Health Care Reform Update: Part II
This is the second in a series of Updates we will issue on Health Care Reform. Future Updates will further analyze these and other important provisions of this new legislation.
With the passing of this legislation comes many questions and uncertainties regarding the components and the implementation timeline. Burnham Benefits is committed to ensuring that you are kept up‐to‐date with reform developments and aware of any potential impact that this legislation may bring.
This Health Care Reform Legislative Update Part II provides a timeline of the mandates that affect employers and group health plans with key reform provisions as we know them today.
Expanded Insurance Coverage
The health care reform law contains some provisions designed to provide immediate improvements in access to health care coverage.
- Extended Coverage for Young Adults ‐ Group health plans and health insurance issuers offering group or individual health insurance coverage that provides dependent coverage of children must make coverage available for adult children up to age 26. There is no requirement to cover the child of a dependent child. This requirement will apply to grandfathered and new plans.
Note: A "grandfathered health plan" is any group health plan coverage that was in effect on March 23, 2010, the date of the new law's enactment. Even if an individual may reenroll in a grandfathered health plan or new employees (and their families) may be added to the plan after March 23, 2010, that does not destroy the plan's grandfathered status. At this point, it is not clear whether any significant modifications of coverage under a plan design will alter its grandfathered status.
- Temporary High Risk Pool to Provide Insurance for Uninsured Individuals with Pre‐Existing Conditions ‐ The health care reform bill provides for the establishment of a temporary high risk health insurance pool program to provide health insurance coverage for certain uninsured individuals with pre‐existing conditions. The program will end when the health insurance exchanges, set to be established in 2014, are operational.
- State Based Health Insurance Consumer Information Website ‐ The Secretary of Health and Human Services is required to establish an Internet website through which residents of any state may identify affordable health insurance coverage options in that state. The website will also include information for small businesses about available coverage options, reinsurance for early retirees, small business tax credits, and other information of interest to small businesses. So‐called "mini‐med" or limited‐ benefit plans will be precluded from listing their policies on this website.
- Help for Early Retirees ‐The new law requires the establishment of a temporary reinsurance program to provide reimbursement to participating employment‐based plans for a portion of the cost of providing health insurance coverage to early retirees (aged 55‐64) and their spouses, surviving spouses and dependents. This program will end on January 1, 2014.
Health Insurance Reform
The new law also imposes requirements on health insurance issuers to reform certain insurance practices and improve the coverage available.
- Eliminating Pre‐Existing Condition Exclusions for Children ‐ Group health plans and health insurance issuers may not impose pre‐existing condition exclusions on coverage for children up to age 19. This provision will apply to all employer plans and new plans in the individual market. This provision will also apply to adults in 2014.
- Coverage of Preventive Health Services ‐ Group health plans and health insurance issuers offering group or individual health insurance coverage must provide coverage for preventive services. These plans also may not impose cost sharing requirements for preventive services.
- Prohibiting Rescissions ‐ Group health plans offering group or individual insurance coverage may not rescind coverage once the enrollee is covered, except in cases of fraud or intentional misrepresentation. Plan coverage may not be cancelled without prior notice to the enrollee. This provision applies to all new and existing plans.
- Bans Lifetime Limits on Coverage ‐ Group health plans offering group or individual health insurance coverage may not impose a lifetime limits on the dollar value of benefits for any participant or beneficiary. This requirement applies to all plans. Annual limits will also be prohibited beginning in 2014.
- Prohibits Discrimination Based on Salary ‐ Fully‐insured group health plans will now have to satisfy nondiscrimination rules regarding eligibility to participate in the plan and eligibility for benefits. These rules prohibit discrimination in favor of highly compensated individuals. This section does not appear to apply to grandfathered plans. Medicare/Medicaid The health care reform law will further affect individuals by making certain changes to Medicare and Medicaid.
- Begin to close the Medicare Part D "Donut Hole" ‐ Part D enrollees who reach the coverage gap (the donut hole) will receive a $250 rebate, and the donut hole will start to phase out so that the beneficiaries will pay the standard 25% cost sharing for prescription drugs by 2020.
- Medicaid Part D Employer Subsidy ‐ Plan sponsors that receive the federal subsidy for their Medicare Part D prescription drug coverage must recognize the tax liability of the effects of the 2013 deduction disallowance on company financial statements. Fees and Taxes Health care reform also includes some subsidies, in the form of tax credits, businesses pay for coverage.
- Small Business Tax Credit ‐ Beginning in 2010, employers with fewer than 25 employees and average annual wages of less than $50,000 will qualify for a 35% credit. The minimum employer contribution is 50% of premium paid to purchase health insurance for employees. When health insurance exchanges are operational, tax credits will increase, up to 50% of premiums.
Expanded Insurance Coverage
- Voluntary Long‐Term Care Insurance ‐ A new Voluntary Long Term Care program to purchase community living assistance services and supports (CLASS) will allow an employer to automatically enroll employees and collect premiums unless an employee opts out.
Health Plan Administration
- Ensure Value for Premium Payments by Improving Medical Loss Ratios ‐ Health insurance issuers offering group or individual health insurance coverage (including grandfathered health plans) must annually report on the share of premium dollars spent on health care. Insurers that do not meet these thresholds must provide rebates for excessive medical loss ratio to policyholders effective on January 1, 2011.
- Reporting Health Coverage Costs on Form W‐2 ‐ Beginning in 2011, employers will be required to disclose the value of the health coverage provided by the employer to each employee on the employee's annual Form W‐2.
- Standardizing the Definition of Qualified Medical Expenses ‐ The health care reform law conforms to the definition of "qualified medical expenses" for HSAs, FSAs and HRAs to the definition used for the itemized tax deduction. Costs for over‐the‐ counter medications obtained without a prescription would not qualify.
Fees and Taxes
- Increased Tax on Withdrawals from HSAs and Archer MSAs ‐ The health care reform law will increase the additional tax on HSA withdrawals prior to age 65 that are not used for qualified medical expenses from 10 to 20%. The additional tax for Archer MSA withdrawals not used for qualified medical expenses would increase from 15 to 20%.
- Comparative Effectiveness Research Fee ‐ Beginning in 2012, the Act imposes a fee of $2.00 per covered life per calendar year to fund comparative effectiveness research. Employers pay annual comparative effectiveness research fee of $1 per plan par‐ ticipant in 2012, rising to $2 in 2013 through 2019; effective for plan years ending after September 30, 2012.The fee is payable by both insurers and self‐insured plans.
Health Plan Administration
- Administrative Simplification ‐ Beginning in 2013, health plans must adopt and implement uniform standards and business rules for the electronic exchange of health information to reduce paperwork and administrative burdens and costs.
- Limiting Health Flexible Savings Account Contributions ‐The new health care law will limit the amount of contributions to health FSAs to $2,500 per year, indexed by CPI for subsequent years.
Fees and Taxes
- Eliminating Deduction for Medicare Part D Subsidy ‐ Currently, employers that maintain prescription drug plans for their Medicare Part D eligible retirees are entitled to a tax deduction. This deduction will be eliminated in 2013.
- Increased Threshold for Medical Expense Deductions ‐ The health care reform law increases the income threshold for claimingthe itemized deduction for medical expenses from 7.5% of income to 10%. However, individuals over 65 would be able to claim the itemized deduction for medical expenses at 7.5% of adjusted gross income through 2016.
- Additional Hospital Insurance Tax for High Wage Workers ‐ The new law increases the hospital insurance tax rate by 0.9% on wages over $200,000 for an individual ($250,000 for married couples filing jointly). The tax is also expanded to include a 3.8% tax on net investment income in the case of taxpayers earning over $200,000 ($250,000 for joint returns).
- Waiting Periods ‐ Waiting periods for health care coverage of more than 90 days will be prohibited.
- Automatic Enrollment ‐ Employers with more than 200 employees will be required to automatically enroll employees into their employment‐based health plan.
- Wellness Programs ‐ The Act codifies the existing wellness regulations developed under the Health Insurance Portability and Accountability Act (HIPAA), which permit wellness incentives or penalties of up to 20% of premium, provided that the program meets certain conditions. In addition, the Act increases the amount of the potential incentive/penalty to 30% of premium, and permits the agencies to increase that amount to 50% after they conduct a study on wellness programs. The Act also prohibits questions in health risk assessments that ask about gun ownership.
- Individual Coverage Mandates ‐ The health care reform legislation requires most individuals to obtain acceptable health insurance coverage or pay a penalty, beginning in 2014. The penalty will start at $95 per person for 2014 and increase each year. The penalty amount increases to $325 in 2015 and to $695 (or up to 2.5%) in 2016, up to a cap of the national average bronze plan premium. After 2016, dollar amounts are indexed. Families will pay half the penalty amount for children, up to a cap of $2,250 per family. Individuals may be eligible for an exemption from the penalty if they cannot obtain affordable coverage.
- Employer Coverage Mandates ‐ Employers with 50 or more employees that do not offer coverage to their employees will be subject to penalties if one employee receives a government subsidy for health coverage. The penalty amount is up to $2,000 annually for each full‐time employee, excluding the first 30 employees. Employers who offer coverage, but whose employees receive tax credits, will be subject to a fine of $3,000 for each worker receiving a tax credit, up to an aggregate cap of $2,000 per full‐time employee. Employers will be required to report to the federal government on health coverage they provide.
Health Insurance Exchanges
The health care reform legislation provides for health insurance exchanges to be established in each state in 2014. Individuals and small employers will be able to shop for insurance through the exchanges. Small employers are those with no more than 100 employees. If a small employer later grows above 100 employees, it may still be treated as a small employer. Large employers with over 100 employees are to be allowed into the exchanges in 2017. Workers who qualify for an affordability exemption to the coverage mandate, but do not qualify for tax credits, can use their employer contribution to join an exchange plan.
Health Insurance Reform
Additional health insurance reform measures will be implemented beginning in 2014. Specifically, health insurance companies will not be permitted to:
- Refuse to sell or renew policies due to an individual's health status; ￼￼
- Exclude coverage for treatments based on pre‐existing health conditions;
- Charge higher rates due to heath status, gender or other factors (premiums will be able to vary based only on age (no more than 3:1), geography, family size, and tobacco use);
- Impose annual limits on the amount of coverage an individual may receive; or
- Drop coverage because an individual chooses to participate in a clinical trial for cancer or other life‐threatening diseases or deny coverage for routine care that they would otherwise provide just because an individual is enrolled in such a clinical trial.
Fees and Taxes
- Individual Health Care Tax Credits ‐ The new law makes premium tax credits available through the exchanges to ensure people can obtain affordable coverage. Credits are available for people with incomes above Medicaid eligibility and below 400% of poverty level who are not eligible for or offered other acceptable coverage. The credits apply to both premiums and cost‐ sharing.
- Small Business Tax Credit ‐ The second phase of the small business tax credit for qualified small employers will be implemented in 2014. These employers can receive a credit for contributions to purchase health insurance for employees, up to 50% of premiums.
High‐Cost Plan Excise Tax
- A 40% excise tax is to be imposed on the excess benefit of high cost employer‐sponsored health insurance (also known as a "Cadillac tax"). The annual limit for purposes of calculating the excess benefits is $10,200 for individuals and $27,500 for other than individual coverage. Responsibility for the tax is on the "coverage provider" which can be the insurer, the employer, or a third‐party administrator. There are a number of exceptions and special rules for high coverage cost states and different job classifications.
Plan sponsors will be working through the implications of health reform for years, but the first step is to review the reforms for the coming plan year. If the plan includes retirees, plan for the changes that will come with the retiree reinsurance program and Medicare reforms. Plan sponsors should expect to hear from their insurers and administrators as to how they will implement the Act, and the effect on plan administration and costs. In addition to the new administrative rules facing health plan sponsors, plan sponsors are likely to continue to battle health care cost inflation and possibly need to address new cost pressures that may result from health reform. Should you have additional questions or would like to receive additional information, please contact your Burnham Benefits representative.
Source: Content © 2010 Zywave, Inc.
For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:
This ACA Pathways is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
The information contained in this ACA Pathways includes emerging health care news from a limited perspective and does not encompass all views. The information was selected from a wide range of sources selected on the basis of their potential impact on employers and/or their employee benefit plans. For more information, please contact Burnham Benefits.
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