Major Provisions

The Patient Protection and Affordable Care Act (P.L. 111-148) encompasses sweeping provisions for all participants in the health care marketplace, including consumers, insurers, employers, providers and hospitals, pharmaceutical companies, and even states and state-run programs themselves.

Here are some of the most important provisions directly affecting you as an employer. This is not a comprehensive summary of all the law’s provisions, but rather a selection of the top provisions pertaining to employers, employees and their private group health plans. This information does not constitute legal advice. For detailed, customized guidance on how health care reform will affect your company and your employees, please contact your Burnham Benefits representative.

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Expanding Access to Coverage
Changes to Private Insurance
Premium and Cost-Sharing Subsidies to Individuals
Premium Subsidies to Employers
Tax Changes Related to Health Insurance or Financing Health Reform
Health Insurance Exchanges
Benefit Design

Expanding Access to Coverage

Individual Mandate and Insurance Exchanges

• Most U.S. citizens and legal residents will be required to have health insurance under the law. Those without coverage pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount ($2,085) per family or 2.5% of household income.
• PPL 111-148 will create state-based American Health Benefit Exchanges through which individuals can purchase coverage, with premium and cost-sharing credits available to individuals/families with income between 133-400% of the federal poverty level (the poverty level is $18,310 for a family of three in 2009). 
• The law will also create separate Exchanges through which small businesses can purchase coverage.
• The law requires employers to pay penalties for employees who receive tax credits for health insurance through an Exchange, with exceptions for small employers.

Employer Requirements

• The law will assess employers with 50 or more employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. Employers with more than 50 employees that offer coverage but have 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, excluding the first 30 employees from the assessment. (Effective January 1, 2014)
• Employers with fewer than 50 employees are exempt from any of the above penalties.
• The law requires employers that offer coverage to their employees to provide a free choice voucher to employees with incomes less than 400% FPL whose share of the premium exceeds 8% but is less than 9.8% of their income and who choose to enroll in a plan in the Exchange. The voucher amount is equal to what the employer would have paid to provide coverage to the employee under the employer’s plan and 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 penalties for employees that receive premium credits in the Exchange. (Effective January 1, 2014)
• Employers with more than 200 employees are required to automatically enroll employees into health insurance plans offered by the employer. Employees may opt out of coverage.

Changes to Private Insurance

Medical Loss Ratio and Premium Rate Reviews

• Health plans will now be required to report the proportion of premium dollars spent on clinical services, quality, and other costs and provide rebates to consumers for the amount of the premium spent on clinical services and quality that is less than 85% for plans in the large group market and 80% for plans in the individual and small group markets. (Requirement to report medical loss ratio effective plan year 2010; requirement to provide rebates effective January 1, 2011)
• The law requires that states establish a process for reviewing increases in health plan premiums and require plans to justify increases. Requires states to report on trends in premium increases and recommend whether certain plan should be excluded from the Exchange based on unjustified premium increases. Provides grants to states to support efforts to review and approve premium increases. (Effective beginning plan year 2010)

Dependent Coverage

• By law, insurers must now provide dependent coverage for children up to age 26 for all individual and group policies. (Effective six months following enactment, but many insurers are moving to extend coverage earlier than mandated)

Insurance Market Rules

• One of the most significant provisions of P.L. 111-148 is that it prohibits individual and group health plans from placing lifetime limits on the dollar value of coverage and prohibit insurers from rescinding coverage except in cases of fraud.
  
• The law also prohibits pre-existing condition exclusions for children. (Effective six months following enactment) Beginning in January 2014, prohibits individual and group health plans from placing annual limits on the dollar value of coverage. Prior to January 2014, plans may only impose annual limits on coverage as determined by the Secretary.
  
• The law does grandfather existing individual and group plans with respect to new benefit standards, but requires these grandfathered plans to extend dependent coverage to adult children up to age 26, prohibit rescissions of coverage, and eliminate waiting periods for coverage of greater than 90 days. Requires grandfathered group plans to eliminate lifetime limits on coverage and beginning in 2014, eliminate annual limits on coverage. Prior to 2014, grandfathered group plans may only impose annual limits as determined by the Secretary. Requires grandfathered group plans to eliminate pre-existing condition exclusions for children within six months of enactment and by 2014 for adults. (Effective six months following enactment, except where otherwise specified)
  
• P.L. 111-148 imposes the same insurance market regulations relating to guarantee issue, premium rating, and prohibitions on pre-existing condition exclusions in the individual market, in the Exchange, and in the small group market. (Effective January 1, 2014)
  
• Requires all new policies (except stand-alone dental, vision, and long-term care insurance plans), including those offered through the Exchanges and those offered outside of the Exchanges, to comply with one of four standardized benefit categories. Existing individual and employer-sponsored plans do not have to meet the new benefit standards. (Effective January 1, 2014)
  
• Limits deductibles for health plans in the small group market to $2,000 for individuals and $4,000 for families unless contributions are offered that offset deductible amounts above these limits. This deductible limit will not affect the actuarial value of any plans. (Effective January 1, 2014)
  
• Limits any waiting periods for coverage to 90 days. (Effective January 1, 2014)
  
• The law will create a temporary reinsurance program to collect payments from health insurers in the individual and group markets to provide payments to plans in the individual market that cover high-risk individuals. Finances the reinsurance program through mandatory contributions by health insurers totaling $25 billion over three years. (Effective January 1, 2014 through December 2016)
  
• Allows states the option of merging the individual and small group markets. (Effective January 1, 2014)

Premium and Cost-Sharing Subsidies to Individuals

• Employees who are offered coverage by an employer are not eligible for premium credits unless the employer plan does not have an actuarial value of at least 60% or if the employee share of the premium exceeds 9.5% of income. Legal immigrants who are barred from enrolling in Medicaid during their first five years in the U.S. will be eligible for premium credits.

Premium Subsidies to Employers

Small Business Tax Credits

• A tax credit will be provided to small employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees.
• Phase I: For tax years 2010 through 2013, provides a tax credit of up to 35% of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50% of the total premium cost or 50% of a benchmark premium. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 25% of the employer’s contribution toward the employee’s health insurance premium.
• Phase II: For tax years 2014 and later, for eligible small businesses that purchase coverage through the state Exchange, provide a tax credit of up to 50% of the employer’s contribution toward the employee’s health insurance premium if the employer contributes at least 50% of the total premium cost. The credit will be available for two years. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The credit phases-out as firm size and average wage increases. Tax-exempt small businesses meeting these requirements are eligible for tax credits of up to 35% of the employer’s contribution toward the employee’s health insurance premium.

Reinsurance Program

• Under the law, a temporary reinsurance program will be created for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare. The program will reimburse employers or insurers for 80% of retiree claims between $15,000 and $90,000. Payments from the reinsurance program will be used to lower the costs for enrollees in the employer plan. Under the law, $5 billion will be appropriated to finance the program. (Effective 90 days following enactment through January 1, 2014)

Tax Changes Related to Health Insurance or Financing Health Reform

Tax Changes Related to Health Insurance

• The law imposes a tax on individuals without qualifying coverage of the greater of $695 per year up to a maximum of three times that amount or 2.5% of household income to be phased-in beginning in 2014.
• Contrary to the past, the new law will exclude the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through an HRA or health FSA and from being reimbursed on a tax-free basis through an HSA or Archer Medical Savings Account. (Effective January 1, 2011)
• The law also increases the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount. (Effective January 1, 2011)
• Limits the amount of contributions to a flexible spending account for medical expenses to $2,500 per year increased annually by the cost of living adjustment. (Effective January 1, 2013)
• Increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income for regular tax purposes; waive the increase for individuals age 65 and older for tax years 2013 through 2016. (Effective January 1, 2013)
• Increases the Medicare Part A (hospital insurance) tax rate on wages by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly and impose a 3.8% tax on unearned income for higher-income taxpayers (thresholds are not indexed). (Effective January 1, 2013)
• In 2018, the law will also impose an excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage (these threshold values will be indexed to the consumer price index for urban consumers (CPI-U) for years beginning in 2020). The threshold amounts will be increased for retired individuals age 55 and older who are not eligible for Medicare and for employees engaged in high-risk professions by $1,650 for individual coverage and $3,450 for family coverage. The threshold amounts may be adjusted upwards if health care costs rise more than expected prior to implementation of the tax in 2018. The threshold amounts will be increased for firms that may have higher health care costs because of the age or gender of their workers. The tax is equal to 40% of the value of the plan that exceeds the threshold amounts and is imposed on the issuer of the health insurance policy, which in the case of a self-insured plan is the plan administrator or, in some cases, the employer. The aggregate value of the health insurance plan includes reimbursements under a flexible spending account for medical expenses (health FSA) or health reimbursement arrangement (HRA), employer contributions to a health savings account (HSA), and coverage for supplementary health insurance coverage, excluding dental and vision coverage. (Effective January 1, 2018)
• Eliminates the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments. (Effective January 1, 2013)

Health Insurance Exchanges

Creation and Structure of Health Insurance Exchanges

• P.L. 11-148 will create state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. Permits states to allow businesses with more than 100 employees to purchase coverage in the SHOP Exchange beginning in 2017. States may form regional Exchanges or allow more than one Exchange to operate in a state as long as each Exchange serves a distinct geographic area. (Funding available to states to establish Exchanges within one year of enactment and until January 1, 2015)

Benefit Design

Essential Benefits Package

• The law defines an essential health benefits package as one that provides a comprehensive set of services, covers at least 60% of the actuarial value of the covered benefits, limits annual cost-sharing to the current law HSA limits ($5,950/individual and $11,900/family in 2010), and is not more extensive than the typical employer plan. Requires the Secretary to define and annually update the benefit package through a transparent and public process. (Effective January 1, 2014)
• Requires all qualified health benefits plans, including those offered through the Exchanges and those offered in the individual and small group markets outside the Exchanges, except grandfathered individual and employer-sponsored plans, to offer at least the essential health benefits package. (Effective January 1, 2014)

Wellness Programs

• The law will provide grants for up to five years to small employers that establish wellness programs. (Funds appropriated for five years beginning in fiscal year 2011)
• Provides technical assistance and other resources to evaluate employer-based wellness programs.
• The law mandates that a national worksite health policies and programs survey be conducted to assess employer-based health policies and programs. (Conduct study within two years following enactment)
• Permits employers to offer employees rewards—in the form of premium discounts, waivers of cost-sharing requirements, or benefits that would otherwise not be provided—of up to 30% of the cost of coverage for participating in a wellness program and meeting certain health-related standards. Employers must offer an alternative standard for individuals for whom it is unreasonably difficult or inadvisable to meet the standard. The reward limit may be increased to 50% of the cost of coverage if deemed appropriate. (Effective January 1, 2014) Establish 10-state pilot programs by July 2014 to permit participating states to apply similar rewards for participating in wellness programs in the individual market and expand demonstrations in 2017 if effective. Require a report on the effectiveness and impact of wellness programs. (Report due three years following enactment)
  

Source: Kaiser Family Foundation