As a reminder of the significant role that states will play in implementing the provisions of the Affordable Care Act (ACA), we wanted to highlight some recent legislative developments in California that will be of interest to employers in the small group market (i.e., generally employers with 100 or fewer employees). For California employers with between 50 and 100 employees, these developments may add some complexity to ongoing discussions about the “shared responsibility” or “pay-or-play” requirements adopted by the ACA. For more information about the ACA’s shared responsibility requirements, please refer to our prior client alerts.
Beginning January 1, 2014, the ACA requires that non-grandfathered group health plans in the small group market offer a menu of “essential health benefits” to their enrollees. (These requirements also apply to health insurance policies issued in the individual market.) Bear in mind that neither grandfathered group health plans maintained by both large and small employers (i.e., those that are not fully subject to the ACA’s requirements, at least not yet) nor self-funded group health plans are subject to this requirement. The ACA outlines a group of 10 essential health benefits that must be offered, including:
- ambulatory patient services,
- emergency services,
- hospitalization benefits,
- maternity and newborn care,
- mental health and/or substance abuse treatment and services,
- prescription drugs,
- rehabilitative and habilitative services and devices,
- laboratory services,
- preventive and wellness services, and
- pediatric services (including dental and vision care).
Proposed regulations issued by the U.S. Department of Health and Human Services (DHHS) in late 2012 generally indicate that the scope of the essential health benefits to be provided in each state will be determined by reference to those available under a typical employer plan; the proposed regulations include a preliminary listing by state of the benchmarks to be used for assessing whether small group health insurance policies offer the required essential health benefits. The ACA gives each state authority to make its own determination of the benchmark insurance policy to be used to assess essential health benefits coverage within its borders and, perhaps not surprisingly, California legislators anticipated this development and adopted amendments to the Insurance Code in September 2012 to formally designate the Kaiser Foundation Health Plan Small Group HMO 30 policy as the state’s benchmark for 2014 and 2015. (DHHS has indicated in subregulatory guidance issued on February 17, 2012, that it intends to revisit the benchmarking process for plan years beginning in 2016.)
As amended by Senate Bill 951, the California Insurance Code mandates that all individual or small group health insurance policies issued, renewed, or amended on or after January 1, 2014, provide essential health benefits. Both the ACA and the proposed regulations make allowances for state-specific insurance mandates, but generally require states to cover the added costs of these mandated benefits over and above the costs of the required essential health benefits. Further to these allowances, SB 951 expressly incorporates California insurance mandates in effect on or before December 31, 2011, into the package of essential health benefits to be available beginning on January 1, 2014. In addition to the minimum suite of essential health benefits available through SB 951, a number of additional benefits will continue to be mandated, including: medically-necessary basic health services (e.g., physician services, hospital and inpatient ambulatory care services, home health services, etc.); HIV testing and AIDS vaccines; certain medically-necessary equipment and supplies for diabetes treatment; breast cancer screening, mammography, and mastectomies; various kinds of cancer screenings; and clinical cancer trials. California’s inclusion of these additional benefits in the essential health benefits package is contingent on the state’s ability to avoid paying for their added costs under an exception in the proposed regulations; presumably, if that exception ceases to be available, the additional mandated benefits would no longer be included in the standard menu of essential health benefits.
Affected employers should also bear in mind an additional key point to avoid confusion: although the terms “essential health benefits” and “minimum essential coverage” may seem to overlap, they are wholly distinct concepts and apply to different aspects of compliance with the ACA. “Minimum essential coverage” is a term primarily of interest to employers in attempting to avoid a penalty under the ACA’s shared responsibility requirements, while the requirement to cover essential health benefits is primarily directed at health insurers and individuals who are attempting to avoid a penalty under the individual mandate requirement (i.e., that individuals either procure “minimum essential coverage” for themselves or pay a penalty).
As California employers in the small group market wrestle with the implications of the ACA to their existing health benefits, they should be aware that the group insurance policies available to them beginning with renewals for plan years beginning on and after January 1, 2014, will include the essential health benefits package specified by SB 951. Depending on the scope of benefits offered by these employers in 2013 and prior years, these changes may result in increased costs of coverage as the new mandate becomes effective.