Group Health Insurers Not Factoring In COVID-19 Effects in 2022 Pricing: Study

In a glimpse of what we may expect in terms of premiums, a new study by the Kaiser Family Foundation has found that most insurers are not factoring in added costs or savings related to COVID-19 for their 2022 health coverage rates for personal health plans in 13 states and the District of Columbia.

The insurers expect health care utilization to return to pre-pandemic levels by 2022, according to the analysis by KFF.

While the analysis focused on the individual market, KFF found that insurers were making similar assumptions about how COVID-19 would affect their group market costs and pricing.

Despite them not expecting significant effects from COVID-19, there are other issues that are on health insurers’ radars that are likely to increase rates, including the costs of treatment that was delayed in 2020, the continued use of telehealth services and new federal regulations in response to the pandemic. A recent survey by PricewaterhouseCoopers found that employers are expecting an average rate increase of 6.5% for group health coverage.

It’s clear that most insurers are viewing the COVID-19 pandemic as a one-time event, with limited, if any, impact on their 2022 claims costs. KFF referred to the pandemic’s effect on rates as “negligible.”

The foundation looked at rate filings of 75 insurers and only 13 of them stated that the pandemic would increase their costs in 2022, but even then, most of them predicted an effect of 1%. The reasons those 13 insurers cited for the expected higher costs include:

  • Costs related to ongoing COVID-19 testing, treatment and vaccinations.
  • Anticipated vaccination boosters.

Delayed treatment, policy changes

While most insurers don’t expect to be paying out excessive amounts for treatments and medications related to COVID-19 infections, they are concerned about the increased flow of patients seeking treatment for procedures they postponed last year.

Those postponements have led to pent-up demand, driving higher utilization in 2021, which some health plans expect will spill over into 2022.

As a result, some insurance companies have filed rates that include a “COVID-19 rebound adjustment” to account for the services that were deferred in 2020.

Other carriers have filed for rate increases based on predictions that those delayed services will lead to an exacerbation of chronic conditions. Some are also predicting that COVID-19 “long-haulers” could push claims costs higher.

On top of all that, insurers this year have had to make decisions about benefits, network design and premium pricing in the face of the pandemic and federal policy changes that could dramatically expand coverage under the Affordable Care Act.

Other concerns

Some insurers are concerned about the costs associated with the explosive growth of telehealth services during the pandemic. These tele-visits boomed as people were avoiding doctors’ offices due to stay-at-home and social distancing orders and to reduce the chances of COVID-19 transmission.

Kaiser Permanente in one of its filings wrote: “We anticipate the high utilization of telehealth services to persist beyond the lifespan of the outbreak into the foreseeable future.”

Another insurer, MVP in Vermont, said that while it has seen costs associated with in-person ambulatory services increase this year and a return to in-person visits, it has not seen a reduction in use of telehealth services.

Finally, Blue Cross Blue Shield of Vermont in its filing predicted that the increased expenditures for mental health services (demand for which spiked in 2020 as people wrestled with isolation and depression aggravated by the pandemic) would continue in 2022 and beyond.

The insurer predicted that claims for mental health and substance abuse treatment would climb 20% from 2020 to 2022.

Few Health Plan Enrollees Know About New Price Transparency Rules

Despite a new law requiring hospitals to post detailed pricing information for their treatments and procedures online, fewer than 10% of U.S. adults are aware of the requirement.

That’s a problem considering that a growing number of Americans have high-deductible health plans, which come with up-front lower premiums but with higher out-of-pocket expenses.

One of the driving forces behind HDHPs is that they give the enrollee more “skin in the game,” by incentivizing them to shop around for care since they will have to pay for it themselves up to their deductible.

But if people are not aware they can find pricing for medical services on providers’ websites, they may not know how to begin comparing prices.

A new study by the Kaiser Family Foundation found that only 9% of those surveyed were aware that hospitals are required to publish the prices for their services online, in line with new price transparency regulations that took effect Jan. 1, 2021.

The price transparency rule, implemented by the Trump administration, requires hospitals to post on their websites:

  • A plain language description of each shoppable service and item.
  • A description of charges, including:
    • Payer-specific negotiated charge, or the price a third party payer such as a health insurance company would pay.
    • Discounted cash price, or the price a patient would pay without insurance.
    • Gross charge, or the charge absent any discounts.
    • De-identified maximum and minimum negotiated charges for each.
  • Any primary code used by the hospital for purposes of accounting or billing.

Here’s what the survey found:

  • 69% of respondents were unsure whether hospitals are required to disclose the prices of treatments and procedures.
  • 22% believed hospitals are not required to disclose this information.
  • 9% were aware hospitals are required to disclose the prices of treatments and procedures on their websites.
  • 14% said that they or a family member had gone online in the past six months to research the price of a treatment at a hospital.
  • Younger adults (ages 18 to 49) were more likely to say they or a family member had searched for the price of care online.

Educating your staff

Employers with HDHPs should inform their staff about the price transparency rule so that they can research pricing ahead of any procedures they may have. Most health system websites should be posting their pricing by now, but it may take some digging to find them. 

If they have been ordered to get a certain procedure, they can start by going to each provider available to them through their health insurance and researching the pricing on their website. If they can’t find the information, they should call the provider to get the information. They will need the negotiated price between their health plan and the provider.

Prices can vary dramatically between providers, and your staff need to make sure they are comparing the exact same service between them.

They should also consider calling the providers and inquiring about the cash price for the services. In some instances, the cash price may end up being even less than their deductible or copay.

One problem: Many hospitals have not published their rates and there has been a lack of consistency between providers in terms of how they are providing the information.

This has prompted the CMS to audit hospitals’ websites and complaints, and it recently started sending out notices to hundreds of hospitals that are not complying with the transparency regulations.

Finally, many insurance carriers offer searchable online databases for their enrollees where people can research the approximate cost of certain procedures among all the providers available to them.

Attention Employers: IRS Ramping Up ACA Compliance

There are signs that the Internal Revenue Service is starting to step up its enforcement of the Affordable Care Act employer mandate.

During the past six months, there’s been an uptick in the number of employers receiving initial notices stating they may be out of compliance with the requirement that they offer their workers coverage. 

Also, the IRS has announced that it will no longer provide “transition relief” to employers that file incomplete 1094/1095C forms, make mistakes on them or fail to file them. 

Notices were recently sent out for the 2018 tax year. Many of the proposed assessments would result in penalties that are in the millions.

The IRS is charged with ensuring that employers with 50 or more full-time or full-time-equivalent workers comply with the employer mandate, which requires them to offer them health coverage that is affordable and covers 10 essential benefits, as per the ACA. These “applicable large employers” (ALEs) are subject to penalties for not complying.

For 2021, the fines are as follows:

Internal Revenue Code Section 4980H(a) violations: $2,700 per employee. This penalty applies when an ALE does not offer coverage or offers coverage to less than 95% of its full-time staff (and their dependents), and when at least one full-time employee receives a premium tax credit to help pay for coverage through a marketplace exchange.

Internal Revenue Code Section 4980H(b) violations: $4,060 per employee.This applies when an ALE offers coverage to at least 95% of its full-time employees (and their dependents), but at least one full-time worker receives a premium tax credit to help pay for coverage through a government-operated marketplace.

This can occur if the employer did not offer coverage to that particular employee or because the coverage they were offered was either unaffordable or did not provide minimum value.

What the IRS is doing

No statute of limitations for 4980H violations — At the end of 2020, the IRS Office of Chief Counsel issued a memo that stated there is no statute of limitations for employers to avoid penalties for violating Section 4980H.

This means that ALEs who fail to comply with the ACA can be hit with penalties at any time in the future once the IRS discovers the violation.

Ceasing its ‘good faith transition relief’ — This was intended to temporarily give employers more time and a break on penalties when they report incomplete or incorrect information on their 1094/1095C forms. Last year was the final year this good faith transition relief would be offered. The IRS explicitly noted that it would not be extended again.

The relief available to employers who needed it included a 30-day extension for meeting the deadline to file IRS Form 1095-C, as well as good faith relief from penalties for making mistakes, filing incomplete or not filing the ACA-related forms with the IRS or not filing on time.

What to do

The IRS has been sending out notices of ACA non-compliance for the 2018 policy year.

If you receive one of these notices — a Letter 226-J — you need to act quickly to avoid penalties as you have just 30 days to respond. If you need more time, the most that the IRS will likely grant you is a 30-day extension.

Regardless of if you’ve received a notice, you may want to review your 2018 ACA filings. If you identify any mistakes in them, you can correct the filings before the IRS will issue a Letter 226J penalty notice or another type of penalty.

To avoid penalties related to the annual filings of the 1094/1095C forms, make sure that you stay on top of filing deadlines. Also, ensure that the forms are correct and complete to avoid penalties. You can expect the IRS to be diligent in reviewing these forms.

CMS Issues New Rules Barring Surprise Billing

The Centers for Medicare and Medicaid Service in late June released a series of new regulations targeted at banning surprise billing in most instances, taking aim at a scourge that ends up costing many covered individuals thousands of dollars even when they are treated in-network.

The goal of the rule, slated to take effect Jan. 1, 2022, is to ensure that health plan enrollees are not gouged for out-of-network billing and balance billing for most services unless divulged to the beneficiary and approved by them in advance. 

Balance billing ― when a medical provider bills a covered individual for the difference between the charge and the amount the insurer will pay ― is already prohibited by Medicare and Medicaid.

The interim rule will cover people who are insured by employer-sponsored health plans and plans purchased through publicly operated marketplaces. The new regulations are being implemented as required by the No Surprises Act of 2021, which passed through Congress with bipartisan support.

The effects of surprise billing

Surprise billing happens when people unknowingly get care from providers that are outside of their health plan’s network, which can happen for both emergency and non-emergency care. Examples of surprise billing include:

  • Someone breaks their leg in a fall and has to go to the nearest emergency room, which is not part of their insurer’s network. They are billed at market rates as their insurer doesn’t cover the service.
  • Someone has an operation in a network hospital but one of the providers treating them (an anesthesiologist or radiologist, for example) is not in the network, so the covered individual is billed at market rates.

Two-thirds of bankruptcies are caused by outstanding medical debt, and out-of-network billing is partly to blame for that.

Studies have shown that more than 39% of emergency department visits to in-network hospitals resulted in an out-of-network bill in 2010, increasing to 42.8% in 2016. During the same period, the average amount of a surprise medical bill also increased, from $220 to $628.

What the regulations do

The new regulations:

  • Ban surprise billing for emergency services, regardless of where they are provided. That means if a person has no choice but to go to an emergency room that is out of network, they can only be billed at the same rate they would be charged for services at an in-network hospital.
  • Bar health insurers from requiring prior authorization for emergency services, and they can’t charge their higher out-of-pocket costs for emergency services delivered by an out-of-network provider. They would also be required to count enrollees’ cost-sharing for those emergency services toward their deductible and out-of-pocket maximums.
  • Ban out-of-network charges for ancillary care at an in-network facility in all circumstances. This happens when there is an out-of-network provider working at an in-network hospital.
  • Ban other out-of-network charges without advance notice.
  • Require providers and hospitals to give patients a plain-language consumer notice explaining that patient consent is required to receive care on an out-of-network basis before that provider can bill at the higher out-of-network rate.

What’s next

This is an interim final rule that is still out for public comment. It may be changed after the CMS receives comments.

More than likely it will take effect at the start of 2022, mostly intact.

Employer Medical Costs Expected to Rise 6.5% in 2022

As this year sees increased health care spending due to pent-up demand after many people delayed medical procedures in 2020, a new report by PricewaterhouseCoopers (PwC) predicts employer medical costs will rise 6.5% in 2022.

Last year was the first time that medical costs decreased, thanks to the COVID-19 pandemic keeping people from going to the doctor for many ailments and delaying necessary medical procedures. The annual cost of health care for a family of four was $26,078 in 2020, 4.2% lower than the year prior, according to a separate report by global insurer Milliman.

Some influencing trends that PwC predicts for 2022 include:

Drug spending — The report predicts that costly cell and gene therapies will only increase in number as the Food and Drug Administration continues approving new drugs. The use of so called “biosimilars,” which are cheaper versions of branded biologic medicines, has increased, which is expected to result in $104 billion in savings between 2020 and 2024.

The report notes that employers are covering more of the increased costs and insurance on average covers a larger share of prescription drug prices than it did 10 years ago. At the same time, enrollees’ shares have leveled off during that time.

Surprise billing — The No Surprises Act, which addresses surges in billing, takes effect on Jan. 1, 2022. One analysis predicts it will reduce premiums by up to 1% due to “smaller payments to providers.”

On the other hand, other analysts say the law will result in higher spending as costs shift from the consumer to the payer or employer. Specifically, the law bars out-of-network providers from billing patients for more than they would be charged by in-network providers (ground ambulance services are not covered under the law).

Continued spending on deferred treatments — The report describes a “COVID-19 hangover” in 2022 as people who deferred care during the pandemic return to get treatment.

“During the first six months of the pandemic, people with employer-based insurance most commonly deferred their annual preventive visits, and they were also likely to report delaying routine visits for chronic illnesses and laboratory tests or screenings,” the PwC report states. “As such, care deferred during the pandemic that comes back in 2022 may be higher acuity and cost than it would have been in 2020.” 

The report also notes that mental health, substance abuse and overall public health worsened during the pandemic.

Telehealth drives more utilization — The pandemic accelerated the health care sector’s investments in telehealth and virtual care, which had the effect of increasing patients’ access to care. It also introduced new tools to help patients, which has increased utilization of medical services.

Cost deflators

There are also some ongoing trends and factors that are counterbalancing some health care cost increases.

 More use of lower-cost care — Fewer people have been going to emergency rooms for ailments that do not require urgent care. Instead, they’ve been using telehealth services and going to retail clinics and alternative care sites for many run-of-the-mill ailments.

The report found that use of retail health clinics increased by 40% last year during the lockdowns in March and April, and urgent care center usage grew by 18%. During that same period, emergency room visits plunged 42%.

PwC estimates a 10% decrease in unnecessary emergency room visits could save employers nearly $900 million a year.

More health care for less —Health systems can reduce costs with new ways of operating; for instance, using remote work models, especially for administrative staff. They can also increase efficiency, reduce costs and boost revenue through process automation and cloud technology. 

In PwC’s 2021 survey, 31% of provider executives said that adopting automation and artificial intelligence for tasks previously performed by employees is a top priority.

 An increase in at-home testing — The report concludes that people are warming up to at-home, do-it-yourself testing. According to a survey but the Human Resources Institute, 88% of people with employer-sponsored health plans said they would be open to using an at-home COVID-19 test.

Hospitals get more efficient — Like many employers, the health care industry also sent many people to work remotely. Now many are making those arrangements permanent or introducing hybrid schedules for their staff, which can translate into reducing what hospitals pay for space.

UW Medicine in Seattle shrank its office space as a result of permanent shifts to working from home, and is saving $150,000 per month after it terminated leases on two office buildings used by its IT department.

Pandemic Brings Voluntary Benefits to Fore

One major repercussion of the COVID-19 pandemic is that employees are embracing the voluntary benefits their employers are offering them, but they’d like to see more choices and issues such as mental health and voluntary benefits have risen to the fore.

The Hartford’s “2021 Future of Benefits Study” found that before the pandemic, benefits were mainly viewed as a means of attracting and retaining talent. But the pandemic changed all that due to the stress of having our work and personal lives upended, as well as the widespread suffering and grief that the coronavirus has caused. 

The most significant shift that The Hartford noted has been in what employees value most and they would like to see employee benefits cover better:

  • Voluntary benefits,
  • Mental health and well-being,
  • Engagement and technology, and
  • Paid leave.

Solid voluntary benefits

Most everyone has felt the personal effects of the pandemic, either contracting COVID-19 and being hospitalized or seeing family or friends get sick and check in for treatment. Many have had loved ones die from the disease. 

As a result, voluntary benefits have become a larger priority for many workers.

In addition, employees are expressing more interest in supplemental benefits such as critical illness insurance, hospital indemnity insurance and accident insurance. Employers listened and during the last year:

  • 36% of companies surveyed added accident insurance, half of them due to the pandemic.
  • 32% added hospital indemnity insurance, nearly two-thirds of them adding the coverage in response to the pandemic.
  • 29% added critical illness insurance, 84% of which did so due to the pandemic.
  • 27% added life insurance, three-fourths of which did so due to the pandemic.
  • 21 added long-term disability, nearly two-thirds of them doing so due to the pandemic.

A new focus on mental health

Besides the physical toll that the COVID-19 pandemic took on people who contracted the disease, many have been dealing with mental health and work-balance issues, particularly if they were suddenly thrust into working from home.

That coupled with the overall stress that the pandemic has had on people, has prompted a greater demand for employers to prioritize mental health for their staff. The study found that:

  • 59% of workers said their company’s culture has been more accepting of mental health challenges this past year.
  • 27% of employees said they struggle with depression or anxiety most days or a few times a week (up from 20% in March 2020).
  • 70% of employers now recognize that employee mental health is a significant workplace issue, up from 59% in June 2020.

While the pandemic has brought greater attention to the mental health challenges many workers face, it has also shed light on the opportunities for employers to support their team.

This can be done by ensuring that your health plans include a mental health component, offering your workers an employee assistance program and providing staff with resources, help and education that address wellness and mental health.

Engagement and tech

There was a quantum shift in 2020 to virtual benefits enrollment due to the logistics and danger of turning open enrollment meetings into super-spreader events.

Employers were left having to figure out how to conduct open enrollment and provide benefits education most effectively if a significant portion of their staff was now working remotely. Most employers opted for remote educational and open enrollment events that include teleconferencing and online portals for choosing or renewing health plans. 

The survey predicts that the reliance on technology will only increase, with 75% of employers saying their company’s open enrollment strategy will depend more strongly on online resources this year.

The Hartford said that personalization would be key to the success of any employee benefits program:

  • 58% of workers surveyed said they would like a personalized recommendation for what insurance benefits they should be buying.
  • 76% of employers said that they are offering personalized benefit recommendations during open enrollment, up from 71% in June 2020.
  • Story-driven enrollment tools can offer an employee context. Presenting the material in a relatable way and tailoring the message based on an understanding of an individual’s benefits needs, influences and life stage, can help someone better evaluate whether a certain benefit is right for them.

Paid time off

Paid time off has become a much hotter topic since the pandemic started. COVID-19 prompted a number of states as well as the federal government to support paid time away from work through new laws and regulations.

Employers also took note, and 75% of them ended up increasing the types of paid time away from work they provided, beyond state and federal requirements.

Here’s what happened:

  • 46% of employers expanded their paid medical leave.
  • 46% expanded their paid sick time.
  • 39% expanded paid family leave.
  • 30% expanded paid parental leave.
  • 30% expanded paid time off or vacation time.

Tackling the Group Health Employee Premium Burden

As the labor market tightens and businesses struggle to attract new talent, many companies are starting to boost their employee benefit offerings, particularly voluntary benefits.

But besides added benefit choices, what many employees want is relief from continually increasing health premiums as well as more options to choose from for their health insurance.

Group health insurance cost inflation has been averaging about 5% annually over the past few years and many employees have been put into plans that may have kept their share of premiums steady (like high-deductible health plans, or HDHPs), but which have instead increased their out-of-pocket costs. 

As we exit the ravages of the COVID-19 pandemic, more workers are looking to their employers to give them some relief from spiraling premiums and health care expenses. Here are a few things you can do.

Reduce the employee’s share of premium

You could choose to pay for a higher percentage of the premium, which would reduce their monthly contributions. If that’s not feasible, one tactic that can end up saving you and your employees money is offering to either pay a certain portion of the premium if they choose a silver plan, or pay for the entire premium for employees who choose bronze plans.

The trade-off for the workers who choose the latter option is having no premiums, but more out-of-pocket expenses when they use health care services.

But if you are thinking about taking this route, please discuss it with us first as it’s best to crunch the numbers to see how cost-effective it would be for you. 

The majority of workers contribute a portion of the premium for their coverage. According to the Kaiser Family Foundation “2020 Employer Health Benefits Survey”:

  • The average U.S. worker contributes 17% of the group health plan premium for single coverage, and 27% of the premium for family coverage.
  • Workers in small firms contribute on average 35% for family coverage.
  • Workers in large firms contribute on average 24% for family coverage.
  • Workers in both small and large firms contribute on average 17% for single coverage.

The other option is to just offer to pay for a greater percentage of the premium across the board on the policies you do offer. Obviously, that comes with added expense. But it’s not a strictly financial decision, as a more generous benefits package can have the added advantage of helping you keep key talent and generate employee loyalty.

Offer different types of plans

This can be a win-win for everyone. Younger, healthy employees that do not use health care services often can opt for an HDHP, which features a lower up-front premium in return for the participant having to spend more out of pocket for services they access. But if someone doesn’t use medical services often, this type of plan may the right and most cost-effective option.

On the other hand, for older workers or those who see the doctor more often or have health issues, they may be more inclined to go with a preferred provider organization (PPO) to pay more for a higher premium in exchange for lower out-of-pocket costs over the year.

For the fifth year in a row, the percentage of companies that offer high-deductible plans as the sole option will decline in 2021, according to a survey of large employers by the National Business Group on Health. That may be a continuation of a trend, but the pandemic has also put an emphasis on improved employee benefits.

Here’s a breakdown of the kinds of small group plans across the country in 2020, according to Kaiser:

  • PPOs covered 47% of workers.
  • HDHPs covered 31%.
  • Health maintenance organizations (HMOs) covered 13%.
  • Point-of-sale plans covered 8%.
  • Conventional (indemnity) plans covered 1%.

Hire more employees

The more people you have in your group health plan, the more the risk is spread around, which can yield lower premiums. 

If you divide the risk amount of a small group of workers compared with a large pool, the law of averages dictates that the insurer will pay less in claims per worker in the larger pool.

In other words, the more employees you hire, the less risk for the insurance company, and the greater premium discount they can offer.

Talk to us

An experienced benefits consultant can help you analyze your spending, and a good broker can help you get the best rates thanks to their network and know-how.

We can provide the insights you need to make the best decision on which types of plans to offer your workers and the best plans for your and your employees’ money ― and we can negotiate the best rates possible on your behalf.

2022 HSA Contribution Limits, HDHP Minimums, Maximums Set

The IRS has set the maximum amounts employees can funnel into their health savings accounts and health reimbursement accounts (HRAs) for the 2022 policy year.

The IRS updates these amounts every year to adjust for inflation in addition to minimum deductibles for high-deductible health plans, as well as the out-of-pocket maximums your employees are subject to. HSAs, which help employees save for medical expenses, are only available to employees enrolled in HDHPs. 

Here are the new figures for 2022:

HSA annual contribution limit

  • Individual plan: $3,650, up from $3,600 in 2021
  • Family plan: $7,300, up from $7,200 in 2021

HDHP minimum annual deductible

  • Individual plan: $1,400, the same as in 2021
  • Family plan: $2,800, the same as in 2021

HDHP annual out-of-pocket maximum

  • Individual plan: $7,050, up from $7,000 in 2021
  • Family plan: $14,100, up from $14,000 in 2021

Excepted benefit HRA

  • Maximum annual employer contribution: $1,800, the same as in 2021

Federal law requires health plan enrollees to use HSAs with HDHPs.

HSAs explained

An HSA is a special bank account for your employees’ eligible health care costs. They can put money into their HSA through pre-tax payroll deduction, deposits or transfers. As the amount grows over time, they can continue to save it or spend it on eligible expenses. 

Employers can also contribute to the accounts, but the annual contribution maximum applies to all contributions in total (from the employee and the employer). 

The money in the HSA belongs to the employee and is theirs to keep, even if they switch jobs. The funds roll over from year to year and can earn interest. Some plans also have investment options for the funds.

There are a number of benefits for employees who have HSAs:

  • The money an employee contributes to an HSA is not subject to income taxes.
  • If employees contribute through payroll deduction, the amount is taken from their pay before taxes are taken out, which reduces their overall taxable income.
  • They are not taxed on withdrawals, and HSAs even help reduce taxable income.
  • If employees contribute to their HSA with after-tax money, they can deduct their contributions during tax time on Form 1040.
  • Employees can tap the funds for any approved out-of-pocket medical expenses.

Here’s how they work:

  • Employees can make withdrawals with a debit card or check specific to the HSA.
  • Employees can use the money in their HSA to pay for care until they reach their deductible, out-of-pocket expenses like copays and coinsurance.
  • They can use the funds to pay for other eligible expenses not covered by their HDHP, like dental or vision care (eye exams and corrective lenses).

DOL Issues Model COBRA Subsidy Notices

As you will recall, the American Rescue Plan Act of 2021 (ARPA) includes a 100% COBRA subsidy for people who were laid off during the COVID-19 pandemic.

As part of the law, which took effect April 1, the Department of Labor was required to issue model notices that employers can use to send to eligible former employees.

The ARPA requires that employees laid off or who saw their hours cut during the pandemic to the point they no longer qualified for group health insurance, are eligible for COBRA continuation coverage that is 100% subsidized.

Model notices

The ARPA required the DOL to create three model notices (general, election and termination of the subsidy). 

Employers are allowed to use their own notices as long as they satisfy the COBRA notice content requirements.

As with all model notices created by the DOL, employers will need to fill in the blanks for their own COBRA plan and can rely on the boilerplate verbiage to avoid running afoul of regulations. The DOL created four notices in total:

Model general ARPA COBRA notice — This form is to be provided to qualified beneficiaries who have a qualifying event (termination or reduction in hours) between April 1 and Sept. 30. You can download it here.

Model COBRA notice with extended election periods — This form is to be provided to individuals who may be eligible for the COBRA subsidy if they had a qualifying event that took place prior to April 1. You can download it here.

Model alternative notice — This form can be provided to individuals with insured coverage subject to state continuation coverage, who have a qualifying event between April 1 and Sept. 30. The form can be downloaded here.

Model notice of expiration of premium assistance subsidy — This form should be sent to individuals whose COBRA subsidy will end before Sept. 30. You can download it here.

Summary of major provisions and form

The DOL also released a document called the Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021. 

This four-page document is designed to be completed by the employer (or your COBRA plan administrator) and included with any COBRA assistance notice that is sent to an eligible terminated worker. The document includes a summary of the major provisions of the law pertaining to the 100% COBRA subsidy.

The employer must include the name of the COBRA administrator in this document. The document also contains a few pages that will allow a terminated employee to ask to be treated as an eligible beneficiary if the employer has not yet done so.

Once the completed forms have been returned, the employer will complete a section indicating if the request is approved or denied, and if denied, the reason for the denial.

The takeaway

You should review these model notices so you don’t run afoul of the law. You’ll want to make sure that you have sent notices to all of the eligible employees.

If you are using the model notices, ensure that you include all of the relevant information for your own plan.

If you are using your own notices, compare them to the model notices and review the guidance to make sure yours include all the content the forms are required to have.

The DOL notes in its FAQs that it considers the use of the model election notices to be in good-faith compliance with the law.

Health Plan Rebates in 2021 to Be Second Highest on Record

Group health plan insurers are expected to pay out $618 million in rebates to plan sponsors for the 2020 policy year after seeing use of health care services plummet during the COVID-19 pandemic.

That’s according to a Kaiser Family Foundation estimate in April, which also projects that insurers will pay out $1.5 billion in rebates to enrollees in the individual market. 

The total $2.1 billion estimated payout this year is second only to the $2.5 billion insurers paid out in 2020 since the Affordable Care Act took effect and started requiring these rebates.  Small and large group health plans received $689 million in rebates in 2020.

The ACA requires insurance companies that cover individuals and small businesses to spend at least 80% of their premium income on health care claims and quality improvement, leaving the remaining 20% for administration, marketing and profit. If they spend less than 80%, the shortfall has to be returned to policyholders in the form of a rebate.

The threshold for large group health plans is 85%. This threshold is called the medical loss ratio (MLR). 

The rebates that will be paid in 2021 are based on a three-year MLR average loss ratio (2020, 2019 and 2018). Rebates this year will be paid to sponsors who had group health policies in effect in 2020, and only to those who were in plans that failed to spend enough on medical services. Many plans spend more than the MLR cap on medical services and do not have to pay.

There are two main drivers of larger rebates this year:

There was a significant drop in health care utilization in 2020 — The pandemic depressed the use of medical services as many people who would normally have gone to the doctor for ailments chose to stay home to avoid the risk of contracting COVID-19.

Also, hospitals cancelled elective care early in the pandemic and when COVID-19 cases were cresting, so that they could free up resources for coronavirus patients and reduce the virus’s likelihood of transmission. In fact, an analysis by the Peterson-KFF Health System Tracker found that health care spending fell slightly in 2020, making it the first year on record to see spending decline.

Insurers in the individual market had record profits in 2018 and 2019 — The Kaiser Family Foundation earlier reported that individual market insurers were very profitable in 2018 and 2019, even though the individual mandate penalty was eliminated in 2018 and insurers had been reducing their rates the previous few years.

How to handle rebates

Health insurers may pay MLR rebates either in the form of a premium credit (for employers that are still using the insurer) or as a lump-sum payment. More than 90% of group plan rebates come as a lump sum.

Once an employer receives this money, it is their responsibility to distribute the rebate to plan beneficiaries appropriately within 90 days, or risk triggering ERISA trust issues.

How the employer distributes the check will depend on how much their employees contribute to the plan, if at all. Here are the basic rules for employers handling their MLR rebate checks:

  • If you paid 100% of the premiums, the rebate is not a plan asset and you can retain the entire rebate amount and use it as you wish.
  • If the premiums were paid partly by you and partly by the participants, the percentage of the rebate equal to the percentage of the cost paid by participants must be distributed to the employees.

If you have to distribute funds to the plan participants, the Department of Labor provides a few options (if the plan document or policy does not already prescribe how they should be distributed):

  • The funds can be used to reduce your portion of the annual premium for the subsequent policy year for all staff who were covered by all of your group health plans.
  • The funds can be used to reduce your portion of the annual premium for the subsequent policy year for only those workers covered by the group health policy on which the rebate was based.
  • You can provide a cash refund to subscribers who were covered by the group health policy on which the rebate is based.