Passage of Health Care Reform Will Change Game for Employers

Updated Thursday, March 25, 2010

Since President Barack Obama signed part of an expansive health care reform package into law on Tuesday, March 23, 2010, employers should prepare for many changes to their health and benefits plans. The President signed the U.S. Senate’s Patient Protection and Affordable Care Act (H.R. 3590), which the U.S. House of Representatives passed by a 219-212 vote on March 21, 2010. On that same day, the House also passed the Health Care and Education Affordability Reconciliation Act of 2010 (H.R. 4872), a compromise reconciliation bill designed to provide a package of “fixes” to the Senate’s original bill. The total legislation package (the original Senate bill and the reconciliation bill) will have far-reaching effects on employers.

Audio Conference: Health Care Reform Is Here: Impact and Answers for Employers

Immediate Reforms
The legislative package contains several provisions that would immediately affect employers by subjecting health insurance plans to several reforms. Such reforms include:

• prohibiting lifetime limits on coverage;
• barring rescissions of coverage in most circumstances;
• restricting annual limits on coverage;
• requiring certain plans to provide coverage for dependent children up to age 26;
• placing limitations on excessive waiting periods; and
• banning preexisting condition exclusions for children.

The bill also would establish a temporary reinsurance program that would reimburse participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees. Additionally, certain small employers would be eligible to receive tax credits to purchase health insurance coverage for their employees.

Employer Requirements, Fines, and Taxes
Although the health care reform package doesn’t require employers to provide insurance coverage to their employees, it will penalize employers that don’t offer coverage or don’t offer coverage that is considered good enough. For example, employers with 50 or more full-time equivalent employees that don’t offer coverage will have to pay an assessment ($2,000 for each full-time employee) to help offset the cost of health insurance if their employees are receiving help from the federal government to purchase insurance. Employers that offer coverage may also face penalties if their employees are receiving federal subsidies.

The package of bills also creates a tax on employer-sponsored high-end “Cadillac” coverage. Under the original Senate bill, the tax is 40 percent of the “excess benefit” of plans that exceed the thresholds of $8,500 for individual coverage and $23,000 for family coverage. However, when the original Senate bill is combined with the reconciliation bill:

• the effective date of the provision is changed from 2013 to 2018;
• the original thresholds are raised to $10,200 for individual coverage and $27,500 for family coverage;
• standalone dental and vision benefits are exempted from the tax; and
• certain employers are allowed to make adjustments to their cost of coverage if they have higher health costs because of their employees’ age or gender.

More Reforms in the Future
The health care reform package also contains many other provisions that would affect employers and become effective in the next several years. Among other things, the new package would:

• prohibit preexisting condition exclusions (effective in 2014);
• ban annual limits on coverage (effective in 2014);
• limit annual contributions to health flexible spending arrangements under cafeteria plans (effective in 2013);
• eliminate the deduction for expenses allocable to the Medicare Part D subsidy (effective in 2013);
• establish rules regarding which employers can participate in the new exchanges;
• require employers with more than 200 full-time employees that offer health benefit plans to automatically enroll employees in one of the plans they offer;
• require certain large employers to report the health insurance coverage they offer on a return;
• require employers to report the cost of employer-sponsored health coverage on Form W-2s;
• limit distributions for qualified medicine under health savings accounts (HSAs), Archer medical savings accounts (MSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs) to prescription drugs and insulin (effective in 2011);
• increase the additional tax on distributions from HSAs and Archer MSAs that aren’t used for qualified medical expenses to 20 percent of the disbursed amount (effective in 2011); and
• require certain employers to provide qualified employees with “free choice vouchers” to be used to purchase qualified health care plans on an exchange.

Next Steps
Although the President signed the original Senate bill into law, he has not yet signed the reconciliation bill since Congress had to first agree upon that part of the package’s language. The Senate passed the reconciliation bill on March 25, 2010, but eliminated a couple of provisions that violated reconciliation rules. Later that day, the House approved the bill and sent it to the President for his signature. We will continue to keep you updated on the health care reform package and will also keep you informed on how it will affect your workplace.

Keep up with the latest legal changes affecting employer benefits and trends in employee benefits with the Benefits Complete Compliance and with changes in federal employment laws in the Federal Employment Law Insider.