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HEALTH REFORM
AND THE IMPACT ON EMPLOYERS
Following a year long debate, the U.S. House of
Representatives passed health care reform legislation last Sunday
evening. Both H.R. 3590, the Patient Protection and Affordable
Care Act (the "Affordable Care Act"), and H.R. 4872, the
Health Care and Education Reconciliation Act of 2010 (the
"Health Care Reconciliation Act") were passed by the
House. The Health Care Reconciliation Act eliminates and in
some instances modifies a number of tax and revenue provisions
previously set forth in the Senate's Affordable Care Act.
However, the Senate has not yet passed the Health Care Reconciliation
Act.
The Affordable Care Act was signed into law on
Tuesday. The Affordable Care Act is a 2,409 page document that
is made up of ten distinct titles. For the most part, the
provisions affecting employers and employer plans are contained in
Title I of the Affordable Care Act. This article only focuses
on key provisions of the Affordable Care Act with respect to employers
and their plans:
· Employers are not required to provide group
health insurance to employees, but not offering coverage comes with a
price, depending on employer size.
Effective Calendar Year 2010
· The first phase begins for qualified small
employers to receive a tax credit of up to 35% of their employee
health care coverage expenses. A "qualified small
employer" is an employer that does not have more than 25
employees with average annual compensation levels not exceeding
$50,000. (In 2014, when exchanges are operational, tax credits
will increase up to 50% of premiums.)
Effective for tax years beginning after December 31,
2010:
· Employers will be required to report on W-2s the
cost of employer sponsored health coverage that is excludable from an
employee's gross income.
· The employer tax deduction for employees who
receive Medicare Part D drug subsidies is eliminated.
Effective January 1, 2014:
· Employers with more than 200 employees must
automatically enroll employees in health insurance coverage offered
by the employer; however, employees may opt out of employer coverage
(and opt-out will trigger a tax to the employer).
· If an employer with greater than 50 employees (a
"large employer") does not offer "essential"
health insurance coverage and such employer has at least one
full-time employee receiving a premium tax credit, then the employer
will be assessed an additional fee of $750 per full time
employee.
· Employers with more than 50 employees that offer
health insurance coverage and have at least one full-time employee
receiving a premium tax credit will pay the lesser of $3,000 for each
employee receiving a premium credit or $750 for each full-time
employee.
· Employers offering coverage will be required to
provide a "free choice" voucher to employees with incomes
less than 400% of Federal Poverty Level ("FPL") whose share
of the premium cost exceeds 8%, but is less than 9.8% of their
income. Such employees will be permitted to obtain health
insurance coverage from the health insurance exchange created by the
legislation. The free choice voucher amount will be equal to
what the employer would have paid to provide coverage to the employee
under the employer's plan. Accordingly, the voucher will be
used to offset the premium costs for the plan in which the employee
is enrolled. Employers providing free choice vouchers will not
be subject to fines or penalties for employees that receive premium
credits in the a state based health insurance exchange.
· Fees will apply per employee subject to a waiting
period of greater than 30 days ($400 per employee), increasing to
$600 per employee in a 60 to 90 day waiting period. Waiting
periods of greater than 90 days are prohibited.
· Employers that offer health insurance coverage
will be required to offer an "essential" health benefits
package. This means that each employer plan offered must meet
certain minimum health plan coverage requirements including a health
plan that provides a comprehensive set of services, covers at least
60% of the value of the covered benefits, limits annual cost-sharing
to the current HSA limits ($5,950 /
individual and $11,900 / family in 2010), and is not more extensive
than the typical employer plan. Additionally, in 2014, all
qualified health benefit plans, including those offered through the
exchanges and those offered in the individual and small group markets
(except grandfathered plans) must meet the requirements of an essential
health benefits package.
· Large employers will have additional
reporting requirements to the IRS regarding plan enrollment, waiting
periods, and plan cost information.
Effective for plan years beginning on and after
September 23, 2010:
· Group health plans offering dependent coverage
must make dependent coverage available for children up to age
26.
· Group health plans are prohibited from
discriminating in favor of highly compensated individuals.
· Group health plans are required to disclose the
percentage of revenue spent on medical claims and provide a rebate to
participants if the group health plan does not spend a minimum of 80%
(small group or individual plans) or 85 % (large plans) of its
revenue on claims (the requirement to provide a rebate becomes
effective January 1, 2011).
· Pre-existing condition exclusions for children
are prohibited (Note: there is controversy over the effective
date of this provision. Future guidance is
expected.)
· Group health plans must provide coverage for, and
not impose any cost sharing requirements for: (1) specified
preventive items or services; (2) recommended immunizations; and (3)
recommended preventive care and screenings for women and children.
· Requires reductions in the maximum limits for
out-of-pocket expenses for individuals enrolled in "qualified
health plans" whose incomes are between 100% and 400% of the
poverty limit.
Effective for tax years beginning after December
31, 2010:
· A "Simple Cafeteria Plan" becomes
available to provide a vehicle through which small businesses can
provide tax-free benefits to their employees by easing the
administrative burdens of sponsoring a cafeteria plan. This
provision also exempts employers who make contributions for employees
under a "Simple Cafeteria Plan" from nondiscrimination
requirements.
Effective January 1, 2011:
· Health Savings Accounts ("HSA"), medical savings accounts, and health
flexible spending accounts ("FSA")
must exclude the cost of over-the-counter drugs not prescribed by a
doctor from reimbursement.
· The law caps the maximum amount of contributions
per health FSA to $2,500 per year (adjusted
annually).
Effective January 1, 2014:
· The law imposes an excise tax on insurers of
"Cadillac" health plans with aggregate values that exceed
$8,500 for individual coverage and $23,000 for family coverage
(indexed annually), provided higher thresholds apply for retirees age
55 and over not eligible for Medicare (and subject to additional
special limits) and employees in high risk professions. The
excise tax will equal 40% of the value of the plan that exceeds the
threshold amounts. The aggregate value of the health insurance
plan includes reimbursements for health FSAs
or health reimbursement arrangements ("HRA"),
employer contributions to an HSA, and
coverage for supplementary health insurance coverage.
· Group health plans are prohibited from placing
lifetime and annual limits on the dollar value of benefits for any
participant or beneficiary (restricted annual limits for plan years
beginning prior to January 1, 2014 are permitted). However,
group health plans may place annual or lifetime per-beneficiary
limits on covered benefits that are not "essential health
benefits" to the extent that such limits are otherwise
permitted.
· The law attempts to enhance wellness program
provisions by increasing reward limits, providing technical guidance,
and providing grants to small employers that establish wellness
programs.
· Waiting periods for health insurance coverage
will be limited to 90 days, and waiting periods of 30-90 days will be
subject to fees (see above).
Again, the Health Care Reconciliation Act is under
review by the Senate and could eliminate and/or modify a number of
the tax and revenue provisions set forth above. If, and when,
the Health Care Reconciliation Act becomes law, Clark Hill will
provide you with a future alert outlining these changes.
As health reform becomes a reality, it will have a
significant impact on employers whether or not they offer health
insurance benefits. Evaluating and implementing the employer
requirements of health reform will be a monumental task. There
will be questions and issues for employers that may not have immediate
answers, or may not even be contemplated due to the magnitude of this
legislation.
As your organization evaluates the effect of certain
health reform measures on labor agreements, fully-insured health
plans, self-insured plans, and other employer based obligations,
please feel free to contact the authors of this Alert or your Clark
Hill attorney.
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NOTE: All articles are also posted on the Clark
Hill Website for future reference and can be accessed by visiting
www.clarkhill.com or www.clarkhill.com/HealthCare.aspx.
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