What Does the Health Care Bill Mean to Your Business?

For the business owners who are interested in how the new health care bill that was passed will affect their businesses we have listed a more detailed timeline of information on the what’s and the when’s. One interesting thing to note is that this legislation adds taxes on insurance companies, healthcare providers and medical device manufactures which will result in significant increases in the cost of care and increases to premiums to be passed along to consumers. The impact of these taxes has not yet been fully quantified. So, will the new health care bill reduce the the costs to you as a consumer of health care insurance? We will let you make that decision.

HEALTH CARE REFORM: EMPLOYER IMPACT

Patient Protection and Affordable Care Act: Senate (H.R. 3590) & Health Care & Education Affordability Reconciliation Act of 2010 (H.R. 4872)

Projected to provide coverage for 94% of Americans and cost $940 billion over 10 years, while decreasing the federal deficit by $143 billion over 10 years

• On Sunday night, March 21, 2010, the House of Representatives ratified the Senate Bill, the Patient Protection and Affordable Care Act (H.R. 3590). President Obama signed it into law on Tuesday, March 23, 2010

• The House passed a companion Act, the Health Care & Education Affordability Reconciliation Act of 2010 (H.R. 4872), which faces current debate in the Senate

KEY PROVISIONS AND TIMELINES

Effective within 6 months

• Protection from insurers rescinding existing coverage, except in instances of fraud
• All plans, including grandfathered plans, will be required to

1. Eliminate lifetime limits
2. Eliminate pre-existing conditions for children (under 19)
3. Extend dependent coverage to age 26 for those that do not have another source of employer sponsored health insurance

• Plans may not have a maximum out of pocket greater than the current Health Savings Account maximum of $5,950 ($11,900 for families)
• Establishment of a high risk pool for individuals unable to obtain coverage due to their health status. Effective 90 days following enactment until the implementation of all new market rules (exchange) in 2014
• Establishment of a reinsurance program for retirees to reimburse employers or insurers for 80% of retiree claims between $15,000 and $90,000. Effective 90 days following enactment through January 1, 2014
• Part D “donut hole” will be closed by providing $250 rebate to senior citizens who reach the “donut hole” in 2010 and phase it out entirely to a 25% coinsurance payment by 2020

Effective January 1, 2011

Consumer Driven Health Care

• Changes the definition of a “qualified medical expense” impacting reimbursements and withdrawals under all types of health care accounts (i.e., FSAs, HRAs, HSAs, and Archer MSAs). Expenses incurred for over-the-counter (OTC) medications and products will no longer be eligible for payment or reimbursement from health care accounts; however, OTC medicines obtained with a prescription and insulin may be reimbursed
• HSA penalty distributions for “non-qualified medical expenses” before a taxpayer reaches age 65 increases from 10% to 20% of the disbursed amount

Long-Term Care – Class Act

• Community Living Assistance Services and Supports Act, “Class Act” establishes a voluntary payroll deduction for long-term care
• Following a 5 year vesting period, the program will provide individuals a cash benefit of $50 per day to purchase non-medical services to maintain community residence.
• The Congressional Budget Office (CBO) estimates the cost at $123 per month • Requires employee opt-out creating administrative costs

Small Business Wellness

• Authorizes a $200 million appropriation grant to small employers establishing wellness programs for up to 5 years

Employer W-2 Reporting

• Requires employers to disclose the value of the Benefit provided for each employee’s health insurance coverage on the employee’s annual Form W-2

Effective January 1, 2013

Small Business Tax Credit Phases

• Applies to employers with less than 25 full-time employees with average annual wages less than $40,00 and purchase health insurance for employees with a tax credit
• Full-time employees are defined as working more than 30 hours per week • Phase I: 2010-2013

1. Small employers with less than 25 full-time employees may receive waivers to not offer coverage; however, if offering health insurance, employers will be given tax credits up to 35% of employer’s contribution toward employee’s health insurance premium if the employer contributes at least 50% of the total premium cost
2. Full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000
3. The credit phases out as firm size and average wages increases •

• Phase II: Post 2013

1. For tax years 2014 and beyond, when state Exchange Programs are created, employers may gain a tax credit of up to 50% of employer’s contribution toward employee’s premium if the employer contributes at least 50% of total premium cost
2. Tax credit only available for two years

Flexible Spending Accounts

• Medical FSA contributions will be limited to $2,500 but increased annually by a cost of living adjustment

Retiree Drug Coverage

• Medicare Moderation Act of 2003, creating Medicare Part D, includes 28% tax-free subsidy for retaining retiree drug benefits on employer sponsored plans. Subsidy is to be eliminated in 2013
• Companies taking advantage of this provision were able to list the subsidy on their balance sheets as a reduction to their retiree health liability. Consequently, companies may drop their retiree drug coverage, forcing retirees into Medicare Part D
• Paying companies the subsidy costs the government $600 per person, while directly covering the retirees will cost the government $1900 each

Non-profit Cooperatives

• $6 billion in federal funding to states to initiate consumer-owned and operated health insurance cooperatives (Co-Ops) by 07/01/2013. To qualify for funding, an organization must not be an existing health insurer, and all substantial actions must be issuing qualified health benefit plans with governance subject to a majority vote by its members

Funding – Medicare Payroll Tax Increase

• New tax to help pay for these benefits will be effective January 1, 2013 for those earning > $200,000 (single) or > $250,000 (couples)

1. increase in Medicare Part A tax from 1.45% to 2.35%
2. new Medicare tax surcharge of 3.8% for unearned income, i.e., dividends, interest and capital gains

Effective January 1, 2014 (majority of changes)

Market Reforms

• Most individuals will be required to have medical insurance by 2014
• Guarantee Issue and Guaranteed Renewal
• Pre-existing condition waiting periods eliminated for grandfathered plans and current coverage plans
• Qualified health benefits plans, including those offered through Exchanges and those
• offered in individual and small group markets outside the Exchanges, (except grandfathered individual and employer sponsored plans) are required to offer “essential health benefits packages” which limit annual cost sharing to current HSA limits ($5,950/ individual and $11,900/family in 2010), and is not more expensive than the typical employer plan

Automatic Enrollment

• Employers with > 200 employees offering health coverage must automatically enroll new full-time employees in health insurance coverage with the opportunity to opt-out
• Applicable to all group health plans, including self-funded plans

Waiting Periods

• $600 penalty for imposing waiting periods for full-time employees beyond 90 days
• Applies to employers with > 50 employees

Community Rating

• In the individual and small group markets, and in the Exchange, rating variation is limited based solely on age (3 to 1 ratio) and tobacco use (1.5 to 1 ratio)

Wellness Programs

• Wellness program participants may receive premium incentives of 30% of provided coverage cost (increase from current 20%). The Secretary of Health and Human Services has the discretion to increase premium incentives to 50%

Health Insurance Exchanges

• Health Insurance Exchanges will offer qualified health benefits plans by 2014 to be overseen by the Office of Personnel Management (OPM). The OPM will contract with health insurance carriers to offer at least two multi-state qualified health plans through each state Exchange; one plan must be non-profit
• Exchanges initially limited to individual markets and to employers with < 101 employees; however, effective January 1, 2017, states may allow large group employers (> 100 employees) to access coverage through Exchanges

Employer Mandates (affecting 50 or fewer employees)

• For employers with < 50 full-time employees, there will be limited deductibles ($2,000 for individuals and $4,000 for families) unless contributions are offered that offset deductible amounts above these limits

Employer Mandate (affecting 50 or more employees)

• If an employer does offer health care coverage, but at least one employee receives either a premium tax credit or cost-sharing reduction from the government, the employer must pay an annual fee equal to the lesser of 1) $3,000 per employee receiving the credit or reduction; or 2) $2,000 times the number of full-time employees
• If an employer does not offer health care coverage, but at least one employee receives either a premium tax credit or a cost sharing reduction from the government, the employer must pay an annual fee of $2,000 times the number of full-time employees
• The first 30 employees are exempted from the penalty (i.e., if employer has 51 employees and does not provide coverage, the employer would pay fine for 21 employees
• Part-time employees are now included and calculated as full-time equivalents. Part-time employees are defined as working a monthly average of 30 hours per week

Construction Industry Employer Mandates (more than 5 full-time employees)

• For construction industry only, employer mandate to provide affordable coverage applies to employers of more than 5 employees with annual payrolls of more than $250,000

Vouchers – Affordability Exemption:

• Requires employers to provide free choice vouchers for lower income employees who qualify for an “affordability exemption”
• Employees may use vouchers in the individual market in lieu of coverage in their employer’s group plan by using the employer contribution to join an Exchange
• Employees earning less than 400% above the Federal Poverty Level (FPL) qualify if the employee share of the premium is between 8% to 9.8% of household income
• Vouchers are excluded from taxation if used to purchase health coverage through an Exchange, and must equal the contribution made by the employer on behalf of employees

Medicaid Expansion

• Expands Medicaid coverage to all individuals with incomes up to 133% of the FPL, effective January 1, 2014. States must maintain current Medicaid income eligibility levels and funding for all populations. Undocumented immigrants are not eligible

Individual Mandate

• Creates individual mandate to purchase insurance or pay penalty of $95 in 2014, $325 in 2015 (higher income Americans will pay 1% to 2% of adjusted gross income in 2015) and $695 in 2016 (higher incomes will pay 2.5% of income)
• Family penalty is 3 times the individual penalty

Effective January 1, 2018

Excise Tax on Cadillac Plans

• Insurers will pay 40% excise tax on high value “Cadillac Plans” with values exceeding $10,200 for individuals and $27,500 for families (threshold indexed for inflation). Excise tax is imposed on the amount above the stated threshold
• Excise tax on “Cadillac Plans” will include medical premiums and both employer and employee contributions to HRAs, HSAs and FSAs. Dental and vision benefits will not count towards the threshold
• Threshold amounts will be increased for qualified retirees; employees in high risk professions (broadly defined to include longshoreman, police, fire, emergency medical services, construction, mining, agriculture, forestry and fisheries), individuals in the 17 states where health care is least affordable as determined by the Secretary of Health and Human Services (through 2015); threshold amounts may increase to account for inflation

Additional Provisions

Revised Annual Form 5500 Reporting Requirements

• Revised requirements will be imposed to enable the Department of Labor to satisfy its reporting obligations (i.e., enrollment, number of participants, funding arrangements, assets, liabilities, expenses and investments for self-insured plans)

CHIP Continuation

• Requires states to maintain current income eligibility levels for children in Medicaid and The Children’s Health Insurance Program until 2019, extending funding for CHIP through 2015 and requiring reauthorization by September 30, 2015

Please Note

• This legislation adds taxes on insurance companies, healthcare providers and medical device manufactures resulting in significant increases in the cost of care and increases to premiums to be passed along to consumers. The impact of these taxes has not yet been fully quantified.