Health Care Reform...How Are You Affected (Part 2)

With the final amendment to healthcare reform signed into law March 30 in the Health Care and Education Reconciliation Act of 2010, the onerous tasks begin within the federal departments of Health and Human Services (HHS) and the Department of Labor (DOL) to adopt rules and regulations that will, hopefully, provide needed clarity for employers and employees alike.

To date, little is known about specifics expected to come from the two departments. HHS will be the primary driver however, while DOL will address union and other labor issues that arise.

Healthcare reforms do address a few specific areas by which employers, large and small, can plan. We do need to remember the final outcome of the law was not to reduce costs. Rather, the purpose was to increase access to health insurance.

The immediate timeline related to all employer sponsored health insurance plans look like this:

-By September 23, 2010, all insurance plans must offer dependent coverage to children until age 26, regardless of marital status, student status, or employment status.

-Tightly restricted annual limits on “Essential Health Benefits” are eliminated

-Waiting periods for pre-existing conditions are eliminated for children under age 19

-Lifetime benefits are eliminated

-35% tax credit (immediate for 2010) for employers who offer and subsidize health insurance for its employees.

Essential Health Benefits will be better defined by HHS over time, but will certainly include mandatory wellness benefits. Health plans in effect on or before March 23, are considered “grandfathered” and thus are exempt from the following mandates. However, a change in carriers, a “substantial” change in benefits, or a substantial shift in costs of premiums to employees will result in the loss of this exemption. HHS will issue R & Rs later, further defining the parameters of “substantial change”.

Grandfathered plans may enjoy the luxury of smaller premium increases over time than non-grandfathered plans because these new plans have other, stricter requirements.

In the interim, grandfathered plans are exempt from:

-First dollar coverage for preventive care although some grandfathered plans offer this benefit.

-Non-discrimination rules are extended to insurance plans. That is, management may not have a richer benefit plan than non-management

-Emergency care services must be treated as “in-network” without prior authorization

-Pediatricians and OB-GYNs are considered primary care providers.

Insurance carriers will be required to abide by a “minimum loss ratio” (MLR). This will apply to all group insurance plans. In short, the MLR states that insurance companies must issue refunds to groups if claims are less than 85% (large groups) and 80% (small groups) of total premiums paid. The reverse is also true. Small groups in particular could face excessively high premiums after one particularly unfavorable year. Some employers who provide health insurance are now faced with some tough decisions as a result of health care reform. Non-grandfathered plans are more likely to see significantly higher premiums than grandfathered plans, as R & Rs clarify some of the uncertainty.

Health Care Reform included some other obscure provisions about which employees are probably unaware. All non-grandfathered plans and employer groups with 25 or more employees (including common ownership of 2 or more small businesses) will be subjected to a number of reporting requirements in addition to the mandates listed previously. Too, health care reform will begin to count part-time employees as well through a formula called “full-time equivalent” (FTE). This could be especially troubling to employers with fewer than 50 full-time employees, but after accounting for FTE of part-time employees they could inadvertently be counted as 50+ and subject to mandates. The FTE formula will be clarified as time goes by, but by January 1, 2014, all non-grandfathered groups will be subject to these mandates.

Health care reform does not require employers to offer group insurance. Nevertheless, penalties will apply to 50+ employee groups (including FTE & remember the common ownership rule) who do not offer medical insurance. For instance, an employer would face a $2000 fine per employee (31^st employee and beyond) if even one employee receives a $2000 tax credit from the government toward health insurance through the Exchange (to be explained in a later column) or through Medicaid.

Employers who offer health insurance must also offer a free voucher, equal to the employer’s contribution, to all employee’s whose household income is less than 400% of the federal poverty level. The employers can then purchase insurance through the Exchange. If the Exchange is cheaper than the value of the voucher, the employer is then required to pay the difference to the employee.

On January 1, 2014, the IRS will get involved. Employers of 50+ and not grandfathered will be required to report the value of the health insurance on W-2’s to be issued by January 2012. Penalties will apply here as well if the reported value is greater than $10,200 for individuals or $27,500 for families. That is, insurers will be assessed an excise tax on the coverage and because of the MLR, that assessment will likely be pushed on to employees as higher premiums.

If the employer’s contribution is less than 60% or the employee’s cost share of premium exceeds 9.5% of household income and an employee receives a government subsidy, then a penalty of $2,000 for each employee (31^st employee and beyond) is levied.

By March 2012, employers of 50+ and non-grandfathered plans must provide a 4-page pre-enrollment coverage document outlining benefits and exclusions to all new employees. Details will be forthcoming from HHS.

Reading “between the lines”, it would appear the government is making it difficult for employers at or near 50 full-time employees to offer health insurance. Likewise, employers may be forced to eliminate part-time/seasonal workers and instead opt for overtime to regular/full-time employees to avoid potential penalties and the possibility of having to cover part-time employees on insurance.

Health care reform includes other mandates that will trigger by January 1, 2014, but are not as likely as the above mandates to alter an employer’s basic business model on hiring practices, nor are they as apt to influence an employer’s decision on whether to offer insurance.

Inevitably, many more questions will arise. As you can see, the intent with health care reform is a push toward universal coverage through employers of 50+. Next time, we’ll talk about individuals and groups under 50.