September 2, 2010

Fall Open Enrollment Season: Health Care Reform Starts to Take Effect

October traditionally marks the beginning of health insurance open enrollment season, during which employees can review and change their health plan benefits. Employers that don’t require an “active” enrollment and/or that have not made substantive plan changes for some time may find that their employees pay scant attention, automatically selecting the plans they had the previous year without looking to see what’s new.

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And even for those employers who do require active enrollment, many employees find comfort in the status quo by electing the same plans they’ve had in the past.This year, the first wave of changes under the Patient Protection and Affordable Care Act start to take effect, and it won’t be business as usual for either employers or employees.

This enrollment season, it’s smart business and smart employee relations to step up your employee communication programs to ensure employees really understand plan changes and how reform affects their benefits. Just as a good benefits plan is a key component of an employee’s total compensation package, good communication plans for employee open enrollment are key to an employee’s effective use of that plan. Further, MetLife and Towers Watson have shown that effective benefits communication leads to more satisfied employees, which supports higher retention and better corporate financial performance.

Health Care Reform – What Is the Status and What’s Changing This Year

First and foremost, employees will be curious about how health care reform will affect them. The health care reform bill has mandated multiple changes to medical plans that must be addressed during this open enrollment season. These provisions, which generally apply to plan years beginning on or after September 23, 2010 (January 1, 2011, for calendar year plans), may require changes in plan design or amendments to insurance contracts. These changes will affect both insured and self-funded group health plans.

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Among the most significant health care reform changes for 2011 are:

Coverage of children to age 26
Exclusion of lifetime limits
Restrictions on annual limits on essential health benefits (limits cannot be more than $750,000)
Inclusion of the cost (COBRA cost minus 2% administrative fee) of medical coverage on employees’ W-2s
Exclusion of over-the-counter medications as reimbursable expenses under health care flexible spending accounts or health reimbursement accounts (with the exception of Insulin), unless prescribed by a physician

And, for non-grandfathered plans:

Preventive care and certain immunizations must be provided with no cost-sharing
Out-of-pocket maximums may not exceed $5,000 for individual coverage ($10,000 for family coverage)
Plans that require participants to choose a primary care provider (PCP) must allow selection of any provider in the network; participants may obtain OB/GYN services from any network physician
Emergency services must be covered whether or not the provider is a network provider, must be covered at the same level (both in- and out-of-network) and must not be subject to pre-authorization rules

Further, many of these changes will require employees to actively participate in the open enrollment process this year. For example, employees who participate in health care spending accounts will want to pay particular attention to the amount they elect to contribute to the account, especially if they’re used to paying for adhesive bandages, over-the-counter pain and allergy medicine and cold remedies through their accounts. Because of the “use it or lose it” provisions of these plans, an employee who just elects to contribute the same amount as last year may find he or she has over-estimated, now that over-the-counter remedies are no longer eligible for reimbursement.

Developing a Communication Plan for Employee Open Enrollment

So how do employers notify their participants about the changes? For the short-term, open enrollment materials—such as newsletters, emails, meetings and guides—are a start. In addition, some of the changes noted above require distribution of special notices to employees. These include:

Grandfathered health plan notice, stating that the employer believes the plan is grandfathered and therefore exempt from certain provisions of the Health Care Reform Act.
Special notice for certain children who aged out, describing a one-time, 30-day enrollment period for adult children who either lost coverage because they “aged out” or who are first becoming eligible because of the changes to the law.
Patient protection notice (for non-grandfathered plans), explaining the right to select a PCP from any network provider, and that referrals are not needed for obstetrical or gynecological care received in-network.
Lifetime limits notice, stating that limits no longer apply and a one-time, 30-day enrollment period is available to participants who left the plan because they had reached a previous lifetime limit.

These notices are critical for two reasons. First, the penalty for not issuing them can be high—it’s possible that Health and Human Services will opt to apply HIPAA compliance penalties, which involve substantial monetary fines. Second, the one-time enrollment periods will likely extend past the regular open enrollment period, which may be confusing to the affected participants.

Plan design changes are typically communicated to plan participants through a summary of material modifications—or SMM. In fact, many employers will make their open enrollment materials serve as an SMM. While this approach certainly meets the immediate need, enrollment materials typically find their way into the trash bin once enrollment is over. Since SMMs are meant to be kept with the plans’ Summary Plan Descriptions (SPDs) until a new, updated SPD is issued, participants run the risk of not having the most current plan information.

With the extent and complexity of the health care changes being made this year, employers should strongly consider updating their SPDs as soon as possible after the beginning of the plan year. Employees need to know that they have an up-to-date reference guide to their benefits that will be around when open enrollment is over.

While stepping up employee communication may add some cost burden to employers, the investment will more than be balanced by employers being in federal compliance while creating a greater level of engagement with their employees.

Regards,

Kim Buckey
Practice Lead, SPD Services, HighRoads

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