On March 23, President Obama signed H.R. 3590, the Patient Protection and Affordable Care Act and on March 30, he signed H.R. 4872, the Health Care and Education Affordability Reconciliation Act of 2010, a companion package of “fixes” to H.R. 3590, into law. Together, the two measures make the most profound changes to our country’s private-market health care system in 50 years.
Many provisions of the new health reform law impact American employers and private health insurance consumers very soon, while others take effect over the course of the next eight years. We reported on some of the details in an earlier posting and report on additional details here.
The small employer health insurance premium tax credit program, is retroactive and applies to premiums paid in taxable years beginning after December 31, 2009. This credit gives certain qualified small employers who have no more than 25 full-time equivalent employees, pay average annual wages of less than $50,000 and provide qualifying coverage (among other criteria), a maximum tax credit, based on number of employees, of up to 50% of premiums for up to two years if the employer contributes at least 50% of the total premium cost.
There will be a temporary reinsurance program for employers that provide retiree health coverage for employees over age 55 and less than 65, which is scheduled to begin by June 21, 2010 If a plan spends more than $15,000 a year on medical or prescription drug benefits for an early retiree or a dependent, the plan can be reimbursed 80% of the excess, up to a maximum of $60,000. Both insured and self-funded plans can qualify, but only claim costs, not premiums, are used in the reinsurance calculation. Employers can use reimbursements to reduce retiree cost sharing. The reinsurance program will terminate in 2014 or after $5 billion has been reimbursed, whichever comes first.
The new measures require health plans serving all markets—individual, small- and large-group and self-funded—to cover preexisting conditions in children age 19 and under with no limitations if the coverage is already offered or in force for all plan years beginning on or after September 23, 2010. It was also the intent of the legislation both to offer these children access to coverage and provide for that coverage without regard to preexisting condition; however, due to a drafting error, part of this intent was not reflected in the final language. Department of Health and Human Services Secretary Kathleen Sebelius wrote a letter to Karen Ignagni, president and chief executive officer of America’s Health Insurance Plans (AHIP), indicating the administration’s plan to correct the problem in the new laws via federal regulation. AHIP quickly responded indicating that insurers would comply with the regulations.
Effective for plan years beginning on or after September 23, 2010, including grandfathered plans, children, including married children, can continue to be covered under group plans until age 26. For grandfathered plans, only children who are not eligible to enroll in employer-sponsored plans can be covered. Employees will be able to add children during open enrollment, even if the child is not a dependent for tax purposes.
Also for plan years beginning on and after September 23, 2010, plans will be restricted with regard to annual limits on essential benefits. Regulations are needed to clarify this provision.
There will be a new grant program for small employers that offer wellness programs, slated to begin in October 2010. To be eligible, an employer must employ fewer than 100 employees who work 25 hours or more per week and must not have a wellness program. To be eligible for a grant, the wellness plan must include health awareness initiatives, efforts to maximize employee engagement, initiatives to change unhealthy behaviors and lifestyle choices and supportive environmental efforts, such as workplace policies encouraging a healthy lifestyle.
In 2011, minimum loss ratios of 85% for large groups and 80% for small groups and individual policies will apply to fully insured plans.
For 2011, health flexible spending accounts cannot reimburse employees for over-the-counter drugs without a physician’s prescription. This will cause problems for plan years that have already started if employees budgeted for over-the-counter purchases anticipated in 2011. Regulations may provide some relief.
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Group health plans will now be required to provide employees with advance notice of material modifications at least 60 days before the effective date of the change. This new rule also applies to grandfathered plans and is effective for plan changes on and after March 23, 2012.
The retiree drug subsidy will become taxable in 2013. This will make other alternatives for providing retirees with drug benefits more attractive. This will not affect governmental employers, nonprofit organizations or multiemployer plans, although they would probably be better off with alternatives to the subsidy.
Salary reductions for health flexible spending accounts will be limited to $2,500 (indexed) in 2013.
In 2014, employers will be able to increase financial incentives for participation in wellness plans from the current 20% to 30%.
There are many details that need to be clarified by regulations. It appears from the law that grandfathered plans may not make any plan design changes, other than those required by law, in order to maintain their grandfathered status. The full advantage of grandfathering will not apply until 2014, so many plan sponsors may wish to make plan changes to hold down costs between now and 2014, recognizing that they will need to comply with all the requirements for minimum essential health packages in 2014 if they make changes before that time. Most of those requirements are yet to be defined by regulations.
Americans without health insurance will pay a federal penalty, beginning at $95 or 1 percent of income in 2014, and ramping up to $695 or 2 percent of income by 2016. Health insurance purchase will be subsidized for families earning up to 400 percent of the poverty level, or under current guidelines, about $88,000 a year for a family of four.
Annual fees will be imposed on health insurers in 2018, with non-profit insurers paying half as much as for-profit insurers. Voluntary employee beneficiary associations (VEBAs) are exempt from the fee, making self-funding a more attractive strategy. VEBAs are arrangements used primarily by self-funded employers.
