Health Care Reform Timeline for Employers

Spring Issue 2010Newsletters Staying Well Within the Law

As has been highly publicized, the PPACA will have a major impact on American businesses. Employers of all sizes are scrambling to understand the myriad incentives, restrictions, mandates and penalties to which they will now be subjected.

This article is intended to be an executive summary of the new law's most significant points impacting employers.

While some provisions will have immediate impact, others are being grandfathered such as group health plans or health insurance coverage arrangements for individuals enrolled on the date the law was passed.

To Go Into Effect Right Away:

  1. Small employers with fewer than 25 fulltime employees with average annual compensation levels not exceeding $50,000 per FTE may claim a tax credit for up to a portion of their employee health care coverage expenses. The credit is phased out based on employer size and employee compensation. This credit is effective for tax years beginning after December 31, 2009. The credit is equal to 35% of the total nonelective contributions made by the employer for payment of premiums for qualified health insurance coverage of its employees, but not more than the average premium for the applicable small group market in the employer's state as determined by the Department of Health and Human Services (HHS). The maximum credit is available to employers with 10 or fewer employees with average compensation of $25,000 or less.
  2. As of March 23, 2010, all employers must provide break time and an appropriate location for nursing mothers to express milk for children up to one year of age. Such break time is not required to be paid time.
  3. Effective on June 21, 2010, employers are prohibited from encouraging individuals to elect the newly offered high-risk pool coverage instead of employer plans. HHS is also required to create a program to reimburse employer plans for certain medical expenses incurred by early retirees ages 55-64.

To Go Into Effect on or After Sept. 23, 2010:

  1. Health plans that offer dependent coverage must offer such coverage though age 26. Grandfathered plans are not required to cover adult children through age 26 if the dependent is eligible for other employer-sponsored coverage. Note that there is no obligation to offer any dependent coverage, nor are there any details about how a plan may classify a subscriber's child as a "dependent," other than to prohibit age caps lower than 26.
  2. Lifetime limits on health benefits will no longer be permitted, excepting specific nonessential benefits.
  3. Health plans (other than grandfathered plans) must implement an approved internal and external appeals process.
  4. The Act extends IRC Section 105(h) nondiscrimination requirements to nongrandfathered insured plans.
  5. No pre-existing condition exclusions will be permitted for children under age 19.
  6. Nongrandfathered plans must provide preventative care (such as immunizations and preventative screenings) on a first dollar basis (no co-pays or deductibles).
  7. Nongrandfathered plans must cover emergency services without prior authorization and at in-network benefit levels.
  8. The controversial practice of "rescission" is limited. Coverage cannot be cancelled except for fraud or intentional misrepresentation. Anecdotally, some insurers were alleged to have engaged in detailed "scrubbing" of applications for minor errors or omissions as the basis for cancelling coverage, particularly for patients who experienced costly claims.
  9. All nongrandfathered plans must allow employees to select their own primary care doctor and cannot require that a woman receive permission before seeing an OB/GYN. This is already the law for managed care plans in Pennsylvania under Act 68.

To Go Into Effect in 2011:

  1. As of January 1, 2011, over-the-counter medications will no longer be eligible for reimbursements under health flexible spending accounts (FSAs), health savings accounts (HSAs) or medical savings accounts (MSAs) without a prescription.
  2. Adults with pre-existing conditions will be eligible to join a temporary high-risk pool, which will be superseded by health care exchanges once they are established in 2014.
  3. In 2011, employers with more than 200 full-time employees must automatically enroll eligible employees in their health plans or provide notice of opt-out options. This requirement is subject to the issuance of Department of Labor regulations.

To Go Into Effect in 2012-2013:

  1. By March 23, 2012, nongrandfathered health plans must report whether the plan satisfies quality of care measurements to be developed by the Department of Health and Human Services.
  2. By March 23, 2012, notices of material modifications must be distributed to plan beneficiaries within 60 days of changes. Plans must provide an HHS-approved summary prior to enrollment.
  3. As of January 1, 2013, health FSA contributions will be limited to $2,500. The employee compensation deduction under IRC Section 162(m) is capped at $500,000 for certain health insurance providers. The tax deduction for Medicare Part D plans is eliminated.
  4. By March 1, 2013, employers must notify employees of their coverage options, including exchanges and the possibility of subsidy assistance.

To Go Into Effect in 2014:

  1. The year 2014 is when the teeth of the Act start to bite. An assessable payment, sometimes called the "Free-Rider Penalty," may apply to employers with at least 50 full-time employees during the preceding calendar year. "Full-time employees" are defined as those working 30 or more hours per week, excluding full-time seasonal employees who work for less than 120 days during the year. The payment will only be assessed if at least one full-time employee obtains coverage through one of the new exchanges and receives a premium credit. Those credits will be made available to individuals who are not offered employer-sponsored coverage and who are not eligible for Medicaid or other programs. To be eligible, the individuals must have income between 138 percent and 400 percent of the federal poverty level. (Employees who are offered employer-based coverage at premiums that exceed 9.5 percent of their household income, or with the employer picking up less than 60 percent of the cost, may also get credits). The credits can be applied toward purchase of coverage through an exchange. The effect is to incentivize, but not require, employers to provide a minimum level of affordable coverage to employees who do not have the opportunity to join other employer based group plans, such as through a spouse's employer. Employers whose credit-eligible employees get nonexchange-based coverage elsewhere will not be penalized.
  2. The monthly penalties start at the number of full-time employees in excess of 30 employees who get premium credits multiplied by 1/12 of $2,000 for any applicable month. A premium adjustment index applies after 2014. Large employers can have up to 30 employees claiming credits without penalty.
  3. The penalty may be avoided if the employer offers a "free choice voucher" to qualified employees equal to the amount the employer would have paid for individual or family coverage, as elected by employee.
  4. State-based Health Benefit Exchanges will replace the temporary high-risk pool. Qualifying individuals will be eligible for credits that can be used to purchase insurance through the exchanges.
  5. No pre-existing condition exclusions may be imposed on any participant.
  6. Waiting periods cannot exceed 90 days.
  7. The tax credits for certain small employers increase up to 50 percent of the premium costs.
  8. No annual claims limits in health plans except for specific covered benefits that are not "essential health benefits."
  9. Annual out-of-pocket maximums are limited for HSA-compatible High Deductible Health Plans (HDHPs) to $2,000 single coverage/$4,000 family coverage.
  10. Annual reports to the IRS and participants regarding minimum essential coverage including the amount paid by employer will be required.
  11. Employers with an average of 100 or fewer employees will be allowed to purchase insurance through the exchanges. States can treat employers with 50 or fewer employees as small for plan years beginning before 2016.

To Go Into Effect in 2017:

Large employers (with at least 101 employees) will be allowed to buy coverage through exchanges.

To Go Into Effect in 2018:

The "Cadillac Tax," a 40 percent excise tax on high-end coverage valued in excess of thresholds to be established, will begin to apply.

Even More Regulations and Policies Ahead

The two laws that comprise the health reform package total 961 pages of small print, but that is just the tip of the iceberg. Administrative agencies including the Department of Health and Human Services, the Centers for Medicare and Medicaid Services, the Department of Labor, the Government Accountability Office and various state agencies will need to implement these changes by issuing regulations and policies. Such regulatory efforts often take years after legislation is passed. In the meantime, midterm elections may shift the balance of power in Congress and further legislative tinkering is possible, although outright repeal is unlikely. Make no mistake: change is coming, and some changes are already here.

For more information about this topic, contact William H. Maruca at 412.394.5575 or [email protected].