On February 4, 2010, the Department of Labor (DOL) issued a model notice under the Children’s Health Insurance Program (CHIP) Reauthorization Act of 2009 (the Act). The model notice describes the rights of low income participants in employer-sponsored group health plans to receive financial assistance towards payment of children’s premiums from state-sponsored programs created by the Act. The notice also informs employees that they have a special right to enroll in the employer’s group health plan within 60 days of being determined eligible for CHIP premium assistance.
Group health plans providing benefits in states that sponsor CHIP premium assistance programs must provide the new notice to employees by the later of: (1) May 1, 2010, or (2) the first day of the next plan year starting after February 4, 2010. Thus:
- If a plan’s next plan year begins after February 4, 2010 and before May 1, 2010, the CHIP notice must be provided by May 1, 2010.
- For all other plans, including calendar year plans, the notice must be provided by the first day of the next plan year.
- In future plan years, the CHIP notice must be provided at least annually.
A group health plan is deemed to provide benefits in any state in which an employee eligible for the plan resides.
CHIP Background
In 1997, Congress established the State Children’s Health Insurance Program (SCHIP) under Title XXI of the Social Security Act. SCHIP enabled states to provide health insurance to targeted low-income children with no coverage in families with income that is above the level of eligibility for Medicaid. All states and the District of Columbia have Title XXI programs.
In February 2009, the President signed the Act, which provides continued funding for SCHIP and makes various other changes to the program, now known as CHIP. Some of these changes affect employer-sponsored group health coverage.
Premium Assistance Under CHIP
Effective April 1, 2009, the Act enables states to offer a premium assistance subsidy for qualified employer-sponsored coverage (QESC) to targeted low-income children. QESC is group health coverage offered through an employer:
- That qualifies as “creditable coverage” under the Public Heath Service Act;
- For which the employer contribution toward any premium for such coverage is at least 40%; and
- That is offered to all individuals in a manner that would be considered a non-discriminatory eligibility classification under Sec. 105(h) of the Internal Revenue Code of 1986 (the Code), which provides special requirements for self-funded employer health plans.
QESC does not include benefits provided under a flexible spending arrangement or a high-deductible health plan.
In general, the amount of the subsidy equals the difference between the employee contribution required for enrollment only of the employee under the QESC, and the employee contribution required for enrollment of both the employee and the child. However, the benefits, terms and conditions of each state’s program vary.
Model CHIP Notice
The new model notice is intended to inform targeted low-income employees of opportunities to receive premium assistance under CHIP. The notice must be provided to all employees eligible for the employer’s group health plan who reside in a state in which CHIP premium assistance is available.
Employers may provide the notice to employees separately, together with the group health plan’s summary plan description, or with information informing employees of their health plan eligibility or open enrollment opportunities. Employers may send the notice by first class mail or, if the employer complies with the DOL’s electronic disclosure rules, electronically. The electronic disclosure rules require, among other things, that the employee receiving the notice must use the employer’s electronic system as an integral part of his or her job.
State-Sponsored CHIP Premium Assistance Programs
According to the DOL, as of January 22, 2010, the following state-sponsored CHIP premium assistance programs will require employers maintaining a group health plan in the state to send the new model CHIP notice:
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The DOL expects to update this list annually on its website.
The model CHIP notice lists every state in which CHIP premium assistance is available, as of January 22, 2010. If desired, an employer may customize the model notice by deleting information about states in which no employees eligible for the plan reside. However, such customization may be problematic if an employee later moves to a covered state, or if the employer later hires an employee in a covered state.
Other CHIP Provisions
In addition to the notice requirement described above, CHIP also requires group health plans to offer special enrollment rights and imposes new reporting requirements on group health plan administrators. For a discussion of those provisions and other information about CHIP, please see our previous February 26, 2009 WorkCite article.
Penalties
A violation of the Act’s provisions regarding special enrollment rights, notification to employees of the availability of premium assistance for group health plan coverage, or disclosure of information to states can result in an excise tax under the Code. Such penalty is equal to $100 for each day of noncompliance per individual affected.
In addition, the Act gives the Secretary of Labor authority to assess a civil penalty under ERISA against any employer of up to $100 per day from the date of the employer’s failure to comply with the new notice provisions or disclosure requirements. Each violation as to any single employee constitutes a separate violation.