Health Care Reform

The Reinsurance Program for Early Retirees provides $5 billion in temporary financial help for employer plans to provide coverage to retirees between the ages of 55 and 64 who are neither active employees nor eligible for Medicare. The program subsidizes 80% of an eligible retiree's costs between $15,000 and $90,000. The program became effective June 21, 2010, but payments are retroactive for one year, allowing employers to begin subsidizing retirees' medical costs immediately. This program is temporary, however, and will end after 2013. If your company is considering providing health care benefits for early retirees, you may want to consider taking advantage of this program.

Certain small businesses will be eligible for a tax credit from 2010 through 2013 to offset the additional expenses associated with providing health care coverage to its employees. An employer with fewer than 25 full-time employees whose average annual wages are less than $50,000 per full-time employee are eligible, but they must pay premiums under a “qualifying arrangement.” The maximum credit is 35% of a qualifying employer's contribution from 2010-2013, but the ceiling increases after 2013 for a maximum of two years up to 50% of the employer's contribution for coverage purchased through one of the new state health care Exchanges (see below). Be sure to consider the many details of this tax credit if your workforce meets these requirements.

Also effective as of June 2010 is a program providing affordable coverage to uninsured Americans with pre-existing conditions. Though significant for many individuals, this provision should have little effect on an employer's benefits policies.

Sept. 24, 2010

Several provisions of the health care reform laws will become effective on Sept. 24, 2010, six months after the President signed the PPACA. One such provision prohibits the imposition of lifetime dollar limits on coverage for “essential benefits,” such as ambulance services, emergency care, hospitalization, maternity/newborn care, mental health and substance abuse treatment, prescriptions, rehabilitation and devices, laboratory work, preventive treatment, wellness and disease management, and pediatric care including oral and vision.

Also beginning in September 2010, employers will be required to provide during the first year after the birth of a female employee's child reasonable break time for nursing and a place other than a bathroom that is shielded from view and free from intrusion from co-workers and the public. However, employers with less than 50 employees are exempt if compliance would impose an undue hardship

Other provisions taking effect on Sept. 24, 2010 prohibit policies from excluding dependent children of plan participants under the age of 19 because of pre-existing conditions, rescinding or “dropping” coverage absent fraud or misrepresentation by the plan participant, or discriminating in favor of highly compensated employees. Also, after Sept. 24, 2010, policies cannot exclude adult children until they are 26-years-old regardless of marital or student status, unless eligible under another employer's plan, and they must cover most preventive care without cost sharing or co-pays, as well as certain emergency services. Examples of preventive care that must be covered include immunizations, annual check-ups, healthy-child visits, and breast cancer screening for women. Finally, policies must provide a certain appeals process in the event coverage is denied.

Jan. 1, 2011

Beginning Jan. 1, 2011, employers will need to update their payroll systems in order to comply with a requirement that they report on every employee's W-2 the full premium value of his or her health coverage. The information to be reported includes, but is not limited to, the value of prescription drug plans and employee assistance programs.

Also starting on Jan. 1, the tax on distributions from a health savings account (“HSA”) and an Archer medical savings account (“MSA”) that
are not used for qualified medical expenses is increased to 20%. Further, unless prescribed by a doctor, over-the-counter drugs other than insulin will no longer qualify for reimbursement under an HSA, MSA, health reimbursement account, or flexible savings account (FSA).

Jan. 1, 2012

Beginning in January 2012, employers and insurers will have to comply with new requirements relating to disclosures describing health care benefit plans. For example, employers will have to comply with rules that standardize the summaries of benefit disclosures. These rules have not yet been implemented, so employers will have to stay tuned for the details. Further, employers will be required to give 60 days' notice of any “material” changes to their health care plans; however, “material” changes is also not defined, so the details of this provisions will have to be addressed in the future as well.

Jan. 1, 2013

Several other substantial reforms will become effective beginning in January 2013. For example, the Medicare portion of employees' FICA will increase from 1.45% to 2.35% for earnings that exceed $200,000. Also, employers with more than 200 employees must automatically enroll their employees in a health care plan and must notify employees of their rights under the plan. Employees may opt out of course, and an employer-mandated waiting period may still apply. Yearly contributions to FSAs will be capped at $2,500 (subject to inflation) beginning in 2013. Finally, employers will be required to pay $2 per year per participant to fund a “Patient-Centered Outcomes Research Fund,” which will establish a non-profit organization to advance research regarding the quality and effectiveness of medical treatment.

Jan. 1, 2014

The most significant and controversial reforms in both laws become effective in 2014. First, the provision requiring all individuals to have minimum health care coverage, commonly referred to as the “individual mandate,” goes into effect on Jan. 1, 2014. Individuals that fail to obtain coverage will be required to pay a penalty equal to $695 or 2.5% of their income, whichever is higher.

Second, at the same time, the provision requiring employers to provide health care coverage to their employees, also known as the “Pay or Play” mandate, goes into effect. In sum, the employer mandate requires employers with 50 or more full-time employees to offer their full-time (30 hours or more per week) employees and their dependents minimum essential health benefits, as that term is defined by the bill. Employers that do not offer minimum coverage will be required to pay $2,000 per full-time employee if at least one of their employees qualifies for the federal tax credit for those without sufficient coverage. Those employers that provide minimum coverage that is not “affordable” will be required to pay $3,000 per employee. These penalties are not tax deductible.

Third, the American Health Benefits Exchange takes effect in January 2014. This provision requires states to establish “Exchanges,” which are collections of approved insurance plans intended to cover those individuals who might not have access to affordable health care because, for example, they are unemployed, self-employed, or employed by a small business. This provision also requires states to make available a Small Business Health Options Program (“SHOP Exchange”) to assist small employers in enrolling their employees in qualified health plans.

Fourth, starting in 2014, every employer that offers and contributes to the cost of “minimum essential” coverage (an “offering employer”) must provide a “Free Choice Voucher” to every qualifying low-income employee. A qualifying employee is one: 1) whose premium is between 8% and 9.8% of the employee's household income; 2) whose income is below 400% of the federal poverty level; and 3) who enrolls in Exchange coverage. An employee will use this voucher to purchase (presumably less expensive) coverage through an Exchange. The voucher is equal to the employer's highest potential contribution for employer-provided coverage and would allow the employer to avoid the “Pay or Play” penalty.

Other Provisions in 2014

Other provisions that become effective in 2014 include the prohibition of employer-imposed “waiting periods” that exceed 90 days after an employee starts work full-time, annual limits on essential benefits (which are already subject to restrictions in 2011), and all exclusions from coverage based on pre-existing conditions. Plans will also have to cover costs associated with certain clinical trials in which employees participate. Finally, an employer will be required to file an annual report providing the following facts: whether it provided minimum essential coverage to its full-time employees; a description of all applicable waiting periods for coverage; the number of full-time employees covered by its plan; and its financial contributions to its employees' coverage.

Jan. 1, 2018

Beginning Jan. 1, 2018, the 40% excise tax on so-called “Cadillac” health care plans, which are plans exceeding $10,200 for individuals and $27,500 for families, will go into effect. This provision sets forth higher limits for certain “high-risk” occupations and early retirees (age 55-64), and it excludes dental-only and vision-only plans. Keep in mind that the insurer is liable to pay this tax if the Cadillac plan is an insurance policy, but the employer is required to pay if the plan is self-funded.

How Do These Reforms Affect Existing Health Care Plans?

A Grandfathered Health Plan (“GHP”) is one in which an individual was enrolled on March 23, 2010, the date the PPACA was enacted. Significantly, GHPs are exempt from many ' but not all ' of the new mandates. Additionally, collectively-bargained plans must comply with some but not all of the new requirements until the termination of the collective bargaining agreements. Having a GHP gives employers some breathing room with respect to some of the laws' mandates, but it is not a carte blanche because even GHPs cannot impose lifetime dollar limits on the provision of “essential benefits,” exclude children under the age of 19 because of pre-existing conditions, drop coverage absent fraud or misrepresentation, or exclude adult children until they are 26-years-old regardless of marital or student status.

Conclusion

Compliance with the new health care reform bill should include not only reviewing thoroughly your company's existing health-care benefits plans and consulting your benefits experts and employment counsel, but also remaining up-to-date on the changes to and evolution of the health care reform laws, which are far from complete.

Joseph Hugg and E. Fredrick Preis, Jr., a member of this newsletter's Board of Editors, are attorneys in the Labor & Employment section at the Lemle & Kelleher law firm, which represents management. Mr. Hugg can be reached at [email protected] and Mr. Preis can be reached at [email protected].

After months of proposals, bills, votes, more bills, and reconciliation bills, the President signed into law the Patient Protection and Affordable Care Act (“PPACA”) on March 23, 2010, followed on March 30, 2010 by his signing into law the Health Care and Education Tax Credit Reconciliation Act, also known as “the Reconciliation Bill.” These laws make fundamental changes to the current U.S. health care system, some of which become effective immediately or by Sept. 24, 2010, and others that do not take effect until 2018. Despite their length and complexity, these laws leave many unanswered questions that will need to be sorted out by Congress and applicable agencies (some of which may not yet be in existence) in the coming months and years. Employers need to be aware of the various effective dates and deadlines and track the most current developments in order to form and implement policies that will comply with the laws as they become effective and evolve. This article provides a brief description of the changes of which employers should be aware.

What Are the Most Important Provisions to Employers and When Do They Become Effective?

Immediately

The Reinsurance Program for Early Retirees provides $5 billion in temporary financial help for employer plans to provide coverage to retirees between the ages of 55 and 64 who are neither active employees nor eligible for Medicare. The program subsidizes 80% of an eligible retiree's costs between $15,000 and $90,000. The program became effective June 21, 2010, but payments are retroactive for one year, allowing employers to begin subsidizing retirees' medical costs immediately. This program is temporary, however, and will end after 2013. If your company is considering providing health care benefits for early retirees, you may want to consider taking advantage of this program.

Certain small businesses will be eligible for a tax credit from 2010 through 2013 to offset the additional expenses associated with providing health care coverage to its employees. An employer with fewer than 25 full-time employees whose average annual wages are less than $50,000 per full-time employee are eligible, but they must pay premiums under a “qualifying arrangement.” The maximum credit is 35% of a qualifying employer's contribution from 2010-2013, but the ceiling increases after 2013 for a maximum of two years up to 50% of the employer's contribution for coverage purchased through one of the new state health care Exchanges (see below). Be sure to consider the many details of this tax credit if your workforce meets these requirements.

Also effective as of June 2010 is a program providing affordable coverage to uninsured Americans with pre-existing conditions. Though significant for many individuals, this provision should have little effect on an employer's benefits policies.

Sept. 24, 2010

Several provisions of the health care reform laws will become effective on Sept. 24, 2010, six months after the President signed the PPACA. One such provision prohibits the imposition of lifetime dollar limits on coverage for “essential benefits,” such as ambulance services, emergency care, hospitalization, maternity/newborn care, mental health and substance abuse treatment, prescriptions, rehabilitation and devices, laboratory work, preventive treatment, wellness and disease management, and pediatric care including oral and vision.

Also beginning in September 2010, employers will be required to provide during the first year after the birth of a female employee's child reasonable break time for nursing and a place other than a bathroom that is shielded from view and free from intrusion from co-workers and the public. However, employers with less than 50 employees are exempt if compliance would impose an undue hardship

Other provisions taking effect on Sept. 24, 2010 prohibit policies from excluding dependent children of plan participants under the age of 19 because of pre-existing conditions, rescinding or “dropping” coverage absent fraud or misrepresentation by the plan participant, or discriminating in favor of highly compensated employees. Also, after Sept. 24, 2010, policies cannot exclude adult children until they are 26-years-old regardless of marital or student status, unless eligible under another employer's plan, and they must cover most preventive care without cost sharing or co-pays, as well as certain emergency services. Examples of preventive care that must be covered include immunizations, annual check-ups, healthy-child visits, and breast cancer screening for women. Finally, policies must provide a certain appeals process in the event coverage is denied.

Jan. 1, 2011

Beginning Jan. 1, 2011, employers will need to update their payroll systems in order to comply with a requirement that they report on every employee's W-2 the full premium value of his or her health coverage. The information to be reported includes, but is not limited to, the value of prescription drug plans and employee assistance programs.

Also starting on Jan. 1, the tax on distributions from a health savings account (“HSA”) and an Archer medical savings account (“MSA”) that
are not used for qualified medical expenses is increased to 20%. Further, unless prescribed by a doctor, over-the-counter drugs other than insulin will no longer qualify for reimbursement under an HSA, MSA, health reimbursement account, or flexible savings account (FSA).

Jan. 1, 2012

Beginning in January 2012, employers and insurers will have to comply with new requirements relating to disclosures describing health care benefit plans. For example, employers will have to comply with rules that standardize the summaries of benefit disclosures. These rules have not yet been implemented, so employers will have to stay tuned for the details. Further, employers will be required to give 60 days' notice of any “material” changes to their health care plans; however, “material” changes is also not defined, so the details of this provisions will have to be addressed in the future as well.

Jan. 1, 2013

Several other substantial reforms will become effective beginning in January 2013. For example, the Medicare portion of employees' FICA will increase from 1.45% to 2.35% for earnings that exceed $200,000. Also, employers with more than 200 employees must automatically enroll their employees in a health care plan and must notify employees of their rights under the plan. Employees may opt out of course, and an employer-mandated waiting period may still apply. Yearly contributions to FSAs will be capped at $2,500 (subject to inflation) beginning in 2013. Finally, employers will be required to pay $2 per year per participant to fund a “Patient-Centered Outcomes Research Fund,” which will establish a non-profit organization to advance research regarding the quality and effectiveness of medical treatment.

Jan. 1, 2014

The most significant and controversial reforms in both laws become effective in 2014. First, the provision requiring all individuals to have minimum health care coverage, commonly referred to as the “individual mandate,” goes into effect on Jan. 1, 2014. Individuals that fail to obtain coverage will be required to pay a penalty equal to $695 or 2.5% of their income, whichever is higher.

Second, at the same time, the provision requiring employers to provide health care coverage to their employees, also known as the “Pay or Play” mandate, goes into effect. In sum, the employer mandate requires employers with 50 or more full-time employees to offer their full-time (30 hours or more per week) employees and their dependents minimum essential health benefits, as that term is defined by the bill. Employers that do not offer minimum coverage will be required to pay $2,000 per full-time employee if at least one of their employees qualifies for the federal tax credit for those without sufficient coverage. Those employers that provide minimum coverage that is not “affordable” will be required to pay $3,000 per employee. These penalties are not tax deductible.

Third, the American Health Benefits Exchange takes effect in January 2014. This provision requires states to establish “Exchanges,” which are collections of approved insurance plans intended to cover those individuals who might not have access to affordable health care because, for example, they are unemployed, self-employed, or employed by a small business. This provision also requires states to make available a Small Business Health Options Program (“SHOP Exchange”) to assist small employers in enrolling their employees in qualified health plans.

Fourth, starting in 2014, every employer that offers and contributes to the cost of “minimum essential” coverage (an “offering employer”) must provide a “Free Choice Voucher” to every qualifying low-income employee. A qualifying employee is one: 1) whose premium is between 8% and 9.8% of the employee's household income; 2) whose income is below 400% of the federal poverty level; and 3) who enrolls in Exchange coverage. An employee will use this voucher to purchase (presumably less expensive) coverage through an Exchange. The voucher is equal to the employer's highest potential contribution for employer-provided coverage and would allow the employer to avoid the “Pay or Play” penalty.

Other Provisions in 2014

Other provisions that become effective in 2014 include the prohibition of employer-imposed “waiting periods” that exceed 90 days after an employee starts work full-time, annual limits on essential benefits (which are already subject to restrictions in 2011), and all exclusions from coverage based on pre-existing conditions. Plans will also have to cover costs associated with certain clinical trials in which employees participate. Finally, an employer will be required to file an annual report providing the following facts: whether it provided minimum essential coverage to its full-time employees; a description of all applicable waiting periods for coverage; the number of full-time employees covered by its plan; and its financial contributions to its employees' coverage.

Jan. 1, 2018

Beginning Jan. 1, 2018, the 40% excise tax on so-called “Cadillac” health care plans, which are plans exceeding $10,200 for individuals and $27,500 for families, will go into effect. This provision sets forth higher limits for certain “high-risk” occupations and early retirees (age 55-64), and it excludes dental-only and vision-only plans. Keep in mind that the insurer is liable to pay this tax if the Cadillac plan is an insurance policy, but the employer is required to pay if the plan is self-funded.

How Do These Reforms Affect Existing Health Care Plans?

A Grandfathered Health Plan (“GHP”) is one in which an individual was enrolled on March 23, 2010, the date the PPACA was enacted. Significantly, GHPs are exempt from many ' but not all ' of the new mandates. Additionally, collectively-bargained plans must comply with some but not all of the new requirements until the termination of the collective bargaining agreements. Having a GHP gives employers some breathing room with respect to some of the laws' mandates, but it is not a carte blanche because even GHPs cannot impose lifetime dollar limits on the provision of “essential benefits,” exclude children under the age of 19 because of pre-existing conditions, drop coverage absent fraud or misrepresentation, or exclude adult children until they are 26-years-old regardless of marital or student status.

Conclusion

Compliance with the new health care reform bill should include not only reviewing thoroughly your company's existing health-care benefits plans and consulting your benefits experts and employment counsel, but also remaining up-to-date on the changes to and evolution of the health care reform laws, which are far from complete.

Joseph Hugg and E. Fredrick Preis, Jr., a member of this newsletter's Board of Editors, are attorneys in the Labor & Employment section at the Lemle & Kelleher law firm, which represents management. Mr. Hugg can be reached at [email protected] and Mr. Preis can be reached at [email protected].