Health Care Reform: An Employer's Perspective

With enactment of the Patient Protection and Affordable Care Act (the PPACA) and its reconciliation-related amendments, employers and their group health plans are impacted by provisions of PPACA that take effect in 2010 through 2018.  This Broadcast outlines the provisions effective in 2010 and 2011 that specifically impact employers and their group health plans, as those provisions are currently drafted.  As you read this Broadcast, please note that the PPACA does not require employers to terminate group health plans in effect on the date of enactment of the PPACA.  These plans are "grandfathered plans" and will continue their grandfathered status even if the plan permits employees to add family members and allows new employees to enroll themselves and their families in the plan. However, it is not known what it takes for a plan to lose its grandfathered status.  For union plans, coverage maintained pursuant to a collective bargaining agreement that was ratified before enactment of PPACA is grandfathered until the date on which the last collective bargaining agreement relating to the coverage terminates.  An amendment to the collective bargaining agreement to conform with certain provisions of PPACA is not treated as a termination of the collective bargaining agreement.

Provisions Effective in 2010

Retiree Health Plans

A temporary reinsurance program, to be established no later than June 22, 2010 and last through January 1, 2014, will reimburse certain retiree health plans for a portion of the cost of coverage for "early retirees" (those who are at least age 55 but not yet eligible for Medicare) and their dependents.  Eligible retiree plans are those that are maintained by a former employer (including a governmental plan), an employee organization, a VEBA or is a multiemployer plan.  The plan must apply to the Secretary of Health and Human Services ("HHS") for the reimbursement.  The program would reimburse plans for 80 percent of costs of benefits provided per enrollee that are between $15,000 and $90,000 (adjusted based on the consumer price index).  Funds received must be used to reduce the plan's costs.

Small Businesses

Small employers who employ no more than 25 full-time equivalent employees for the taxable year and for which the average annual wages of an employee does not exceed $50,000 may receive a tax credit to offset up to 35% of the employer's contributions toward each employee's health insurance premium if the employer contributes at least 50% of the total premium cost or 50% of a benchmark premium.  The amount of the tax credit is reduced for each full-time equivalent employee in excess of 10 and for average annual wages greater than $25,000.    The tax credit phases out as the employer size and average wage increases.

Provisions Effective in 2011 (or earlier for fiscal year plans)

All Group Health Plans

The following provisions apply to both insured and self-insured group health plans, including grandfathered plans, for plan years beginning on or after September 23, 2010.  For calendar year plans, these provisions will take effect with the plan year beginning January 1, 2011. 

Limits on coverage

Group health plans cannot include lifetime maximums and cannot impose annual limits on the dollar value of coverage provided under the plan.  For plan years beginning before January 1, 2014, group health plans can only impose reasonable annual limitations on coverage for "essential health benefits" as determined by the Secretary of HHS.   However, group health plans can place an annual or lifetime per beneficiary limits on non-essential health benefits.

Dependent coverage

If a group health plan provides coverage for dependent children, the plan must provide coverage to an adult dependent child until the child reaches age 26.  The Secretary of HHS is to issue regulations to define the dependents to which coverage must be made available.   A grandfathered group health plan may limit the extended dependent coverage to only those adult children who do not have other employer-based coverage available to them.  Section 105(b) of the Internal Revenue Code (the "Code")  is amended to exclude from gross income amounts spent for medical care for children under age 27. 

Group health plans cannot impose any pre-existing conditions for enrollees who are under age 19.   (This provision applies to adults for plan years beginning on or after January 1, 2014.)

Rescission of coverage

Group health plans cannot rescind an enrollee's coverage except in the event of fraud or misrepresentation.

Uniform summary of benefits

Group health plans must provide participants a summary of benefits that complies with standards established by the Secretary of HHS.   Not later than 24 months after enactment of the PPACA, the health insurance issuer or, in the case of a self-funded group health plan, the plan sponsor will be required to furnish (electronically or in paper format) the standardized summary of benefits and coverage explanation to an applicant at the time of application and to an enrollee prior to the time of enrollment or reenrollment.  Plans will be required to provide a summary of material modifications to a plan's terms no later than 60 days prior to the date on which such modification will become effective.

Plans face potential fines of up to $1,000 per participant for failure to provide required summaries.

Group Health Plans that are not "Grandfathered Plans"

PPACA mandates certain coverage requirements for both insured and self-insured group health plans that are not grandfathered plans, for plan years beginning on or after September 23, 2010.   The coverage requirements provide that group health plans must provide minimum coverage for certain preventive care with no cost-sharing, must allow participants to designate any participating primary care provider, must not require prior authorization or referrals for hospital emergency department services or for obstetrical/gynecological care provided by a participating provider, and must comply with enhanced claims processes.   For calendar year plans, these provisions will take effect with the plan year beginning January 1, 2011.  In addition to these requirements, non-grandfathered plans that are fully insured will also have to comply with the Code Section 105(h) nondiscrimination requirements.

If you would like more information on the provisions of PPACA that apply to non-grandfathered plans, please contact us.

Health Savings Accounts (HSAs)

Effective for distributions paid or expenses incurred for taxable years beginning on or after January 1, 2011, HSAs can no longer reimburse expenses for over-the-counter prescription drugs.  To qualify for nontaxable reimbursement, a medicine or drug must be prescribed or be insulin.

Effective for distributions made from an HSA on or after January 1, 2011, the tax on distributions for non-qualified medical expenses is increased to 20%.

Health Care Flexible Spending Accounts

Effective for distributions paid or expenses incurred for taxable years beginning on or after January 1, 2011, health care flexible spending accounts can no longer reimburse expenses for over-the-counter prescription drugs.  To qualify for nontaxable reimbursement, a medicine or drug must be prescribed or be insulin.

Employers

All employers

Effective for taxable years beginning on or after January 1, 2011, employers must report the aggregate cost of employer-sponsored health coverage on employees' Forms W-2.   Regardless of whether the employee or employer pays for the coverage, the aggregate cost of the coverage reported is determined under rules similar to those to determine the applicable premiums for purposes of the COBRA continuation coverage requirements of group health plans.

Small Employers

For taxable years beginning on or after January 1, 2011, employers who employed an average of 100 or fewer employees in the preceding two years can establish a "simple cafeteria plan" which is exempt from the cafeteria plan nondiscrimination provisions in Code sections 79(d), 105(h), 125(b) and 129(d)(2), (3), (4) or (8). 

Employers who have at least 100 employees who work at least 25 hours per week and did not have a wellness program on March 23, 2010 can receive a government grant to provide employees access to comprehensive workplace wellness programs.  The grant program is a five year program from 2011 through 2015.

Amendments to the Fair Labor Standards Act

The PPACA makes several amendments to the Fair Labor Standards Act.  Because these provisions do not have separate effective dates, presumably employers must comply with them now.  These provisions are outlined below:

Automatic Enrollment

An employer that has more than 200 full-time employees and offers employees one or more health benefit plans must automatically enroll new full-time employees in one of the plans offered (subject to any waiting periods authorized by law) and continue the enrollment of current employees in a health benefit plan offered through the employer.  The employer must provide adequate notice to employees of this automatic enrollment and the opportunity to opt-out of any coverage in which the employee was automatically enrolled. 

Nondiscrimination

An employer cannot discriminate or retaliate against an employee who receives the premium tax credit or who provides information to the Secretary of Treasury or HHS regarding an employer's violations under the PPACA.

Break Time for Nursing Mothers

Employers must provide time for a nursing mother to express breast milk, whenever necessary, for one year from the date of the child's birth.  The employer does not have to compensate the employee for the time used for such purpose.  The employer also must provide a private space, other than a bathroom for the employee to express breast milk.  There are exceptions for certain employers with less than 50 employees.

As you review this information, please feel free to contact Tara Slone at (248) 457-7870, Kevin Stella at (317) 977-1426 or your regular Hall Render attorney with any questions you may have.  We will issue additional Broadcasts as more guidance becomes available and to deal with implementation dates beyond 2011.