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eTrends - CHIP Imposes New Requirements on Group Health Plans

04.17.2009

Employer sponsors of group health plans are impacted by new requirements in The Children’s Health Insurance Program Reauthorization Act of 2009 ("CHIP" or "Act").

Background

The State Children’s Health Insurance Program, founded in 1997, is a state-administered program jointly financed by the federal and state governments. The goal is to provide health insurance coverage to children whose families cannot afford private health insurance, but are ineligible for Medicaid benefits. The program was scheduled to expire at the end of March, 2009. However, it has now been extended and expanded by CHIP.

As discussed below, various CHIP provisions affect employer sponsors of both fully-insured and self-insured group health plans.

Premium Assistance

The Act authorizes states to develop premium assistance programs to help eligible employees pay their share of qualified employer coverage premiums to cover children under employer-sponsored plans instead of providing direct coverage under CHIP. At this time, North Carolina does not have such a program.

"Qualified employer coverage" means employer-sponsored group health coverage under which:

  • the employer provides 40% of the cost of coverage;
  • coverage is "creditable coverage" as defined under HIPPA; and
  • coverage is available to a reasonable classification of employees (as defined in section 105(h) of the Internal Revenue Code).

Health flexible spending arrangements and high deductible health plans do not qualify.

If the employee elects to enroll in a qualified employer plan, CHIP will subsidize the employee’s portion of the premium. The default procedure is for the state to pay the premium assistance payment directly to the employer. However, the Act permits employers to opt out of receiving premium assistance payments. When an employer opts out, the employee receives the premium assistance payment from the state. (Note that this might compromise the pre-tax nature of contributions under a cafeteria plan if the employee is reimbursed, in part, for a contribution made on a pre-tax basis.)

Enrollment and Disenrollment Rights

CHIP creates two new special enrollment rights for participants, effective April 1, 2009. First, plans must permit eligible employees and their dependents to enroll in the plan within 60 days of a determination that they are eligible for Medicaid or CHIP premium assistance. Second, plans must permit eligible employees and their dependents to enroll in the plan within 60 days if their Medicaid or CHIP coverage terminates due to loss of eligibility. These special enrollment rights apply regardless of whether the state implements a premium assistance program.

CHIP also directs states to create a process to allow the parent of a child receiving premium assistance to enroll the child in the state’s CHIP and disenroll the child from the employer-sponsored group health plan during any month. At this time, there is some uncertainty about how this provision will be applied since it appears to be inconsistent with the cafeteria plan regulations, which permit disenrollment only upon the occurrence of specified events.

Required Notices

Employer sponsors of group health plans must provide each employee with written notice about premium assistance programs available in the state where the employee resides, which may be different than the state where the employee works. The government will issue model notices by February 4, 2010, and employers are required to distribute the notices beginning the first plan year after the model notices are issued. Employers have the option to provide stand-alone notices or to include the notice along with notices of health plan eligibility, open enrollment materials, or summary plan descriptions.

Employers may also be requested to provide information to the state government about the group health plan benefits available to employees or dependents covered under CHIP.

Employers may be fined $100 per day for failure to comply with the employee notice requirement or failure to disclose information requested by the state. Because each violation with respect to a single participant or beneficiary is a separate violation, penalties can be significant.

Next Steps

  • Employers need to allow employees who qualify for special enrollment to enroll as of April 1, 2009.
  • Employers should review and, if necessary, amend their plan documents in order to comply with CHIP, which may including the following: preparing a summary of material modifications or restating the summary plan description to include the new special enrollment events; updating the special enrollment rights notice provided prior to or at the time of enrollment; and amending cafeteria plan documents.
  • Employers should identify all states where their employees reside. After the government issues the model notices, employers should issue notices about premium assistance programs where available.
  • Employers should decide whether to opt out of direct payment from CHIP. For example, multi-state employers may wish to opt out in order to minimize administrative difficulties.
  • Employers need to consider how to administer an employee’s request to disenroll from the group health plan, which may also involve changing the employee’s election under the employer’s cafeteria plan.

For more information, please contact Heather Adams or Jamison H. Hinkle

Employment, Labor and Human Resources

Employee Benefits and Compensation

Environmental Health and Safety

Government Contracting

Privacy

  • Alicia A. Gilleskie agilleskie@smithlaw.com
  • Frederick R. Zufelt fzufelt@smithlaw.com

Smith Anderson publishes eTrends periodically as a service to clients and friends. The purpose of this eTrends is to provide general information about a significant legal development in the field of employment law. Readers should be aware that the facts may vary from one situation to another, so the conclusions stated herein may not be applicable to the reader’s particular circumstances.

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Jamie Greene
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T: 919.838.2045

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