Richard D. Alaniz
When President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA) into law in March, he announced, “We are a nation that faces its challenges and accepts its responsibilities. We are a nation that does what is hard. What is necessary. What is right. Here, in this country, we shape our own destiny. This is what we do.”
A week after signing PPACA into law, President Obama signed the Health Care and Education Reconciliation Act of 2010, bringing months of bitter debate to an end. Regardless of how employers may feel about the two pieces of legislation that make up health care reform, most have been left to wonder: What exactly do we do now?
Many questions remain regarding the specifics of the legislation and how it will actually play out as reforms are phased in over the next few years. Employers should expect to see their obligations regarding health insurance benefits dramatically change as Americans adjust to a new reality of health insurance coverage and care.
Considering the sweeping changes involved and the increased responsibilities employers will have, it is critical for every organization to begin studying the legislation and understanding their new obligations to employees.
THE ROLE OF HEALTH INSURANCE EXCHANGES
Much of the discussion around the new legislation has revolved around health insurance exchanges. Beginning in 2014, the states will be required to create health insurance exchanges that offer different levels of health insurance plans. The legislation calls for two multi-state private health insurance plans, which will be available through the state exchanges.
Low-income employees will receive federal subsidies to purchase insurance through these exchanges. At first, these state exchanges will be available to individuals and companies with 100 or fewer employees, although states will have the option of limiting availability to companies with 50 or fewer employees. Beginning in 2017, states can, if they choose, offer the exchange option to bigger companies.
CHANGES IN BENEFITS
The legislation will require most health care insurance plan offerings to be widely expanded. Under the legislation, employer-sponsored health plans will no longer be able to use pre-existing conditions to keep employees and their families from enrolling in health care plans. This prohibition starts for plan years that begin after 2013. However, for children 18 and younger, the prohibition kicks in six months after the legislation was signed.
Other changes for plan years beginning six months after the enactment of the legislation include:
• Lifetime limits on benefits cannot be imposed.
• Group health plans can only apply “restricted” annual limitations on essential health benefits. What qualifies as “restricted” has not yet been defined.
• Employers must offer coverage for dependents through the age of 25.
• Employers cannot rescind or terminate coverage unless the employee or family member has committed fraud or misrepresented information.
With the start of the 2011 tax year, the value of the employee’s health benefits provided by the employer will need to be listed on employees’ W-2 forms. Looking further, for plan years beginning after 2013, group health plans cannot impose any annual limits. Employers do not have to offer coverage to adult children if those children are eligible for another employer’s health coverage under plan years that begin before 2014.
OFFER HEALTH CARE OR PAY THE PRICE
Under the new legislation, employer-sponsored health insurance is not technically a requirement - but if companies want to avoid paying penalties, most will to need provide health care benefits to their employees by 2014.
By 2014, companies with 50 or more full-time employees that do not offer health care benefits and have at least one employee who receives a federal subsidy to purchase insurance through an exchange, will have to pay a government penalty of $2,000. That penalty will be multiplied by the number of “full-time” employees (those who average 30 or more hours of work per week on a monthly basis).
Employers cannot simply offer any type of health insurance plan to avoid a penalty. The plan must be “affordable,” or less than 9.5 percent of each employee’s income indexed over time, or the employer must offer a plan that covers at least 60 percent of medical costs on average. Otherwise, the employer must pay $3,000 for each full-time employee who receives a health-insurance federal subsidy, or $2,000 multiplied by the total number of full-time employees (whichever is less). If an employer decides to make the penalty payment, the first 30 employees that exceed the 50 employees are excluded from penalties.
Larger employers must report to the U.S. Department of Health and Human Services (HHS) whether and what type of coverage they offer. For full-time employees who receive health insurance, employers will also need to provide names and Social Security numbers. If your company has more than 200 employees, employees must be automatically enrolled in a health plan. Employees can then choose to opt out. Smaller employers - those with fewer than 25 workers - will receive a tax credit to help provide health insurance.
Even if some employees choose not to participate in the company plan, employers may have to pay a penalty in certain circumstances. Under the legislation, some low-income employees who do not qualify for a federal subsidy can choose to opt out of the company plan. Employers must offer free choice vouchers to employees whose contributions to their health insurance premiums would be between 8 to 9.5 percent of their income and whose family income is below 400 percent of the poverty level. These vouchers must be equal to the value of the benefits of the employer plan and can be used to join an exchange plan.
ADAPTING YOUR CURRENT BENEFIT PACKAGE
Plans in place before the PPACA was signed on March 23 will be grandfathered in, or exempt from some of - but not all - the provisions in the legislation. For example, even grandfathered plans must abide by the rules that prohibit the refusal of health care coverage to employees with pre-existing conditions. It appears that these rules will apply to employees enrolled in a group or individual health plan.
If your health coverage plans are subject to a collective bargaining agreement, any grandfather rules will end when the last of the agreements that relate to the coverage ends.
During the raging debates over health care reform, generous “Cadillac” insurance plans became a favorite punching bag for some. Now, those expensive plans may be subject to taxes as a way to help pay the costs of offering health care to more people. When company-sponsored health plans have premiums that are higher than $10,200 for singles, $27,500 for family plans, or $11,850 for retirees, and $30,950 for families of retirees and employees in high-risk occupations, those plans will be taxed at a 40 percent excise tax.
IMPACT ON RETIREES
The new legislation will create a $5 billion federal reinsurance program that will reimburse companies that offer retirees between ages 55-64 and their families health insurance. Through the fund, the government will pay 80 percent of the cost for retiree claims between $15,000 and $90,000, and employers can only use the funds to lower the costs of their plans. The program begins 90 days after the legislation’s enactment and lasts through Dec. 31, 2013, or whenever the money runs out.
LESS-FLEXIBLE SPENDING ACCOUNTS
Flexible spending accounts (FSAs) will also have different rules. Starting in 2013, employees can only set aside $2,500 for FSAs, an amount that will be indexed for inflation. The new regulations also sharply limit the purchase of over-the-counter drugs through FSAs.
With the PPACA and the Reconciliation Act, employers should prepare themselves for many questions and changes. While the new legislation may face legal challenges and many of the key provisions don’t begin until 2014, employers need to begin planning right now for how to manage health care benefits in the future.
Unfortunately, planning for those changes will not be easy, since there are many questions left unanswered. It is unclear which employers may see their health care costs ultimately shrink, and which ones may see them increase. It also remains to be seen how employees and employers will respond to the shift in what was once considered an especially valuable benefit of employment - health insurance.
One thing is clear though. The new legislation is complicated and will require a great deal more regulation, paperwork, and education of employees. Companies need to carefully watch for more information and monitor new developments. Employers should work closely with their attorneys, tax advisors, and human resources professionals to ensure that they are in compliance and making the smartest decisions for their businesses and their employees. Publication date: