Health Care Reform: How Will it Affect School Districts?

On March 23, 2010, the federal Patient Protection and Affordable Care Act ("PPACA") was signed into law. The legislation mandates widespread health care reform that will be implemented over the next several years. The following is a brief summary of those provisions of the PPACA that may affect health insurance plans provided by school districts.

W-2 Reporting

For taxable years beginning after December 31, 2010, employers must report on their employee's W-2 form the full premium value of their employee health coverage, including but not limited to the value of prescription drug plans and employee assistance programs.

Market Reforms

The PPACA will mandate new coverage requirements for health insurance plans, often referred to as market reforms. These market reforms include, but are not limited to: participant's choice of primary care providers; full coverage for preventative care; reimbursement of emergency service expenses as in-network even if an out-of-network provider is used; certain limitations on when insurance may be rescinded; and no lifetime limits on the dollar value of essential health benefits.

Grandfathered Plans

Grandfathered health plans (i.e. plans which an individual has been continuously enrolled since the March 23, 2010 enactment of the PPACA) are exempt from many of the PPACA's new market reforms. However, even grandfathered health plans must comply with the following:
 

• no lifetime limits on the dollar value of certain essential health benefits
• prohibition on recessions (only for fraud and misrepresentation)
• no preexisting condition exclusions on enrollees under the age of 19
• adult children covered up to age 26 regardless of their marital status or whether they are still enrolled in school

A health plan will lose grandfathered status if:

1. Benefits are significantly cut or reduced. (i.e. the new plan no longer provides coverage for certain diseases or medical conditions that were previously covered)
2. Co-insurance charges are raised. Grandfathered plans cannot increase the percentage that an employee pays on a particular charge (i.e. the percentage paid on a hospital bill, etc.).
3. Co-pays are significantly increased. Grandfathered plans will be able increase co-pays by no more than the greater of $5 (adjusted annually for medical inflation) or a percentage equal to medical inflation plus 15 percentage points.
4. Deductibles are significantly raised. Grandfathered plans can only increase these deductibles by a percentage equal to medical inflation plus 15 percentage points from the plan that was in effect on March 23, 2010.
5. Employer's contribution rate is significantly reduced. Grandfathered plans cannot reduce the amount of an employer's contributions by more than 5 percentage points below the contribution rate in effect on March 23, 2010.
6. The plan adds or tightens the limit on what the insurer pays. If no cap exists, new plans cannot add a cap on the amount an insurer pays for covered services and still retain grandfathered status. If a cap already exists, the new plan cannot tighten any dollar limit that was in place on March 23, 2010.
7. The Employer changes insurance companies. This does not apply when employers that provide their own insurance to their workers switch plan administrators or to collectively bargained agreements.

Collectively Bargained Plans

Collectively bargained health plans that were in effect prior to March 23, 2010 are exempt from the requirements of the new law until the date on which the CBA providing health coverage terminates.
After the CBA terminates, any proposed new plan must be reviewed in comparison to the plan in effect on March 23, 2010 under the general grandfather provisions set forth above.

Conclusions

Any school district contemplating a plan change to control costs should proceed with caution. School districts should assess whether a plan change will cause it to lose grandfathered status. Increased coverage requirements mandated by the loss of grandfathered status could potentially offset the potential cost savings brought about by implementing a new health plan.