President Obama Finalizes Health Care Reform
A
First Look at the Impact of Health Care Reform on Employers
On
March 30, 2010, President Obama put the finishing touch on the year-long health
care debate by signing the Health Care and Education Affordability Reconciliation
Act of 2010 (Reconciliation Act). The
Reconciliation Act represents compromise “fixes” to the Patient Protection and
Affordable Care Act (Act) that the president signed on March 23, 2010. This historic legislation is the result of a
fierce debate in Congress and across America on how to address the rising costs
of health care and the growing number of uninsured.
The
Act makes significant changes to every aspect of the health care system, several
of which specifically impact and change the system of employer-based health
coverage. These changes affect both
large and small employers, regardless of whether they self-insure their health
plans, buy an insurance policy to provide health coverage, or provide no health
coverage at all. While the Act affects a
broad array of players in the health care arena, this Ice Miller bulletin
focuses on the Act’s effects on employer-sponsored health coverage and new
employer responsibilities. Further
bulletins and client communiqués will address other groups, such as public
employers, governmental plans, health care providers, insurers and others.
This
is a first look at a work in progress.
While the Act is over 2,000 pages long, it still provides only a framework. Much more detail, in the form of regulations
and guidance from various government agencies, will be needed in the weeks,
months and years to come. Nevertheless,
employers must start planning for new responsibilities and opportunities almost
immediately. Ice Miller’s "Summary
of the Impact of Health Care Reform on Employers" provides employers
with a detailed analysis of the main provisions of the Act that will affect
most employers. Of course, every
employer will need to analyze their own unique situation and the plans that
they offer (or do not offer) to their employees.
An Overview of the Act’s Structure for Ensuring Health
Coverage
One
of the Act's most sweeping changes is to require most individuals to obtain
health insurance. Individuals required
to have insurance (generally all adults) will have to pay a tax penalty if they
do not obtain coverage for themselves and their dependents by 2014. Individuals can obtain coverage through their
employer (if available), an Exchange, the private insurance market outside of
the Exchange or government programs such as Medicare, Medicaid or TriCare (if eligible).
The Act provides subsidies to low-income individuals and their families
in the form of tax credits and reduced costs for coverage purchased through the
Exchange to assist individuals for whom the cost of obtaining health coverage
is too high. Generally, individuals
whose household incomes are between 133 percent and 400 percent of the federal
poverty line will qualify for this subsidy assistance. Individuals whose household income is below
133 percent are eligible for other public programs such as Medicaid.
Individuals
may purchase insurance through newly-created “Exchanges” beginning in
2014. Exchanges are private insurance
marketplaces that are established on a state-level and provide individuals (and
small employers) with health insurance options at varying levels that meet
certain cost-sharing and benefit standards.
The primary purpose of the Exchange is to provide individuals who cannot
obtain health coverage through an employer (or who cannot afford health
coverage offered by their employer) health insurance coverage options that meet
uniform minimum standards in order to meet their individual coverage
responsibilities. A health insurance issuer
seeking to offer coverage through an Exchange must meet certain criteria and
provide for "essential health benefits."
A
small employer may also purchase health coverage for its employees through an Exchange
beginning in 2014. Small employers for
this purpose are generally employers with no more than 100 employees. However, individual states can elect to limit
eligible employers to those with no more than 50 employees. In the future, the Act contemplates opening
up the Exchanges, at the election of individual states, to large group markets
so that larger employers can also use an Exchange to provide employee health
coverage.
Employer Responsibilities
The
Act does not affirmatively require an employer to provide health coverage to
its employees or their dependents.
However, beginning in 2014, employers with more than 50 full-time
equivalent employees will be subject to penalties if they have employees who
both obtain coverage through an Exchange and qualify for subsidy
assistance. The amount of the assessment
will depend on whether the employer offers health coverage to its full-time
employees.
·
If
the employer does not provide
coverage and at least one employee obtains coverage through an Exchange and
qualifies for subsidy assistance to pay for such coverage, the employer will be
required to pay an annual assessment equal to $2,000 for each full-time employee
of the employer.
·
If
the employer does provide coverage,
an employee can still opt-out of such coverage and go into the Exchange. If the employer's coverage is not affordable
to the individual employee (meaning the employee's contribution exceeds 9.5
percent of his or her household income), or the employer's plan covers less
than 60 percent of the total allowed costs of benefits provided under the plan,
then the employee may qualify for subsidy assistance. In such case, the employer will be required
to pay an annual assessment equal to $3,000 for each opting-out employee of the
employer (capped at an annual assessment equal to $2,000 times the total number
of full-time employees).
Coverage Reforms
The
Act makes a number of changes to coverage requirements that will affect most employer-sponsored
health plans. Some of these requirements
do not apply to group health plans in effect on the date of the Act's enactment
(grandfathered plans). Many of the Act’s
reforms are not effective until 2014 or later; however, several provisions become
effective much sooner. Among them are:
·
Overall
lifetime limits and unreasonable annual limits must be eliminated by the first
plan year that begins on or after September 23, 2010 (limits on non-essential
specific covered benefits are still permitted).
·
Plans
that provide dependent coverage of children are required to continue such
coverage for adult children who are not eligible under another employer group
health plan until they reach age 26, as of the first plan year that begins on
or after September 23, 2010 (all such children, regardless of other plan
eligibility, must be eligible for coverage by 2014).
·
Pre-existing
condition exclusions with regard to children under 19 must be eliminated by the
first plan year that begins on or after September 23, 2010 (all pre-existing condition exclusions for
any plan participant or dependent must
be eliminated by 2014).
·
Non-grandfathered
plans may not impose cost-sharing requirements (such as deductibles or co-pays)
on preventive care services and immunizations that are recommended by
governmental agencies under the Act as of the first plan year that begins on or
after September 23, 2010.
·
Non-grandfathered
plans must provide participants and dependents the ability to freely choose
primary care providers, pediatricians and gynecologists as of the first plan
year that begins on or after September 23, 2010.
·
Non-grandfathered
plans will be required to implement new internal and external claims and
appeals processes for plan participants to enforce their rights and make claims
for benefits under the plan as of the first plan year that begins on or after
September 23, 2010.
·
Insured
non-grandfathered plans will have to apply rules that are currently applicable
only to self-insured plans that prevent discrimination in favor of
highly-compensated employees as of the first plan year that begins on or after
September 23, 2010.
·
Small
employers may be eligible for tax credits that reimburse them for paying a
portion of their employees’ health care coverage effective January 1, 2010.
·
Employers
that offer retiree health coverage will be eligible to participate in a retiree
reinsurance program under which the federal government will reimburse 80
percent of eligible retiree claims between $15,000 and $90,000 for retirees
between ages 55 and 64. The program is
required to be in operation by June 23, 2010.
·
Non-prescribed
over-the-counter drugs will no longer be eligible for reimbursement under
flexible spending accounts, health reimbursement arrangements or health savings
accounts as of January 1, 2011.
Other provisions go into effect at
various points after 2011, including:
·
Employers
will be required to provide an abbreviated summary of their health plans to
participants in their plans. This
uniform notice of coverage must be distributed by March 23, 2012.
·
The
Medicare Part D prescription drug subsidy received by some employers that
provide retiree prescription drug coverage will lose its tax-free status effective
January 1, 2013.
·
Contributions
to medical flexible spending accounts will be limited to $2,500 effective
January 1, 2013.
·
Employee
FICA taxes will increase by .9 percent for wages paid above $200,000 ($250,000
for joint returns) and a new 3.8 percent Medicare tax will be imposed on high
income earners for certain investment and other unearned income, effective
January 1, 2013.
·
Waiting
periods in excess of 90 days are prohibited effective January 1, 2014.
·
Employers
that pay a portion of employees’ premiums under the employer’s health plan may
be required to provide “free-choice vouchers” to certain employees to assist
them in purchasing coverage under an Exchange policy if the employees do not
take the employer’s coverage effective January 1, 2014.
·
Increased
incentives can be provided to employees who comply with employer wellness
programs effective January 1, 2014.
·
A 40
percent tax on the value of coverage that exceeds $10,200 for single coverage
and $27,500 for family coverage will be imposed (these amounts may be adjusted
before they are effective, and certain adjustments are made for qualified
retirees and high-risk professions, as well as for age and gender) effective
January 1, 2018.
·
Several
other Internal Revenue Service and employee reporting requirements will also
need to be observed.
To
comply with the above changes, employers need to make operational and
administrative changes, as well as ensure that their plan documents, schedules
of benefits, forms and any employee notices or communications are updated to
reflect the new law. Ice Miller’s
employee benefits attorneys have been tracking the health reform debate for
months and are ready to assist employers in understanding and implementing
their new responsibilities under the Act.
For
more information, please refer to Ice Miller’s "Summary
of the Impact of Health Care Reform on Employers" and feel free to
contact Christopher
S. Sears, Tara
Schulstad Sciscoe, Shalina A. Schaefer or your Ice Miller
employee benefits attorney.
Ice Miller's Health
Reform Team
This publication is
intended for general information purposes only and does not and is not intended
to constitute legal advice. The reader must consult with legal counsel to
determine how laws or decisions discussed herein apply to the reader's specific
circumstances.