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Benefits Law
Alert
HEALTH CARE RECONCILIATION ACT SIGNED INTO LAW
On March 30, 2010, President Obama signed the Health
Care Reconciliation Act into law. The Health Care
Reconciliation Act alters a number of tax and revenue provisions that
were passed as part of the Patient Protection and Affordable Care
Act.
This article updates our previous alert dated March 24,
2010 by incorporating the changes brought about by the Health Care
Reconciliation Act. The alert focuses on key provisions of the
Patient Protection and Affordable Care Act, as amended by the Health
Care Reconciliation Act, with respect to employers and their health
plans.
EMPLOYERS
· 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.
Effective for tax years beginning after December 31,
2012:
· 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
(opting 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 $2,000 (up from
$750) per full time employee. However, the first 30 employees
are not counted in payment calculations.
· Employers with greater than 50 employees that offer
"essential" health insurance coverage and such employer has
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 $2,000 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
household 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 a state based health insurance exchange.
· 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 June
23, 2010:
· For employer plans offering health coverage to
early retirees ages 55 to 64 who are not eligible for Medicare, a
temporary reinsurance program will be available to reimburse plans up
to 80% of the cost of individual benefits in excess of $15,000, but
below $90,000. These reimbursements received by a plan are
required to be used to lower participant costs (i.e. reduce premium
costs, co-pays, etc).
Effective for plan years beginning on and after
September 23, 2010:
· Group health plans offering dependent coverage
must make coverage available for unmarried children up to age
26.
· Group health plans are prohibited from placing
lifetime limits on the dollar value of benefits for any participant
or beneficiary
· Group health plans are prohibited from
discriminating in favor of highly compensated individuals.
· Group health plans are required to disclose the
percentage of premiums spent on clinical services, quality and other
costs 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) on clinical services and quality (the requirement
to provide a rebate becomes effective January 1, 2011).
· Mandates that the Secretary establish a process
of reviewing increases in health plan premiums and will require plans
to justify unreasonable premium increases, as well as require states
to report on trends in premium increases and recommend whether
certain plans should be excluded from the state based insurance
exchange based on unjustified premiums.
· Pre-existing condition exclusions for children
are prohibited (Note: there has been controversy over the
effective date of this provision. The Department of Health and
Human Services is expected to issue guidance soon.)
· 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.
Effective January 1, 2013:
· The law caps the maximum amount of contributions
per health FSA to $2,500 per year (adjusted
annually).
Effective January 1, 2014:
· Group health plans are prohibited from placing
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 limits on covered benefits that are not
"essential health benefits" to the extent that such limits
are otherwise permitted by the Secretary.
· 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.
· Group health plans will be prohibited from
containing pre-existing condition exclusions for any individual
(Note: Effective June 23, 2010, a temporary national high-risk
pool will be established to provide health coverage to individuals
with pre-existing medical conditions who have been uninsured for at
least six months. Eligible individuals will receive subsidized
premiums. This temporary national high-risk pool will remain in
effect until 2014.)
Effective January 1, 2018:
· The law imposes an excise tax on insurers of
"Cadillac" health plans with aggregate values that exceed
$10,200 for individual coverage and $27,500 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.
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.
* * *
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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