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IRS Issues Three Proposed Regulations Addressing Open Issues Under PPACA

On Nov. 20, the Department of Health and Human Services issued three sets of proposed rules that provide some of the needed details on how PPACA will probably unfold.

The proposed rules address:

» Wellness programs under PPACA

» Essential health benefits and determining actuarial value

» Health insurance market reforms

All three rules are still in the “proposed” stage, which means that there may — and most likely will — be changes when the final rules are issued. There is a 30-day public comment period on the essential health benefits and market reforms rules, and a 60-day comment period on the wellness rule.

Nondiscriminatory Wellness Incentives

The proposed rule largely carries forward the rules that have been in effect since 2006. There still would not be limits on the incentives that may be provided in a program that simply rewards participation, such as a program that pays for flu shots or reimburses the cost of a tobacco cessation program, regardless whether the employee actually quits smoking.

Programs that are results-based (which will be called “health-contingent wellness programs”) still would need to meet several conditions, including a limit on the size of the available reward or penalty.

Beginning in 2014, the maximum reward/penalty would increase to 50 percent for tobacco nonuse/use and to 30 percent for other health-related standards.

Essential Health Benefits (EHBs) and Actuarial Value

The proposed rule confirms that nongrandfathered plans in the exchanges and the small group market will be required to cover the 10 essential health benefits and provide a benefit expected to pay 60, 70, 80 or 90 percent of expected allowed claims. The proposed rule also says that self-funded plans and those in the large employer market would not need to provide the 10 EHBs; instead, they would need to provide a benefit of at least 60 percent of expected allowed claims and provide coverage for certain core benefits.

The proposed rule would consider current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) as part of the benefit value calculation.

Market Reforms

The proposed rule confirms that nongrandfathered health insurers (whether operating through or outside of an exchange) would be prohibited from denying coverage to someone because of a pre-existing condition or other health factor. The proposed rule also provides that premiums for policies in the exchanges and individual and small group markets could only vary based upon age, tobacco use, geographic location, and family size and sets out details on how premiums could be calculated.

Important: These rules are still in the “proposed” stage, which means that there may be changes when the final rule is issued.  Employers should view the proposed rules as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.

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