|Health Care Reform|
Important Updates on Health Care Reform Laws
The new Patient Protection and Affordable Care Act, with over 2,000 pages of new federal law, will touch virtually every aspect of the health care industry.
This week, we are providing information to help you understand the implications of the new Health Care Reform law.
Watch for future updates as we review these and other mandates and their implications to our industry. As we work to fully understand and implement new legislation, rest assured that our No. 1 priority is to stay focused on our customers each and every day, and to meet and exceed their expectations by delivering value while improving their experience.
Federal Health Care Reform: Impacts on Employers
April 7, 2010
The newly enacted federal Patient Protection and Affordable Care Act (the “Act”)1 makes significant changes to the health and other benefits that employers offer to their employees. Additionally, there are administrative requirements required in the act with which an employer will need to comply.
It is imperative that employers have a detailed understanding of what changes are on the immediate horizon, as well as what changes will be required in the future, so that they may adequately plan and account for the administrative and financial impact of these changes to their business and on their workforce. While we continue to analyze the hundreds of provisions in the over 2,000 pages of new federal law, the purpose of this paper is to provide employers with a preliminary summary and explanation of the changes, and to alert employers to ambiguous areas in the act that will need to be clarified by regulations yet to be issued by federal agencies such as Health and Human Services and the IRS.
Timing of new requirements; details continue to be defined.
It is important to note that most of the provisions that will have a major impact on the health insurance marketplace — such as the new framework for health insurance products and the employer mandate to offer coverage — are not scheduled to go into effect until 2014. However, some of the provisions that have been less publicized in the media have effective dates in 2010 or are even retroactive to the beginning of 2010.
Many of the deadlines discussed in this document are calculated from the date of the act’s enactment, March 23, 2010. For example, most of the effective dates in 2010 apply to plan years beginning on or after six months after the date of enactment (or September 23, 2010).
It is also important to note that many of the provisions in the act instruct federal agencies such as Health and Human Services and the IRS to define details, issue implementation guidelines or regulations, and resolve ambiguities. Such a process is typical with enacted legislation, and while a few guidelines havebeen issued, many of the provisions with near-term implementation dates have yet to be defined.
Where interpretation of the law is unclear, employers should consult their legal counsel for guidance.
Health plan auto-enrollment effective date is unclear
The act will require employers with more than 200 full-time employees to automatically enroll new full-time employees in health coverage, although employees have the ability to opt out of coverage. The effective date for this requirement is unclear, but because the act states that the enrollment must be in accordance with regulations to be issued, it is possible that this requirement is not effective until those regulations are issued.
Changes required in 2010
There are numerous changes that the act makes effective this year, which will impact employers’ health plans for both active and, in some instances, retired employees. These changes apply to both fully insured and self-funded health plans. Unless otherwise noted, these changes are effective for plan years beginning on or after September 23, 2010. For example, if an employer’s health insurance renews or its self-funded health plan’s plan year begins on January 1, these provisions will need to be complied with effective January 1, 2011.
Keeping current health benefits (“grandfathering”)
A key item that employers need to know concerns whether and to what extent the employer may continue to maintain the employer-sponsored health plan it had in effect on the date of the act’s enactment (March 23, 2010), without having to comply with certain benefit and other plan changes the act requires both in 2010 and in future years. Maintaining current coverage is called “grandfathering” in the act.
The act does explicitly permit the employer to maintain current health coverage for individuals already enrolled, subsequently enrolled family members and new hires. Also, collectively bargained plans are grandfathered until the date on which the last of the collective bargaining agreements relating to the grandfathered coverage in effect on date of the act’s enactment terminates. However, there are a number of unanswered questions on the grandfathering provisions. It is likely that these questions will be answered by the federal agencies charged with issuing regulations interpreting the act. For example, it is unclear:
For plan years beginning on or after September 23, 2010, employers with self-funded health plans, or the health insurers from which they obtain employer-sponsored health insurance, must make the following changes to their health plan benefits:
Wellness program change
A minor provision of which employers still need to be aware is that effective in 2010, wellness programs may not require disclosure or collection of any information relating to the presence of firearms, and may not base premiums, discounts, rebates or rewards on basis of firearm or ammunition ownership.
Reinsurance for retiree benefits
Finally, beginning in 2010 and ending January 1, 2014, is a temporary reinsurance program for employers providing health coverage to retirees over age 55 who are not Medicare eligible. This federal reinsurance program will reimburse employers for 80 percent of claims between $15,000 and $90,000 (these amounts are indexed for inflation). The funding for the reinsurance program is $5 billion for the entire period, and it is unclear how long the funding will last. The federal Health and Human Services agency is required to establish the program by late June 2010 and — as of this writing — program details have not been issued.
Changes required in 2011
Changes to flexible spending accounts (FSAs), health reimbursement accounts (HRAs) and health savings accounts (HSAs)
Beginning in 2011, the act will require several changes to FSAs, HRAs and HSAs. Employees will not be able to receive pre-tax reimbursements from their FSA, HRA or HSA for non-prescribed over-the-counter medications. Additionally, the excise tax for nonqualified HSA withdrawals is increased from 10 percent to 20 percent, and the excise tax for nonqualified withdrawals from Archer Medical Savings Accounts will be increased from 15 percent to 20 percent.
Reporting value of coverage
The requirement that employers report the value of employer-provided health coverage on each employee’s W-2 is effective in 2011. However, it is unclear whether this provision applies to the value of health benefits provided in tax year 2010 or tax year 2011. Regulations yet to be issued will hopefully clarify the effective date of this requirement.
Enrollment in new long-term care program
The act also establishes a new, government-run voluntary long-term care program called the CLASS Act. Employers must automatically enroll employees into the program and make payroll deductions for the premiums, although employees can elect not to participate. Employers may choose not to participate in the program. Employees will not be eligible to receive benefits until after paying premiums for five years.
Changes required in 2012
Issue 1099s for corporate service providers
One important change made by the act unrelated to health benefits requires employers beginning in 2012 to provide an IRS Form 1099 to all corporate service providers receiving more than $600 per year for services or property. Currently, 1099s need only be generated for non-corporate service providers and only on services.
Changes Required in 2013
Effective in 2013, employee contributions to FSAs will be capped at $2,500 annually, with the cap adjusted annually to the Consumer Price Index.
New fees and other financial changes
Beginning in 2013, the act will require new fees and other financial changes for employers that have established and maintained self-funded health plans.
New employee notice required
Effective March 1, 2013 (or subsequently for new hires), the act requires employers to issue a new notice to employees containing information about state exchanges, the availability of premium assistance if the actuarial value of the employer’s plan is below 60 percent, and the availability of free choice vouchers in the upcoming plan year (2014).
Changes required in 2014
Beginning in 2014, states will begin to operate what are called “exchanges,” which are marketplaces for individuals and some employer groups to obtain private health insurance choices. In 2014, small group employers with fewer than 100 employees are eligible to purchase health insurance coverage in the exchange; while beginning in 2017, states may choose to open the exchanges to employers with more than 100 employees.
Private health insurance sold in the exchange must contain “essential benefits” (although each state has the opportunity to add benefits if the state funds the addition). There are numerous other rules governing exchange plans, such as insurance premium rating rules and the actuarial value of benefits that can be sold in the exchange.
Individual and employer responsibilities about health care coverage
Beginning January 1, 2014, employers will be subject to a number of provisions that affect the health benefits they provide to full-time employees. Importantly, beginning in 2014, individuals also have the personal responsibility to obtain qualifying health coverage. They can do this by enrolling in an employer sponsored health plan, a government-sponsored health plan (such as Medicare, Medicaid, TRICARE, etc.), or a health plan in the exchange, if they meet the criteria to qualify to buy in the exchange.
Prior to 2014, each employer will need to calculate how many full-time (or full-time equivalent) employees it employs to determine whether or not it must comply with the act’s 2014 provisions (per thresholds described below).
The employer must count all full-time employees (defined as those working 30 or more hours per week, determined on a monthly basis) and must also take into account part-time employees on a full-time equivalency basis. Certain seasonal workers are not counted; refer to specific act provisions for details on this exception.
New employer penalties
If an employer has 50 or more full-time employees, then the employer may be subject to penalties under the act if it provides either no health coverage to full-time employees, or provides coverage to full-time employees that is not affordable, as explained below.
The act subjects an employer to penalties if it does not provide any “minimum essential coverage” for its full-time employees and one or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction. In this situation, the employer penalty imposed is $2,000 for each of its full-time employees; however, no penalty is assessed on the first 30 full-time employees. Penalties are assessed monthly.
The act also makes an employer subject to penalties if it offers its full-time employees the chance to enroll in “minimum essential coverage” and one or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction because either the employee’s share of the premium exceeds 9.5 percent8 of the employee’s income, or the employer’s plan has an actuarial value of less than 60 percent. (The employer will be notified by the exchange if the employee qualifies.) In this situation the penalty on the employer is $3,000 for each full-time employee receiving a tax credit or cost-sharing reduction. This penalty is often called the “free rider” penalty.
The penalty is capped and cannot exceed the total penalty that would have been imposed had the employer offered employees no coverage. Penalties are assessed monthly.
Changes to benefits
Manner of obtaining benefits
Free choice vouchers: Apply to employers that offer health coverage and pay a portion of the cost of that coverage. An employee qualifying for a “free choice voucher” must have income below 400 percent of the federal poverty level; the employee’s contribution to premium would be between 8 percent and 9.8 percent of the employee’s family income, and the employee does not participate in the employer’s health plan.
If these conditions are satisfied, the employer must pay to the exchange the value of what the employer would have paid toward the employee’s cost of health coverage under the plan with respect to which the employer pays the largest portion of the plan. The employer’s payment is keyed to the kind of coverage the employee purchases in the exchange (self only or family).
Changes to wellness programs
The act codifies the HIPAA nondiscrimination rules on wellness programs and increases the incentive cap of 20 percent of premium to 30 percent. The HHS Secretary has the discretion to increase the incentives cap to 50 percent.
New Employer Administrative Reporting
Finally, the act will require employers to annually report to the IRS a number of pieces of data, including the following:
Changes Required in 2018
Finally, in 2018 a 40 percent excise tax on high-cost plans will be applied to plans costing more than $10,200 for individual coverage, or $27,500 for family coverage. The thresholds are adjusted to $11,850 and $30,950 for retirees over age 55 and individuals in high-risk professions; threshold adjustments are also available for plans that have higher-than-average costs due to the age or gender of their workers. Thresholds will be automatically increased if health costs increase more than expected between 2010 and 2018; thresholds will be indexed to the Consumer Price Index (CPI) plus 1 percent in 2019, and to the CPI thereafter. The tax will apply to the cost of benefits over these threshold amounts.
Coverage subject to this excise tax includes employee and employer contributions, whether pre-tax or after-tax. Also included are contributions to FSAs, HRAs and HSAs, and on-site clinics or wellness plans that are ERISA plans. Not included are ancillary benefits such as dental, vision, accident, disability, long-term care, and after-tax indemnity or specified disease coverage.
New Employee Legal Rights Against Employers
Finally, employers should be aware of several provisions that have not been much discussed. The act creates new legal rights for employees to charge their employers with discrimination having to do with health benefits, based upon federal laws such as the Age Discrimination Act, the Rehabilitation Act, the Civil Rights Act, the Fair Labor Standards Act and others. The act’s amendment of the Fair Labor Standards Act prohibits an employer from discriminating in any way against an employee who has received a premium subsidy or reduced cost-sharing under the act, while another provision protects individuals from discrimination in terms of exclusion from participation in or denial of benefits under any health program or activity.
These provisions also provide whistleblower protections for employees who provide information to or cooperate with federal or state government authorities concerning alleged violations of the act. These new rights apply regardless of whether the employer’s health benefits plan is fully insured or self-funded.
Key Health Care Reform Issues for Employers
April 7, 2010
The federal health care reform law will have a substantial impact on employers. Here are the main issues that employers will want to be aware of:
1. Keeping the same coverage
Employers will be able to avoid some of the law’s requirements by keeping their coverage the same after the law’s effective date (March 23, 2010). Unfortunately, it is very unclear at this time what kinds of minor changes will alter coverage, or keep it the same; this will be clarified in later regulation. Changes that must be made to all plans include:
2. New benefit and other plan changes
If an employer does not keep its coverage the same, employers will need to make additional changes such as:
3. FSA/HRA/HSA changes
The law also will require changes to these types of accounts. In 2011, employees will no longer be able to receive pre-tax reimbursements from their FSA, HRA or HSA for non-prescribed over-the counter medications, and the excise tax for nonqualified HSA withdrawals will increase from 10 percent to 20 percent. In 2013, employee contributions to FSAs will be capped at $2,500 annually, with the cap adjusted annually to the Consumer Price Index.
4. Employee notification of value of coverage and exchange information
Effective in 2011, employers will need to start reporting the value of the employer-sponsored coverage to employees on their W-2s. And in March 2013, employers will need to begin notifying employees about state exchanges and the availability of premium subsidies and free choice vouchers, all of which will be available beginning in 2014.
5. Fees and penalties imposed on employer plans
Under the law, employers will be subject to a number of fees and exposed to penalties for certain behaviors. Among them are the following:
6. Employer administrative reporting duties
The law will require employers to annually report to the IRS a number of pieces of data, including:
7. Changes to employee wellness programs