Employer CHIP Notice
On Feb. 4, 2009, President Obama signed into law the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA). The law provided for two new special enrollment rights under HIPAA. Effective April 1, 2009, if the employee or dependents experience one of the following events, they have 60 days from the event to notify the group health plan administrator and enroll in the group coverage midyear:
- The employee or dependents lose eligibility under Medicaid or a state children's health insurance program (CHIP)
- The employee or dependents become eligible for a state premium assistance subsidy from Medicaid or state CHIP that would assist them in paying the group health plan premiums
Employers must provide notice of the premium assistance subsidy to employees who reside in a state that has such a program.
Model Notice Provided
On Feb. 4, 2010, the Employee Benefits Security Administration released an initial model notice for employers to use to notify employees of the availability of state premium assistance subsidies, which may be able to assist employees in paying for group health plan premiums. The newest version of the model notice is current as of July 31, 2013, with an expiration date of Sept. 30, 2013. The current list of states that provide Medicaid or CHIP assistance in the form of premium assistance subsidies includes:
If the group health plan offers medical coverage to an eligible participant or beneficiary residing in one of these states, the employer must provide the Employer CHIP Notice to those individuals. The determination of who is required to receive the notice is based on where the eligible participants live, not where the employer is located or where an insurance policy is issued. The notice requirement applies to fully insured and self-insured plans.
States are permitted to include additional information on their websites that encourages a more state-specific notice. Check with the appropriate state agency listed on the model notice for states that provide a customized model notice for residents. The employer may choose to include specific information on the state program in the notice, but they are not required to do so. To comply with the requirement, the notice need only include state agency contact information for the individual to obtain additional information on the program.
Employer Action Required
For plan years beginning on or after Feb. 4, 2010, through April 30, 2010, the Employee CHIP Notice should have been distributed to eligible participants by May 1, 2010. The current requirement for plan years beginning on or after May 1, 2010, is that the notice must be distributed by the first day of the next plan year. Calendar year plans first had to distribute the notice by Jan. 1, 2011, and distribution is required on an annual basis going forward.
Further, employers should have amended plan documents to reflect the two additional special enrollment rights no later than April 1, 2009, as well as update plan communication documents and the summary plan description (SPD) to reflect the additional special enrollment rights and expanded timeframes to request enrollment in the plan.
Penalties for Noncompliance
There are civil penalties under the Internal Revenue Service (IRS) Code for failure to comply with the Employer CHIP Notice requirement. If a violation is discovered and is not corrected within 30 days of discovery, then the employer must self-report the violation on IRS Form 8928 and a civil penalty of $100 per day would be assessed. The tax increases to $200 per day if there is more than one qualified beneficiary affected to whom the failure relates (i.e., same family or multiple employees).
There is an exception to this penalty if the plan sponsor can prove that the failure was due to reasonable cause (they did not know and in exercising reasonable diligence, would not have known) and not due to willful neglect and the failure was corrected within 30 days. If the failure is due to reasonable cause and not willful neglect, the maximum tax is the lesser of $500,000 or 10 percent of the aggregate amount paid or incurred by the employer during the preceding taxable year for group health plans. However, if the employer becomes aware of a failure and makes no effort to correct it, then there is no cap on the amount of excise tax that the IRS could assess.
Additionally, legal action may be brought by either a participant or the U.S. Department of Labor (DOL), and a court could assess an ERISA statutory penalty up to $110 a day.
Finally, if a violation is discovered during an audit, the tax may not be less than the lesser of $2,500 or the regular tax amount determined above if the failure is discovered after the employer has received a Notice of Examination from the IRS. If the failure is more than de minimis (as determined by the IRS), $15,000 is substituted for $2,500.
Frequently Asked Questions
Q1. Who must receive the Employer CHIP Notice?
A. Each eligible employee who resides in one of the states listed on the notice must receive an individual notice. In other words, it is not sufficient to only distribute the notice to participants in the health plan as the purpose of the notice is to notify individuals of the availability of premium assistance that may be available for payment of health insurance premiums.
How may the Employer CHIP Notice be distributed?
A. Employers may send the Employer CHIP Notice in a separate mailing, but are not required to do so. The notice may be provided concurrent with enrollment packets, open enrollment materials or in the plan's SPD as long as the employee receives the notice by the applicable due date.
The notice may be distributed electronically according to the DOL's electronic disclosure requirements. To satisfy these requirements, the employer may email the notice to employees who have email access as a normal part of their job. Employees that do not have email as a normal part of their job may authorize the employer (in writing) to provide the notice to a non-work email address. For those who do not have a company email address or do not provide a private email address, the notice should be mailed.
Finally, remember that the notice is required to be provided on an annual basis as of the first day of the plan year using whatever distribution method the employer chooses. The employer should maintain records documenting the timely delivery of the notices.
Q3. An employee has been told that he must drop coverage under our employer-sponsored group health plan in order for them to be eligible for CHIP enrollment. Is this a qualifying event allowing the employee to drop coverage midyear?
A. No, the CHIPRA legislation applies only to enrollment in the plan, not disenrollment. As such, many times it is difficult for individuals already enrolled in employer-sponsored coverage to drop coverage midyear and enroll in a CHIP program. This is likely due to the fact that CHIP (which is a Medicaid program) is designed to be the payer of last resort; that is, all other available third-party resources must meet their legal obligation to pay claims before the Medicaid program pays for the care of an individual eligible for Medicaid. Examples of third parties that may be liable to pay for services include private health insurance and employment-related health insurance, among others.
However, the opposite would be true. If an individual was enrolled in a CHIP plan, but lost eligibility under the program, then the individual would now have a HIPAA special enrollment right to enroll on the employer-sponsored group health plan, as long as the request to enroll was made within 60 days of the event date.
Therefore, individuals who are paying for employer-sponsored coverage under § 125 will find it difficult to drop coverage midyear due to eligibility under the CHIP program. The person would have to have another qualifying event allowing coverage to be dropped occur. Please note that not being able to afford the coverage is not a qualifying reason to drop coverage.
- Children's Health Insurance Program Reauthorization Act of 2009, effective April 1, 2009. Pub. L. No. 111 § 311 (2009)
- 42 U.S.C. 1396k(a)(1)(A)
- IRS Code 4980D(b)(3)(B)
The above links are provided for your information only. NFP does not endorse, nor accept any responsibility for the content, products and/or services provided at non-NFP sites. Some information contained in the NFP site is provided by third parties. We do not independently verify this information, nor do we guarantee its accuracy or completeness. Information provided from governmental agencies is subject to change.