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Understanding Key Provisions in Federal Health Care Reform Legislation

March 22, 2010
Related Topics: Financial Impact, Benefit Design and Communication, Medical Benefits Law, Latest News
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The landmark overhaul of the U.S. health care delivery and financing system moved closer to final enactment when the House of Representatives on Sunday, March 21, approved both a reform bill earlier cleared by the Senate and a second bill that would make numerous changes to the other bill. On Tuesday, March 23, President Barack Obama signed the first measure.

The legislation will result in as many as 32 million U.S. residents gaining coverage, chiefly through expanding Medicaid for the low-income uninsured and extending federally subsidized health insurance premiums to uninsured individuals with incomes up to 400 percent of the federal poverty level. For the first time, employers will be subjected to taxes if they do not offer coverage to employees or if the coverage fails an affordability test.

In some cases within a few months, employers will have to change the design of their plans to comply with a wide range of new requirements, such as continuing coverage to employees’ adult children.

Some benefit programs, such as flexible spending accounts, will have to be cut back; others, most notably prescription drug plans provided to Medicare-eligible retirees, will lose tax breaks.

Down the road, employers also could be affected by a new tax on costly health insurance plans if health care plan costs continue to rise. To help employers keep up with the latest developments, Workforce Management sister publication Business Insurance provides answers to frequently asked questions about the issues.

Q: Which bills did the House of Representatives approve on Sunday?
A:
Two measures were passed. One was the measure the Senate approved last December. The second bill, described as a reconciliation bill or a “sidecar,” includes changes to that measure.

Q: What happens next?

A: The Senate has to approve the second bill, and that action could be completed this week. Obama then will have to sign that measure.

Q: How would the new excise tax on health insurance premiums work?

A: Starting in 2018, a 40 percent excise tax would be imposed on health insurance premiums exceeding $10,200 for single coverage and $27,500 for family coverage. The cost thresholds triggering the tax will be slightly higher for plans covering retirees or employees in certain high-risk industries. In 2019, the thresholds would rise to match the increase in the Consumer Price Index, plus one percentage point. In 2020 and succeeding years, the thresholds will increase to match rises in the index.

Q: Who would pay the tax?

A: The tax would be paid by insurers for fully insured plans and by plan administrators for self-funded plans. Insurers and plan administrators almost certainly would try to recover that cost from employers.

Q: Would the tax apply to all health care-related coverage?

A: No, dental and vision care premiums or costs would be excluded.

Q: What is the penalty on employers that do not offer health care coverage?

A: Starting in 2014, employers with at least 50 employees would be assessed an annual penalty of $2,000 for each employee they do not offer coverage. In calculating the amount of the tax, the first 30 employees would be excluded.

Q: Is there a penalty if an employer offers coverage, but coverage is not “affordable”?

A: Yes, a penalty of $3,000 per employee per year would apply starting in 2014. Two conditions would have to be met for the penalty to be triggered: The share of the premium paid by the employee would have to exceed 9.5 percent of household income and the employee would have to use federal insurance premium subsidies to purchase coverage through new state health insurance exchanges.

Q: Since 2004, employers offering retiree prescription drug coverage at least actuarially equal to Medicare Part D have been eligible for a tax break. Specifically, the government provides tax-free reimbursement of 28 percent of employers’ drug costs to retirees within a certain corridor. Does the legislation take this tax break away?

A: The legislation curbs the tax break starting in 2013. Employers still will be eligible for the subsidy, which will continue to be tax-free. But employers will not be able to take a tax deduction for retiree prescription drug expenses for amounts equal to the subsidy.

Q: Does the legislation give employers a financial incentive to continue to provide retiree health care coverage?

A: Yes, a limited one. Beginning 90 days after enactment, a $5 billion government fund will be put in place to reimburse employers for 80 percent of each claim falling between $15,000 and $90,000 for retirees age 55 through 64.

Q: What will happen to flexible spending accounts?

A: Starting in 2011, employees no longer will be able to be reimbursed from their FSAs for over-the-counter drug expenses. Then, in 2013, a $2,500 cap on contributions to flexible spending accounts will go into effect. In succeeding years, the cap would be increased to match the rise in the Consumer Price Index. There is no annual limit under current law, though employers typically impose limits of $4,000 to $5,000 a year.

Q: What restrictions will be imposed on health savings accounts?

A: Beginning in 2011, the current 10 percent tax on health savings account withdrawals taken prior to age 65 that are not used for reimbursement of health care expenses would be raised to 20 percent.

Q: What changes affecting health care plan design would go into effect quickly?

A: Within six months after enactment of the legislation, group plans would have to extend coverage to employees’ adult children up to age 26 if the adult child is not eligible to enroll in another group plan. In addition, group plans no longer could have lifetime dollar limits and no restrictive annual limits, as defined by regulations. In 2014, waiting periods exceeding 90 days would be banned, as would annual dollar limits on benefits.

Filed by Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

 

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