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October 2013

High Debuctible Health Plans May Cover Preventive Serices With No Deductible

Under Health Care Reform, non-grandfathered group health plans are required to cover certain preventive health services with no cost-sharing. New IRS guidance clarifies that a health plan will still qualify as a high deductible health plan (HDHP) even though it provides such preventive services without a deductible. An HDHP is a health plan that satisfies certain requirements with respect to minimum deductibles and maximum out-of-pocket expenses. Generally, an HDHP may not provide benefits for any year until the minimum deductible for that year is satisfied. However, the law provides an exception for certain preventive care.

Among other requirements, an individual must be covered under an HDHP to be eligible for a health savings account (HSA). Seventeen percent (17%) of employers that provide health benefits offer an HSA-qualified HDHP, according to the 2013 Employer Health Benefits Survey conducted by the Kaiser Family Foundation and Health Research & Educational Trust.

You can read more about HSAs in our section on Health Savings Accounts.

New Guidance on Health Care Reform Rules for HRAs & Other Arrangements

A new set of Q&As provides additional guidance regarding how the prohibition on annual dollar limits and the requirement to cover preventive services under Health Care Reform apply to health reimbursement arrangements (HRAs) and certain other employer healthcare arrangements. The following are key highlights that may be of interest to employers:

The agency guidance applies for plan years beginning on or after January 1, 2014, with certain exceptions, but may be applied for prior periods. Visit our section on HSAs, FSAs, & Other Tax-Favored Plans for more information on these types of arrangements.

  • Agrouphealth plan,including an HRA and an employerpayment plan, cannot be integrated with individual market coverage.
    • An HRA or employer payment plan used to purchase coverage on the individual marke twill therefore fail to comply with the annual dollar limit prohibition and the preventive services requirements.
  • An HRA thatis integrated with a group health plan will generally comply with the annual dollar limit and preventive services requirements if the group health plan with which the HRA is integrated complies with those requirements.
    • An HRA will be integrated with a group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if it qualifies under either of two integration methods described in the Q&As.
  • A health flexible spending arrangement (FSA) that does not qualify as excepted benefits is not integrated with a group health plan, and thus will fail to meet the preventive services requirement.
    • Effective retroactively as of September 13, 2013, a health FSA that is not offered through a cafeteria plan (a plan which meets specific requirements to allow employees to receive certain benefits on a pre-tax basis) is subject to the annual dollar limit prohibition and will fail to comply with this requirement.
  • Effective for taxable years beginning after December 31, 2013, an employer is prohibited from providing a qualified health plan offered through a Health Insurance Exchange as a benefit under the employer's cafeteria plan.

The agency guidance applies for plan years beginning on or after January 1, 2014, with certain exceptions, but may be applied for prior periods. Visit our section on HSAs, FSAs, & Other Tax-Favored Plans for more information on these types of arrangements.

SHOP Online Enrollment Delayed Until November

Online enrollment for small employers to purchase employee health coverage through the federally- facilitated SHOP Marketplace (Small Business Health Options Program) will not be available until November. Small employers will be able to start the application process and get an overview of available plans and premiums beginning October 1, 2013.

For 2014, the federally-facilitated SHOP Marketplace is open to employers with 50 or fewer full-time equivalent employees. According to the U.S. Department of Health and Human Services, all functions for SHOP will be available in November and if employers and employees enroll by December 15, 2013, coverage will begin January 1, 2014.

Reminder: Exchange Notice Requirements After October 1st
All employers covered by the Fair Labor Standards Act are required to provide employees with a notice regarding the Health Insurance Exchange (Marketplace), regardless of whether they offer a health plan.

Following the distribution of notices to current employees (required no later than October 1, 2013), employers must provide the notice to each new employee at the time of hiring, within 14 days of an employee's start date. Although the U.S. Department of Labor announced that there is no fine or penalty under the law for failing to comply, the law still requires that employers provide the notice.

Our Summary by Year provides information on other upcoming changes under Health Care Reform.

Planning for Workplace Emergencies

A workplace emergency is an unforeseen situation that threatens your employees, customers, or the public; disrupts or shuts down your operations; or causes physical or environmental damage. Having an emergency action plan is key to preventing a disorganized evacuation or emergency response that could result in confusion, injury, and property damage.

Developing an Emergency Action Plan
Almost every business is required to have an emergency action plan. An emergency action plan covers designated actions employers and employees must take to ensure employee safety. At a minimum, your plan should include the following elements:

OSHA's Emergency Action Plan Expert System Can Help
You can use the online Emergency Action Plan Expert System, available from the federal Occupational Safety & Health Administration (OSHA), to help you create a simple emergency action plan for your company. According to OSHA, this basic plan will be adequate for the needs of many small and medium-sized entities, but may not be adequate for large establishments or those with more significant hazards.

Note that the OSHA Expert System only provides information based on federal OSHA Emergency Action Plan requirements. If you are covered by a state OSHA plan, you may need to contact your local state OSHA office. Our section on Planning for Workplace Emergencies includes additional information and tips for protecting your employees and business during a disaster.


Benefits for Same-Sex Spouses: Recent Agency Updates

Federal agencies continue to issue guidance applying the U.S. Supreme Court decision that invalidated part of the Defense of Marriage Act (DOMA), which denied federal benefits to legally married, same-sex couples. The latest updates include the following:

Legal Same-Sex Marriages Recognized for Purposes of Employee Benefit Plans
The terms "spouse" and "marriage" will generally be read to include same-sex couples legally married in any state that recognizes such marriages, regardless of where they currently live for purposes of Title I of the Employee Retirement Income Security Act (ERISA) and related agency regulations.

ERISA is a federal law that sets minimum standards for employee benefit plans in the private sector. Among other requirements, Title I includes the health coverage continuation provisions of COBRA (the Consolidated Omnibus Budget Reconciliation Act) and the portability provisions of HIPAA (the Health Insurance Portability and Accountability Act). Future guidance is expected to address the impact of the decision on specific provisions of ERISA and its regulations.

The agency guidance makes clear that the terms "spouse" and "marriage" for purposes of ERISA do not include individuals in domestic partnerships, civil unions, or similar formal relationships recognized under state law, regardless of whether these individuals have the same rights and responsibilities as those who are married under state law.

Guidance on Correcting Overpayments of FICA and Employment Taxes
The IRS has outlined special optional procedures for employers to correct overpayments of Federal Insurance Contributions Act (FICA) taxes and federal income tax withholding (employment taxes) for 2013 and prior years with respect to certain benefits provided to same-sex spouses.

Prior to the DOMA ruling, employers may have withheld and paid employment taxes with respect to certain benefits provided to the same-sex spouse of an employee (e.g., employer-provided health coverage and fringe benefits) because the marriage was not recognized for purposes of federal tax law, and the benefits were not treated as excludable from gross income or wages for federal income or employment tax purposes.

For guidance on same-sex marriage laws specific to your state, visit our State Laws section, click on your state, and select "Same-Sex Relationships" from the left-hand navigation menu.


Model HIPAA Notice of Privacy Practices Now Available

New model notices are available to help health plans comply with the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule. The Privacy Rule generally requires covered entities, including health plans, to develop and distribute a notice informing individuals of the entity's privacy practices and of the individual's privacy rights with respect to his or her personal health information (PHI).

Note: Group health plans providing benefits only through one or more contracts of insurance with issuers or HMOs, and that do not create or receive PHI--other than summary health information or enrollment information--are not required to develop this notice.

The model notices reflect changes made by the HIPAA final omnibus rule that became effective in March. Covered entities were required to revise their notices to reflect those changes by September 23, 2013, and must redistribute the notice as provided in the final omnibus rule. You can visit our HIPAA section for more information.

A.M. Best Downgrades Ratings of Tower Group International, Ltd.'s Subsidiaries and Maintains Under Review Status

OLDWICK, N.J., Oct 08, 2013 (BUSINESS WIRE) -- A.M. Best Co. has downgraded the financial strength rating (FSR) to B++ (Good) from A- (Excellent) and issuer credit ratings (ICR) to "bbb" from "a-" of the pooled and reinsured members of the Tower US Pool (Tower). Concurrently, A.M. Best has downgraded the ICR and the debt rating on $145.4 million 5.00% senior convertible notes, due 2014 to "bb" from "bbb-" of the intermediate holding company, Tower Group, Inc. A.M. Best also has downgraded the FSR to B++ (Good) from A- (Excellent) and ICR to "bbb" from "a-" of CastlePoint Reinsurance Company, Ltd. (Bermuda). Additionally, A.M. Best has assigned an ICR of "bb" to the ultimate parent, Tower Group International, Ltd. (Bermuda) [NASDAQ:TWGP]. All companies are under review with negative implications and are headquartered in New York, NY, unless otherwise specified. (See below for detailed listing of the companies and ratings.)

These rating actions take into consideration Tower's most recent announcement in which management plans to strengthen prior year loss reserves by $365 million, well in excess of the $60 million - $110 million initially indicated in its August 8th press release, and take a goodwill impairment charge of $215 million as a result of the reserve actions already taken. These rating actions consider the magnitude of the charges taken and the material adverse impact on Tower's risk-adjusted capitalization, financial leverage, liquidity and coverage ratios. In addition, the ratings consider the reduced financial flexibility given the delay in earnings, the decline in shareholder confidence and the corresponding decline in share price.

Once well regarded for its mergers and acquisitions strategy, equally important is the consequential impact this reserve charge has on Tower's business model, business profile and earnings prospects going forward. These rating actions also acknowledge the various reinsurance transactions announced by Tower last week. Considering the broad disparity between Tower's reserve guidance in August and the actual reserve charge taken, A.M. Best believes Tower will be challenged to restore shareholder confidence, both in the near and long term.

On a positive note, Tower maintains adequate risk adjusted capitalization and has been re-underwriting its book of business since 2011. Management is confident in its earnings prospects and believes future underwriting results (excluding prior years) should be more reflective of Tower's core business, which continues to outperform p/c industry norms. Despite management's sentiment, the negative rating implications assigned to Tower reflect the potential for further adverse reserve development, increased competitive challenges and due to the ratings downgrade, potential actions taken by third party reinsurers and lenders.

The ratings will remain under review pending further discussions between A.M. Best and Tower's management. The negative implications reflect the reasonable likelihood that the ratings and/or outlook could be downgraded and/or revised.

The FSR has been downgraded to B++ (Good) from A- (Excellent) and the ICRs to "bbb+" from "a-" for the following pooled and reinsured members of Tower US Pool:

-- CastlePoint Insurance Company
-- CastlePoint National Insurance Company
-- Tower Insurance Company of New York
-- Tower National Insurance Company
-- Preserver Insurance Company
-- North East Insurance Company
-- Hermitage Insurance Company
-- CastlePoint Florida Insurance Company
-- Kodiak Insurance Company
-- York Insurance Company of Maine
-- Massachusetts Homeland Insurance Company

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright (C) 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
SOURCE: A.M. Best Company, Inc.