President Barack Obama on Tuesday, March 23, signed the sweeping health care reform legislation that was passed by the House of Representatives on Sunday night.
The legislation will massively revamp the nation’s health care delivery and financing system. The biggest changes would be expanding Medicaid and establishing federal health insurance premium subsidies to the lower- and middle-income uninsured.
Congressional budget analysts estimate those changes could result in as many as 32 million uninsured gaining coverage. The Senate will begin debate on a second reform measure, a so-called reconciliation bill that also was approved by the House. That bill is designed to alter certain aspects of the main reform measure.
The legislation is packed with provisions that will directly affect employer-provided health care plans.
Some will require almost immediate action by employers. For example, within six months after enactment, employers will have to amend their plans to extend coverage to employees’ adult children up to age 26, if those dependents are not eligible for other group coverage.
Bigger changes are further down the road. By 2013, employers will have to redesign their flexible spending accounts to impose a $2,500 annual limit on contributions. There is no limit now, though employers typically impose limits between $4,000 and $5,000.
Also in 2013, employers providing prescription drug coverage to Medicare-eligible retirees will lose a tax break. Under a 2003 law, employers providing prescription drug coverage at least equal to Medicare Part D receive tax-free payments from the government equal to 28 percent of what they spend—within a certain range—on retiree prescription drug coverage.
The subsidy will continue under the legislation, but employers will be barred from taking a tax deduction on expenses equal to the subsidy starting in 2013.
That change in tax law may lead some employers to drop the coverage, benefit experts say.
Starting in 2014, employers with at least 50 employees that do not offer coverage will pay a tax of $2,000 for each employee without coverage. In computing the tax, the first 30 employees would not be counted.
Also in 2014, a new affordability test will kick in that could result in employers facing assessments unless they redesign their plans. If the premium paid by an employee exceeds 9.5 percent of their income and the employee uses federal health insurance premium subsidies to purchase coverage through new state health insurance exchanges, the employer would have to pay an assessment of $3,000 for that employee.
Employers most exposed to that assessment will be those with relatively low-paid workforces and that require employees to make hefty premium contributions relative to their income.
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.