Title of Regulation: 1VAC55-20. Commonwealth of Virginia Health Benefits Program (amending 1VAC55-20-160, 1VAC55-20-320, 1VAC55-20-350).

Statutory Authority: § 2.2-2818 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: April 2, 2010.

Agency Contact: Charles Reed, Associate Director, Department of Human Resource Management, 101 N. Fourteenth St., 13th Floor, Richmond, VA 23219, telephone (804) 786-3124, FAX (804) 371-0231, or email charles.reed@dhrm.virginia.gov.

Basis: Section 2.2-2818 of the Code of Virginia authorizes the Department of Human Resource Management (DHRM) to establish a plan for providing health benefits to state employees and their dependents.

Purpose: The intent of this amendment is to assist employees in providing health coverage to Other Qualified Adults (OQAs) who reside in their home but are not eligible for the Health Benefits Plan for State Employees. These regulations would allow an employee to cover up to one OQA. If the employee covers a spouse, then the employee has met the adult maximum allowed by these regulations and cannot cover any other adults. Additionally, children of such adults may be covered if they meet the criteria listed under stepchild found in 1VAC55-20-320.

Employees are seeing an increasing burden to provide for the health coverage of other adult individuals residing in their home, and the dependents of those other adults who otherwise meet eligibility requirements, but are not covered by the Health Benefits Plan for State Employees.

Substance: Currently only classified employees, their spouses and their dependent children have access to coverage through the Health Benefits Plan for State Employees. The intent of this amendment is to assist employees in providing health coverage to other adults who reside in their home but are not eligible for the Health Benefits Plan for State Employees. The amendments to these regulations allow only one adult per dependent unit. Thus, if the employee covers a spouse, then the employee has met the adult maximum allowed by these regulations and cannot cover any other adults.

The OQA at the time of proposed enrollment must be at least 19 years of age and must have shared primary residency with the employee for the previous 12 continuous months. If the 12-month residency requirement is broken, then a new 12-month continuous residency requirement must be established. Renters, boarders, tenants, and employees of anyone who lives in the household are not eligible regardless of residency status.

Employees will be required to complete an affidavit confirming eligibility of the OQA.

Furthermore, unmarried children of an OQA living with the employee in a parent-child relationship will be considered eligible dependents as defined by this amendment. However, these children may not be covered as a dependent unless their principal place of residence is with the employee, and the child is a member of the employee's household. The child must receive over one-half of his support from the employee or OQA. Also, if the biological parents are divorced, the support test is met if a natural or adopted child receives over one-half of his support from either parent or the OQA or in any combination of parents and OQA.

Issues: There should be no advantages or disadvantages imposed on the public by these amendments.

The primary advantages for the Commonwealth are to (i) assist state agencies and institutions of higher learning in the recruitment of more qualified candidates for employment and (ii) ease the burden on employees who are required to provide for the health coverage of other adult individuals residing in their home.

The primary disadvantage to these amendments is that including Other Qualified Adults might have an adverse experience impact on the plan, resulting in higher cost to employees and their agencies.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Department of Human Resource Management (Department) proposes to amend the Commonwealth of Virginia Health Benefits Program to allow employees to enroll up to one Other Qualified Adult (OQA) to receive health benefits. The proposed language specifies that "All costs associated with insuring the Other Qualified Adults, and the eligible children of the Other Qualified Adults, are to be borne by the employee."

Result of Analysis. There is insufficient data to accurately compare the magnitude of the benefits versus the costs. Detailed analysis of the benefits and costs can be found in the next section.

Estimated Economic Impact.

Under the proposed regulations,

"A state employee who does not already enroll a spouse in the health program may enroll one (Other Qualifying Adult) OQA for benefit coverage if the OQA at the time of proposed enrollment the OQA is at least 19 years of age and has shared primary residence with the employee for the previous 12 continuous months. If the 12 month residency requirement is broken, then a new 12 month continuous residency requirement must be established."

Further, unmarried children of an OQA living with the employee in a parent-child relationship may be covered as well under certain conditions. Unlike the spouse and children of the employee, "All costs associated with insuring the Other Qualified Adults, and the eligible children of the Other Qualified Adults, are to be borne by the employee."

The current and proposed regulations authorize separate pools for establishing contribution rates and for accounting for claims and contributions for state employees and participating local employers. The pools are based on "geographic and demographic characteristics and employment relationships." The current regulations specify that such pools may include but shall not be limited to:

1. Active state employees, including retirees under age 65 and not eligible for Medicare;

2. Active local employees (excluding separately rated employees of public school systems);

3. Active employees of public school systems;

4. Retired state employees over age 65 and retired state employees eligible for Medicare;

5. Retired local employees (excluding separately rated employees of public school systems);

6. Retired employees of public school systems; and

7. Active employees whose employer does not sponsor a health insurance plan.

The Department proposes to add an eighth pool to the list, "Other Qualified Adults and their children who do not also qualify as children of the employee."

Since all costs associated with insuring OQAs and their children who do not also qualify as children of the employee are to be paid by the employee, the contribution rates for insuring these individuals is likely to be much higher than for spouses and children of the employee. For example, the current monthly premium for an employee with spouse's COVA Care (with basic dental) Plus One plan is $101. Adding in the state's contribution the monthly cost is $898.¹ The actual monthly cost charged to the employee for the COVA Care (with basic dental) Plus One when the one is an OQA would be higher than $898 since all costs are to be borne by the employee and the Department has additional implementation and on-going costs.

The Department estimates the initial implementation costs would be $150,000 ($50,000 for systems and payroll changes, $50,000 for actuarial services, $50,000 for communications) and well in excess of $90,000 annually ($50,000 for systems and payroll changes, $30,000 for actuarial services, $10,000 for communications, and an undetermined amount for FICA tax for the after tax premium). These costs would be distributed to the employees who are enrolling in a plan that covers an OQA with or without eligible children.

Since the monthly cost will be quite high, there may not be many employees who elect to pay for insurance covering an OQA. The OQA may be better served through self insurance or other available insurance. Premiums at least nine times as high as the premiums for the existing employee plus one would likely only be appealing to OQAs with very high pre-existing medical costs. If only employees with an associated OQA with very high pre-existing medical costs enroll, the monthly costs per participant will be much higher in order for the insurance to be viable. There is the potential that in order for all costs associated with insuring the OQAs, and the eligible children of the OQAs, to be borne by the employee, the individual premium would be so high that no one would elect to enroll. If this were to happen, the Commonwealth would be left with implementation costs uncovered by employee contributions. In this case, the costs of the proposed amendments would exceed the benefits. If there are individuals who choose to enroll despite the rather high premiums, then the benefits can be said to exceed the costs since all of the Commonwealth's costs would be covered and some individuals will have gained health insurance that they and their associated employee found to be a better option than self insuring or other available insurance. In other words some individuals would be better off while no individuals or entities would be worse off.

Businesses and Entities Affected. The proposed amendments potentially affect employees of the Commonwealth, employees of municipalities and school boards enrolled in the Local Choice Program, and health insurance firms.

Localities Particularly Affected. The proposed amendments do not disproportionately affect particular localities.

Projected Impact on Employment. The proposal amendments are unlikely to significantly affect employment.

Effects on the Use and Value of Private Property. The proposed amendments are unlikely to significantly affect the use and value of private property.

Small Businesses: Costs and Other Effects. The proposed amendments are unlikely to significantly affect small businesses.

Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed amendments are unlikely to significantly affect small businesses.

Real Estate Development Costs. The proposed amendments are unlikely to significantly affect real estate development costs.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 107 (09). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

_____________________

¹ Source: Department of Human Resource Management

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: The Department of Human Resource Management concurs with the economic impact analysis submitted by the Department of Planning and Budget.

Summary:

Currently, only classified employees, their spouses and dependent children have access to coverage through the Health Benefits Plan for State Employees. The intent of this amendment is to assist employees in providing health coverage to other adult individuals who reside in their home, but are not eligible for the Health Benefits Plan for State Employees. The amendments to these regulations allow only one adult per dependent unit. Thus, if the employee covers a spouse, the adult maximum allowed by these regulations has been met, and the employee cannot cover any other adults.

Furthermore, unmarried children of an Other Qualified Adult (OQA) living with the employee in a parent-child relationship will be considered an eligible dependent as defined by this amendment. However, these children may not be covered as a dependent unless their principal place of residence is with the employee, and the child is a member of the employee's household. The child must receive over one-half of his support from the employee.

The amendments provide that costs associated with insuring OQAs are to be borne by the employee.

1VAC55-20-160. Establishing contribution rates and accounting for contributions and claims.

A. The department shall establish one or more pools for establishing contribution rates and for accounting for claims and contributions for state employees and participating local employers. The plan for local employers shall be rated separately from the plan established for state employees. There are hereby authorized pools based on geographic and demographic characteristics and employment relationships. Such pools may include but shall not be limited to:

1. Active state employees, including retirees under age 65 and not eligible for Medicare;

2. Active local employees (excluding separately rated employees of public school systems);

3. Active employees of public school systems;

4. Retired state employees over age 65 and retired state employees eligible for Medicare;

5. Retired local employees (excluding separately rated employees of public school systems);

6. Retired employees of public school systems; and

7. Active employees whose employer does not sponsor a health insurance plan. ; and

8. Other Qualified Adults and their children who do not also qualify as children of the employee.

Participating employers shall make applicable contributions to the employee health insurance fund.

B. Such contributions may take into account the characteristics of the group, such as the demographics of employees, inclusive of age, sex and dependent status of the employees of an employer; the geographic location of the employer or employees; claims experience of the employer; and the pool of the employers (for example, see subdivisions 1 through 6 of 1VAC55-20-160 A). Additionally, any such contributions may further be determined by spreading large losses, as determined by the department, across pools. Further, the department reserves the right to recognize, in its sole discretion, the claims experience of groups of sufficient size, regardless of their pool, where future claim levels can be predicted with an acceptable degree of credibility. The application of this rule by the department shall be exercised in a uniform and consistent manner.

C. The contribution rate in the aggregate will be composed of two factors; first, the current contribution and second, the amortization of experience adjustments. The current contributions will reflect the anticipated incurred claims and administrative expenses for the period; an experience adjustment will reflect gains and losses determined in accordance with an actuarial estimate. An experience adjustment will be part of the contributions for the succeeding year; however, the department may authorize the amortization of the experience adjustment for a period not to exceed three years.

D. The department will notify a terminating local employer of any adverse experience adjustment within six-calendar months of the time the local employer terminates participation in the program. Further the department reserves the right to modify the amount of the experience adjustment applicable to a terminating local employer for a period not to exceed 12 months from the end of the plan year in which such termination occurred. The experience adjustment shall be payable by the local employer in 12 equal monthly installments beginning 30 days after the date of notification by the department. In the event that a terminating local employer requests in writing an extension beyond a period of 12 months, the department may approve an extension up to 36 months provided the local employer agrees to pay interest at the statutory rate on any extended payments.

E. All costs associated with insuring the Other Qualified Adults, and the eligible children of the Other Qualified Adults, are to be borne by the employee.

Part IV
Employee Participation

1VAC55-20-320. Eligible employees.

A. State employees.

1. Full-time salaried, classified employees and faculty as defined in 1VAC55-20-20 are eligible for membership in the health benefits program. A full-time salaried employee is one who is scheduled to work at least 32 hours per week or carries a faculty teaching load considered to be full time at his institution.

2. Certain full-time employees in auxiliary enterprises (such as food services, bookstores, laundry services, etc.) at the University of Virginia, Virginia Military Institute and the College of William and Mary as well as other state institutions of higher learning are also considered state employees even though they do not receive a salaried state paycheck. The Athletic Department of Virginia Polytechnic Institute and State University is an example of a local auxiliary whose members are eligible for the program.

3. Certain full-time employees of the Medical College of Virginia Hospital Authority are eligible for the program as long as they are on the authority's payroll and were enrolled in the program on November 1, 1996. They may have payroll deductions for health benefits premiums even if they rotate to the Veterans' Administration Hospital or other acute care facility.

4. Other employees identified in the Code of Virginia as eligible for the program.

5. Classified positions include employees who are fully covered by the Virginia Personnel Act, employees excluded from the Virginia Personnel Act by subdivision 16 of § 2.2-2905 of the Code of Virginia, and employees on a restricted appointment. A restricted appointment is a classified appointment to a position that is funded at least 10% from gifts, grants, donations, or other sources that are not identifiable as continuing in nature. An employee on a restricted appointment must receive a state paycheck in order to be eligible.

B. Local employees.

1. Full-time employees of participating local employers are eligible to participate in the program. A full-time employee is one who meets the definition set forth by the local employer in the employer application.

2. Part-time employees of local employers may participate in the plan if the local employer elects and the election does not discriminate among part-time employees. In order for the local employer to cover part-time employees, the local employer must provide to the department a definition of what constitutes a part-time employee.

The department reserves the right to establish a separate plan for part-time employees.

C. Unavailability of employer-sponsored coverage.

1. Employees, officers, and teachers without access to employer-sponsored health care coverage may participate in the plan. The employers of such employees, officers, and teachers must apply for participation and certify that other employer-sponsored health care coverage is not available. The employers shall collect contributions from such individuals and timely remit them to the department or its designee, act as a channel of communication with the covered employee and otherwise assist the department as may be necessary. The employer shall act as fiduciary with respect to such contributions and shall be responsible for any interest or other charges imposed by the department in accordance with these regulations.

2. Local employees living outside the service area of the plan offered by their local employer shall not be considered as local employees whose local employers do not offer a health benefits plan. For example, a local employee who lives in North Carolina and works in Virginia may live outside the service area of the HMO offered by his employer; however, he may not join the program individually.

3. Employer sponsorship of a health benefits plan will be broadly construed. For example, an employer will be deemed to sponsor health care coverage for purposes of this section and 1VAC55-20-260 if it utilizes § 125 of the Internal Revenue Code or any similar provision to allow employees, officers, or teachers to contribute their portion of the health care contribution on a pretax basis.

4. Individual employees and dependents who are eligible to join the program under the provisions of this subsection must meet all of the eligibility requirements pertaining to state employees except the identity of the employer.

D. Retirees.

1. Retirees are not eligible to enroll in the state retiree health benefits group outside of the opportunities provided in this section.

2. Retirees are eligible for membership in the state retiree group if a completed enrollment form is received within 31 days of separation for retirement. Retirees who remain in the health benefits group through a spouse's state employee membership may enroll in the retiree group at one of three later times: (i) future open enrollment, (ii) within 31 days of a qualifying mid-year event, or (iii) within 31 days of being removed from the active state employee spouse's membership.

3. Membership in the retiree group may be provided to an employee's spouse or dependents who were covered in the active employee group at the time of the employee's death in service.

4. Retirees who have attained the age of 65 or are otherwise covered or eligible for Medicare may enroll in certain plans as determined by the department provided that they apply for such coverage within 31 days of their separation from active service for retirement. Medicare will be the primary payor and the program shall serve as a supplement to Medicare's coverage.

5. Retirees who are ineligible for Medicare must apply for coverage within 31 days of their separation from active service for retirement. In order to receive coverage, the individual must meet the retirement requirements of his employer and receive an immediate annuity.

6. Local employers may offer retiree coverage at their option.

E. Dependents.

1. The following family individual members may be covered if the employee elects:

a. The employee's spouse. The marriage must be recognized as legal in the Commonwealth of Virginia.

b. Other Qualifying Adults (OQA). A state employee who does not already enroll a spouse in the health program may enroll one OQA for benefit coverage if the OQA at the time of proposed enrollment the OQA is at least 19 years of age and has shared primary residence with the employee for the previous 12 continuous months. If the 12-month residency requirement is broken, then a new 12-month continuous residency requirement must be established.

Employees will be required to complete an annual affidavit confirming eligibility of the OQA and to submit appropriate documentation.

b. c. Children. Under the health benefits program, the following eligible children may be covered to the end of the year in which they turn age 23 regardless of student status (age requirement is waived for adult incapacitated children), if the child lives at home or is away at school, is not married and receives over one-half of his support from the employee, spouse or OQA.

(1) Natural and adopted children. In the case of natural or adopted children, living at home may mean living with the other parent if the employee is divorced.

Also, if the biological parents are divorced, the support test is met if a natural or adopted child receives over one-half of his support from either parent or a combination of support from both parents. However, in order for the noncustodial parent to cover the child, the noncustodial parent must be entitled to claim the child as a dependent on his federal income tax return, or the custodial parent must sign a written declaration that he will not claim the child as a dependent on his federal income tax return OQA, or in any combination of parents and OQA.

(2) Stepchildren. Unmarried stepchildren living with the employee in a parent-child relationship. However, stepchildren may not be covered as a dependent unless their principal place of residence is with the employee and the child is a member of the employee's household. A stepchild must receive over one-half of his support from the employee.

(3) Unmarried children of an OQA living with the employee in a parent-child relationship. However, these children may not be covered as a dependent unless their principal place of residence is with the employee and the child is a member of the employee's household. The child must receive over one-half of his support from the employee or OQA.

(3) (4) Incapacitated children. Adult children who are incapacitated due to a physical or mental health condition, as long as the child was covered by the plan and the incapacitation existed prior to the termination of coverage due to the child attaining the limiting age. The employee must make written application, along with proof of incapacitation, prior to the child reaching the limiting age. Such extension of coverage must be approved by the plan and is subject to periodic review. Should the plan find that the child no longer meets the criteria for coverage as an incapacitated child, the child's coverage will be terminated at the end of the month following notification from the plan to the enrollee. Eligibility rules require that the incapacitated dependent live at home, is not married, and receives over one-half of his support from the employee or OQA.

Adult incapacitated children of new employees may also be covered, provided that:

(a) The enrollment form is submitted within 31 days of hire;

(b) The child has been covered continuously by group employer coverage since the disability first occurred; and

(c) The disability commenced prior to the child attaining the limiting age of the plan.

The enrollment form must be accompanied by a letter from a physician explaining the nature of the incapacitation, date of onset and certifying that the dependent is not capable of self-support. This extension of coverage must be approved by the plan in which the employee is enrolled.

(4) (5) Other children. A child in which a court has ordered the employee to assume sole permanent custody. The principal place of residence must be with the employee, and the child must a member of the employee's household.

Additionally, if the employee or spouse or OQA shares custody with the minor child who is the parent of the "other child," then the other child may be covered. The other child, the parent of the other child, and the spouse or OQA who has custody must be living in the same household as the employee.

When a child loses eligibility, coverage terminates at the end of the month in which the event that causes the loss of eligibility occurs.

There are certain categories of persons who may not be covered as dependents under the program. These include dependent siblings, grandchildren, nieces, and nephews except where the criteria for "other children" are satisfied. Parents, grandparents, aunts and uncles are not eligible for coverage regardless of dependency status.

Renters, boarders, tenants, and employees of anyone who lives in the household are not eligible regardless of residency status.

1VAC55-20-350. Membership.

A. Type of membership. Participants have a choice of three six types of membership under the program:

1. Single (employee only). If a participant chooses employee only membership, the health benefits program does not cover the employee's dependents (spouse, OQA, or children). A woman with single membership under the program does have maternity coverage. However, the newborn child is covered only for routine hospital nursery care, unless the mother changes to dual or family membership within 31 days of the date of birth.

2. Single Plus (employee and Other Qualifying Adult).

3. Dual (employee and one eligible dependent).

4. Dual Plus (employee and one eligible dependent child and Other Qualifying Adult).

3. 5. Family membership (employee and two or more eligible dependents).

6. Family Plus (employee and two or more eligible dependents and Other Qualifying Adult).

B. Changing type of membership.

1. Employees may change membership subject to 1VAC55-20-370.

a. During open enrollment.

b. Within 31 days of a qualifying mid-year event. Any such change in membership must be on account of and consistent with the event.

c. Within 31 days of a cost and coverage change, as acknowledged by the department.

2. All changes in membership must be made on a prospective basis except for the birth, adoption or placement for adoption of a child.

3. If the change is from single to dual or family membership or vice versa because of a qualifying mid-year event, the employee must certify in the enrollment action the type of event and the date of the event.