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Children's Health Insurance Program Reauthorization Act of 2009 ("CHIP") Impacts Group Health Plans

    Client Alerts
  • February 20, 2009

On February 4, 2009 President Obama signed into law the Children's Health Insurance Program Reauthorization Act of 2009 ("CHIP"),  which includes new premium assistance subsidies, new special enrollment rights for employees, new employer notice requirements and penalties for an employer's failure to comply with its requirements.

CHIP is a program shared by both federal and state governments that provides health insurance coverage to lower-income pregnant women and children who do not qualify for Medicaid but fall within 300% of the federal poverty level ($66,150 for a family of four in 2009). Both North and South Carolina have CHIP programs in place. North Carolina's program is Health Choice for Children and South Carolina's is Partners for Healthy Children. Each sets minimum requirements for participation but once enrolled, the programs subsidize participants' health care.

A previous enactment of CHIP was set to expire on March 31, 2009 and the newly enacted law reauthorizes and expands CHIP through 2013. Listed below are several new provisions in CHIP that impact group health plans:

  • Premium Assistance Program: States participating in CHIP may now elect to offer a premium assistance subsidy to eligible low-income children and their families for "qualified employer-sponsored coverage," where: (i) the employer provides 40% of the cost of coverage, (ii) coverage is "creditable coverage" as defined under HIPAA, and (iii) coverage is available to a reasonable classification of employees. If the parents and their children agree to enroll, CHIP will pay the employee's portion of the health care premium. The subsidy may be provided as a reimbursement to the employee or as a direct payment to the employer (unless the employer chooses a "limited opt-out" where the employer can refuse to receive direct payments from the state).  This premium assistance program applies to both fully-insured and self-insured plans.
  • Special Enrollment Rights: CHIP creates two new HIPAA special enrollment rights by amending the Internal Revenue Code, ERISA, and the Public Health Service Act. A group health plan must now permit an employee who is eligible but not enrolled for coverage under the plan to enroll if: (i) coverage of the employee or a dependent under Medicaid or CHIP terminates as a result of loss of eligibility and the employee requests coverage under the group health plan within 60 days; or (ii) the employee or dependent becomes eligible for Medicaid or CHIP assistance, if the employee requests coverage within 60 days after the eligibility determination date. CHIP also requires states to establish a process by which a parent of a child receiving a premium assistance subsidy can disenroll the child from the employer-sponsored coverage and enroll the child in a state-run health plan.
  • Notice to Employees: CHIP includes a notice requirement, which mandates group health plans provide written notice to their employees of the potential opportunities for premium subsidies available to them in their state. The notice may be included in the summary plan description or with other plan information. CHIP requires the Secretaries of Health and Human Services and the Department of Labor to issue a model notice no later than February 4, 2010.
  • Disclosure to States: At a state's request, group health plan administrators must provide information regarding benefits, premiums and cost-sharing. This information about individual group health plans will be used by the states to determine whether a plan's coverage is "eligible employer coverage," thus qualifying the plan for the premium assistance subsidy. Future regulations to be issued by the Department of Health and Human Services will describe the full extent of information group health plan administrators will be required to disclose.
  • Penalties and Effective Dates: CHIP provides for civil penalties of up to $100 per day for failure to comply with the new notice and disclosure requirements described above. The effective date for premium assistance and special enrollment provisions is April 1, 2009. Employers must comply with the employee notice requirement beginning with the first plan year after the model notice is issued. Finally, CHIP requires employers to supply the disclosure notice for state requests for plan information beginning with the first plan year after the disclosure model is issued.

CHIP brings new options and responsibilities to group health plan administrators. With the law's effective date of April 1 approaching, plan administrators will soon need to determine whether to opt-out of direct state premium payments and how they will administer an employee's request to disenroll a child from the group health plan. Further, plans must now administer the new HIPAA special enrollment rules as of April 1. Implementing these new rules may require amendment to plan documents.