On March 21, 2010 the U.S. House of Representatives passed major health care reform legislation which is likely to affect every citizen and every employer in the country. The “Patient Protection and Affordable Care Act” (H.R. 3590) or (“PPACA”) is the same bill passed by the U.S. Senate on December 24, 2009. President Obama has already signed the bill into law and it now imposes significant changes to the entire health care industry.
In addition to passing PPACA, the House also passed the “Health Care and Education Reconciliation Act of 2010” (H.R. 4872). The Reconciliation Act (160 pages) is much shorter than PPACA (2300 pages) but also contains significant changes. The Senate is expected to consider the Reconciliation Act within the next week. If passed by the Senate, its changes would also become law.
The PPACA and the Reconciliation Act will affect nearly every group in the health care arena: large employers, small employers, individuals, insurers, and medical providers. This alert focuses mainly on changes for large employers.
High-Level Impact: Medium and Large Employers. Most medium and large employers (more than 50 employees) that offer traditional health coverage will likely see the least amount of changes, but they will be significant. These changes are likely to apply to both fully-insured and self-funded plans. Important points to note:
(1) Must Offer Minimum Coverage. If an employer does not offer “minimum essential coverage” the employer likely will pay an annual fee of $750 per employee. This amount increases to $2,000 under the Reconciliation Act.
(2) Incentive to Subsidize Coverage. If an employer offers health coverage, an employee may not select it because the required employee contribution may be too large and the coverage is not affordable. (The “affordability” test examines whether the employee’s cost exceeds 9.8% of the employee’s household income (the 9.8% changes to 9.5% in the Reconciliation Act).) If the employee is eligible for a federal subsidy for coverage, the employer may be penalized $3,000 annually for each of these employees. This appears to be an effort to ensure that employers subsidize coverage sufficiently to keep such individuals in the employer’s plan, rather than the federally-subsidized individual market.
(3) Must Offer Better Coverage. PPACA and the Reconciliation Act would impose new mandates on the type of coverage that must be offered. Changes include:
(a) Covering adult children up to age 26 in some circumstances;
(b) Elimination of lifetime limits and restrictive annual limits;
(c) Elimination of preexisting condition exclusions;
(d) Required coverage of certain preventative services (e.g., immunizations and infant screenings); and
(e) Prohibiting a “rescission” of coverage.
There is some uncertainty about whether some plans will be “grandfathered” from some of these changes. The Reconciliation Act seems to eliminate a “grandfathered” exception for many plans. The scope of the “grandfathered” exception is also unclear.
(4) New Reporting Obligations. Certain plan coverage information must be reported to the federal government (e.g., the aggregate cost of coverage must be reported on Form W-2).
(5) Retiree Health Subsidy. An employer that offers retiree health coverage may be eligible for a subsidy from the federal government.
(6) New Taxes on High-Cost Plans. The so-called “Cadillac” tax on high-cost plans remains in place. However, under the Reconciliation Act, the effective date is pushed back to 2018 and the threshold limits are increased to $10,200 for single coverage and $27,500 for family coverage.
(7) Limits on Health FSAs. Beginning in 2013 (under the Reconciliation Act), health flexible spending arrangement contributions would be capped at $2,500 per year.
High-Level Impact: Small Employers. Small employers will face many of the same restrictions noted above (e.g., the requirement to offer better coverage, new reporting obligations, retiree subsidies, new taxes on high-cost plans and limits on health FSAs). However, employers with 50 or fewer employees will not face the $750 per employee tax (or, under the Reconciliation Act, $2,000) for failing to offer coverage. Certain small employers with no more than 25 employees and annual wages of less than $50,000 will receive a tax credit based on the employer’s contributions toward plan coverage.
High-Level Impact: Individuals. Beginning in 2014, nearly every U.S. citizen and legal resident must obtain minimum health insurance coverage. Tax penalties for failing to do so begin at $95 per person in 2014 and increase to $750 in 2016 (although the Reconciliation Act would slightly lower these penalties). A federal subsidy to purchase insurance would be available for those with income levels between 100% - 400% of the federal poverty level.
Uncertain Impact: Employers with Collective Bargaining Agreements. "Grandfathering" of health plans provided for in collective bargaining agreements, whether insured or through participation in single or multiemployer trusts is presently unclear. Numerous labor agreements have provided for "reopeners" as legislation has continued. We will address such issues and an employer's obligations as more information becomes available. Additionally, a plan's collectively bargained status may alter when a specific PPACA provision applies to the plan.
What to Expect From Congress Next. The Senate is likely to take up the Reconciliation Act within the next week. If passed by the Senate and signed by President Obama (both of which are likely), PPACA will be modified by the Reconciliation Act. Even if the Reconciliation Act is not enacted, employers must comply with PPACA.
What Should We Do Next?
You should review the table attached and identify changes that will likely affect you and your plans. Consider both the short-term changes (e.g., new mandates which are effective later this year or early next year) and long-term concerns (e.g., considering whether to modify the plan to avoid any “Cadillac tax” issues). Given the scope of the changes, you likely should discuss the situation with your benefits consultant / broker and legal counsel.
PPACA is available at:
The Reconciliation Act is available at:
The attached table summarizes many (but not all) of the changes the PPACA introduced. The table generally focuses on the changes for large employers. The table provides section references to various changes. It may be helpful to review PPACA when reviewing this table.
Please click to view the Summary of Changes Affecting Large Employers Under the PPACA.