10/20/2009
Michelle's Law Amendments - HRA Plans and Cafeteria Plans With Health Care Reimbursement Accounts
Background
Michelle's law goes into effect for group health plan years beginning after October 9, 2009. The law affects group health plans that provide coverage to dependents enrolled in the plan or coverage on the basis of being a student at a postsecondary educational institution. The group health plans that provide this type of dependent coverage must continue coverage for dependents that leave school due to a medically necessary leave of absence.
Most HRA plans and many Cafeteria plans with Health Care Reimbursement Account features will require an amendment for Michelle's law. HRA and Cafeteria Health Care Reimbursement Account plans provide reimbursement for Eligible Expenses excludable under Code section 105(b). Code section 105(b) covers medical expenses (Code section 213(d) expenses) for dependents as defined under Internal Revenue Code Section 152 (with some modifications). Section 152(c)(3) provides that a dependent includes a qualifying child "who is a student who has not attained the age of 24." Because Code section 152 was not amended under Michelle's law, HRA and Cafeteria plans are required to amend so that they provide continuing coverage to dependents who are under age 24 and who leave school due to a medically necessary leave of absence (for a period up to one year).
The ftwilliam.com Michelle's Law Amendment is available to Welfare Document Plan subscribers. Annual Welfare Document Plan subscribers will have the ability to generate Michelle's Law Amendments in batch mode. The Amendment will be effective as of the first day of the Plan Year that begins on or after October 9, 2009. Under the proposed Cafeteria plan regulations, Cafeteria plans with a calendar year plan would be required to amend the plan by December 31, 2009. HRA plans and Cafeteria plans under the existing Cafeteria plan regulations may amend for Michelle's Law at any time before the end of the plan year that begins on or after October 9.
All ftwilliam.com Cafeteria plans and HRA plans generated on or after October 7, 2009 will have Michelle's law changes incorporated in the Basic Plan Document.
Below, we will describe more detail regarding what types of HRA and Cafeteria plans will require amendment and operational compliance under Michelle's Law.
HRA and Cafeteria plans affected
As mentioned above, most HRA plans and many Cafeteria plans with Health Care Reimbursement Account features will require an amendment for Michelle's law. If the HRA or Cafeteria plan is subject to HIPAA Portability, the plan will likely require an amendment.
The following HRA plans and/or Heath Care Reimbursement Account plans are not subject to HIPAA Portability and will not require an amendment for Michelle's law:
- Plans that have less than two participants who are current employees as of the first day of the plan year;
- Plans that provide coverage (reimbursements) for benefits that are limited to dental, vision and long-term care benefits that are not an integral part of a group health plan; or
- The employer offers other group health plan coverage (that is not just dental, vision or long term care coverage) and the maximum benefit payable to a participant under the HRA or Cafeteria Health Care Reimbursement Account plan is less or equal to the greater of:
- $500 (plus any participant contribution, if applicable) or
- two times the participant's salary reduction election for the year.
Most HRA plans with maximum annual reimbursements of over $500 will require an amendment unless the plans are only benefiting one employee at the beginning of the 2010 plan year. Most Cafeteria plans with a Health Care Reimbursement Account feature will require Michelle's Law Amendment if the employer is making contributions to the Cafeteria plan. Note that the $500 exemption is only available for employers that offer another health plan to employees.
In addition to the above exclusions, plans may restrict the definition of expenses eligible for reimbursement to expenses incurred by the Employee and exclude dependent medical expenses from coverage under the Plan. We believe that most plans, however, will include coverage for Eligible Expenses incurred for dependent medical expenses and that majority of HRA plans and cafeteria plans with a HCRA feature and employer contributions will require amendment for Michelle's law.
Please note that we are indicating these plans are not required to amend for Michelle's Law but we can certainly see reasons why plan sponsors may choose to amend for Michelle's Law. Amending the plan will allow plan sponsors to not need to monitor/refrain from making plan changes because of the Michelle's Law amendment (hiring new employee, making/increasing employer contributions to the plan). In addition, there is little harm in Cafeteria or HRA plans adopting Michelle's Law as a precautionary measure if you are unsure whether the plan should adopt an amendment for Michelle's law. The extra coverage costs are likely to be minimal and operational procedures may need to be modified for the majority of plans so that it may be simpler to adopt the amendment for all Cafeteria and HRA Plans.
Operational Compliance Issues
Medically Necessary Leave of Absence. Group health plans subject to Michelle's Law that provide coverage for dependent students must continue coverage for dependents that leave school due to a medically necessary leave of absence for a period of not more than one year. A "Medically Necessary Leave of Absence" means a leave of absence (or any other change in enrollment) for a child from a postsecondary educational institution, that:
- commences while such child is suffering from a serious illness or injury (as certified by a physician);
- is medically necessary (as certified by a physician); and
- causes such child to lose student status for purposes of coverage under the terms of the plan or coverage.
Notices. If the plan uses notices that reference a requirement for certification of student status in order to receive reimbursement, those notices must be amended to include a description of the terms for continued coverage during medically necessary leaves of absence. The ftwilliam.com summary plan descriptions and forms do not make reference to the requirement for student status and, therefore will not require updating.
Tax/COBRA Treatment. Because Michelle's Law did not amend Code section 152, reimbursements for eligible expenses of dependents covered under Michelle's law that do not meet the definition of dependent under Code section 152 may be subject to tax. In addition, it is unclear whether COBRA coverage for "Michelle's Law" dependents is measured from the loss of student status or the loss of extended coverage provided by Michelle's law.
If you have any questions please feel free to contact us at support@ftwilliam.com or call 800.596.0714.