Wednesday, July 10, 2013

Never Mind PPACA’s 90-Days: California Will Adhere to Benefit Eligibility of 60 Days in 2014

A little known and still murky California law will impact many employer budgets in 2014.
by Craig Gottwals, J.D. & Ryan Kennedy, PhD | July 10, 2013 | Updated November 18, 2013 
On September 30, 2012 California Governor Brown signed AB 1083 into law. The passage of the law largely slid under the radar as the legislature's description of their action was that it was a series of statutory amendments designed to bring California's laws into conformity with the Patient Protection and Affordable Care Act (PPACA). Very few legal scholars, insurance agencies, or compliance experts noted much more than the fact that the law was a “conforming effort.”

Except that it was not. Instead of limiting benefit eligibility periods to 90-days as PPACA does, California will limit all medical insurance eligibility/waiting periods to 60 days in 2014 and beyond.

The 60-day limitation spans six existing statutes primarily dealing with small groups of under 50 employees and cloaked overwhelmingly with language about preexisting conditions and guaranteed issue. Yet two of the statutes amended by AB 1083 do, in fact, control the waiting periods for all (large and small) group insurance plans in the state.

Here are the relevant statutes that have been amended:
  • Health & Safety Code Section 1357.506 - Nongrandfathered Small Employer Plans. 
  • Health & Safety Code Section 1357.51 - Nongrandfathered and grandfathered health benefit plan for group coverage (includes large group) stating:
“A health benefit plan for group coverage may apply a waiting period of up to 60 days as a condition of employment if applied equally to all eligible employees and dependents and if consistent with PPACA.” Subsection (c)(1).
  • Health & Safety Code Sections 1357.600 & 1357.607 - Grandfathered Small Employer Plans.  
  • Insurance Code Section 10198.7 - Nongrandfathered and grandfathered health benefit plan for group coverage (includes large group) stating:
“A health benefit plan for group coverage may apply a waiting period of up to 60 days as a condition of employment if applied equally to all eligible employees and dependents and if consistent with PPACA. P. 43.” Subsection (c)(1).
  • Insurance Code Section 10753.08 - Nongrandfathered Small Employer Plans.
  • Insurance Code Section 10755.08 - Grandfathered Small Employer Plans. 
An initial reading of this 89 page Bill leads one to believe it only applies to small groups in our state. In fact if you Google it, you will see that most agencies and commentators have incorrectly assumed its reach is limited to small groups. In researching and carefully reviewing it, I can report it does apply to all group policies. We have confirmed our reading of the law with two large California carriers and their compliance departments.

Additionally, the California Department of Managed Health Care states simply on its website:
Some group health plans have “waiting periods” or “affiliation periods.” This means that there is a waiting period before your health plan starts. Ask your employer if there is a waiting period.  
  • You will not pay any premium during the waiting period.
  • Under California law, the waiting period cannot be longer than 60 days.
One large carrier already conveyed to us that California polices will only have three options in 2014:
  • First of the month following date of hire
  • First of the month following 30-day waiting period
  • New: Sixty days following date of hire (partial months to be prorated)
We suspect other carriers will similarly allow for an employer to do a 60-day, on-the-dot, prorated month.  Note that first of the month following 60-days will not suffice for purposes of meeting this statute.

Increased Reporting and Public Disclosure of Your Enrollments

Another provision in this law will require plans and insurers to report to the State the number of enrollees and covered lives that receive coverage under group health insurance contracts or policies, and would require the Departments of Insurance and Managed Care to post that information on their public web sites.

This is yet another element of health reform that will make your plan enrollments and participation rates public knowledge in 2014. Carriers as well as state and federal regulators will know which employers are meeting minimum participation requirements and meeting their eventual obligations under Internal Revenue Code 105(h) nondiscrimination testing. (The passage of 105(h) testing has been temporarily suspended for fully insured plans under PPACA until regulations are written on the matter. This will likely be at some point in 2014 or 2015.)

Effective Date

Page two of the Bill provides that:
This bill would prohibit a health care service plan contract or health insurance policy, on or after January 1, 2014, from imposing any preexisting condition provision upon any individual, except as specified. The bill would also enact provisions that apply to nongrandfathered and grandfathered plans with respect to plan years on or after January 1, 2014, consistent with PPACA.
One could argue that the 60-day limit should occur on January 1, 2014 for large employers irrespective of an employer's plan year because the only statutes that make the limit applicable to large groups are also in the sections dealing with pre existing conditions. And the restriction on pre existing conditions clearly triggers on January 1, 2014. But one could also argue that since the 60-day limit does not address pre existing conditions it should be triggered in the first plan year of 2014. We think the more logical and persuasive reading makes it apply to plan years as opposed to the calendar year. Carrier interpretations have generally substantiated this reading of the law.

Penalties

Insurance Code Section 10753.18 contains some rather severe penalties for insurance carriers and other related parties who transgress the 60-day limitation. Violations range from $2,500 to $100,000 per violation based upon volume of violations and degree of malice.

We will keep you posted as we get updates on from the Department of Insurance and the Department of Managed Health Care but wanted to get this notice to you as soon as possible as we know this will impact many employer budgets in California.

Disclaimer: This article is published as an information source for our clients and colleagues. The article is general in nature and is not the substitute for legal advice or opinion in a particular case. In response to new IRS rules of practice, we inform you that any federal tax information contained in this writing cannot be used for the purpose of avoiding tax–related penalties or promoting, marketing or recommending to another party any tax–related matters in this writing.


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