health plans to consider. Some of these include the following:

• Major medical (also known as indemnity, or fee-for-service) plans. Major medical plans allow the individual to choose their medical service providers. The individual is responsible for deductible and coinsurance costs, and for filing and tracking all of his or her patient care claims.
• Managed care plans. Managed care plans organize providers (doctors, hospitals, etc.) into networks in an attempt to deliver healthcare more cost-efficiently. Individuals do not have complete freedom to choose their medical service providers, in exchange for lower premiums or more comprehensive benefits. Managed care plans may also require pretreatment authorization procedures. Three basic types of managed care plans are available: Health Maintenance Organizations (HMO), Preferred Provider Organization (PPO), and Point of Service (POS).
  • HMO. HMOs are comprised of a defined group of medical service providers who provide their services to employees for a fixed monthly fee. The providers are paid on a per capita basis rather than for the treatment provided. Members pay a set monthly or annual fee, and must use the designated service providers to obtain lower copaymentsor fees.
  • PPO. PPOs are comprised of a network of medical service providers who agree to provide services for specified fees. Employees have the option of using PPO providers (and get lower rates), or use providers outside the network (for higher rates).
  • POS. POS plans combine elements from HMOs and PPOs. Each time an individual receives medical service, he or she makes a choice of provider and level of cost-sharing.

Other plans. Employers may choose to offer other health plans, such as dental plans, vision plans, and prescription drug plans. The employer needs to determine what level of benefits to offer, and what types of services will be covered.

Funding the plan. Once employers decide on a plan or plans, they will need to fund them. Methods of funding health plans include the following:

• Fully insured. Employers pay, to a third party provider (insurer), premiums that cover such things as charges, costs, taxes, and profits. All risks are borne by the third-party provider.
• Self-insured. In a self-insured plan, the employer plays the part of the insurer and assumes some or all risks.
• Administrative-services-only (ASO). Employers hire only the claims administration activities of an insurer. The employer assumes the risks.
• Third-party administrator. Much like an ASO, but the employer hires an independent claims department.
• Health insurance purchasing cooperative. This option involves groups of employers in a region banding together for high-quality services at low prices. This option helps give smaller employers a better prospect at obtaining lower rates.

Michelle’s law. This law provides that dependents in post-secondary educational institutions are to continue group health care coverage for a medically necessary leave of absence. This absence must meet the following criteria:

• Begin while such child is suffering from a serious illness or injury,
• Be medically necessary, and
• Cause such child to lose student status for purposes of coverage under the terms of the plan or coverage.

Group health plans are prohibited from terminating the coverage of a dependent child because of a medically necessary leave of absence. Coverage must last until the earlier of the following:

• The date that is one year after the first day of the medically necessary leave of absence, or
• The date on which such coverage would otherwise terminate under the terms of the plan or health insurance coverage.

A dependent child (as defined by the terms of the plan) is a beneficiary of the plan and was enrolled as a student at a postsecondary educational institution immediately before the first day of the medically necessary leave of absence involved.

The plan may require written certification by a treating physician of the dependent child which states that the child is suffering from a serious illness or injury and that the leave of absence is medically necessary. The plan must provide a notice regarding a requirement for certification, and include a description of the terms for continued coverage during medically necessary leaves of absence.

CHIPRA. Under the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA, P.L. 111-3), group health plans and group health insurance issuers must offer new special enrollment opportunities. Effective April 1, 2009, plans and issuers must permit employees and dependents who are eligible for, but not enrolled in, a group health plan to enroll in the plan upon the following events:

• Losing eligibility for coverage under a State Medicaid or CHIP program, or
• Becoming eligible for State premium assistance under Medicaid or CHIP.

The employee or dependent must request coverage within 60 days of being terminated from Medicaid or CHIP coverage or within 60 days of being determined to be eligible for premium assistance.

There are also new notice and disclosure requirements associated with CHIPRA:

• Employers must notify all employees of their potential eligibility for the subsidies under Medicaid or CHIP. A model notice, developed by the Department of Labor and the Department of Health and Human Services is available in the Forms Library.
  • Employers are not required to provide these notices until the first plan year after the model notices are issued (January 1, 2011 for calendar year plans).
• In order for states to evaluate an employment-based plan to determine whether premium reimbursement is a cost effective way to provide medical or child health assistance to an individual, plans are required to provide, upon request, information about their benefits to State Medicaid or CHIP programs.
  • States may begin requesting this information from plans beginning with the first plan year after the model disclosure form is issued (January 1, 2011 for calendar year plans).
• For purposes of the Employer CHIP Notice requirement, an employer providing benefits (directly or through insurance, reimbursement, or otherwise) for medical care in a state is considered to maintain a group health plan in that state. If that state provides medical assistance under a State Medicaid plan, or child health assistance under a state child health plan, in the form of premium assistance for the purchase of group health plan coverage, the employer is required to provide the Employer CHIP Notice.
• Accordingly, if a group health plan provides benefits for medical care directly (such as through a health maintenance organization); or through insurance, reimbursement or otherwise to participants, beneficiaries, or providers in one of these states, the plan is required to provide the Employer CHIP Notice, regardless of the employer’s location or principal place of business (or the location or principal place of business of the group health plan, its administrator, its insurer, or any other service provider affiliated with the employer or the plan).
• An Employer CHIP Notice must inform each employee, regardless of enrollment status, of potential opportunities for premium assistance in the state in which the employee resides.
  • The state is which the employee resides may or may not be the same as the state in which the employer, the employer’s principal place of business, the health plan, its insurer, or other service providers are located.

For more information on the HIPAA portability provisions, including in regard to CHIPRA, see the HIPAA portability ezExplanation.