Health Care Reform Finally Complete
Congress completed its comprehensive health care reform package on March 25, 2010, marking an important day in history. The Senate approved the “Health Care and Education Reconciliation Act of 2010” (H.R. 4872) on March 25, 2010 by a vote of 56-43 using budget reconciliation rules that required only a simple majority (51 votes). Because the Senate dropped some provisions not affecting health care reform, the reconciliation bill was sent back to the House for another vote, which was also approved on March 25, 2010. This reconciliation bill makes substantial changes to the “Patient Protection and Affordable Care Act” (PPACA) (P.L. 111-148), which President Obama signed into law on March 23, 2010. The reconciliation bill now goes to President Obama for his signature, completing Congress’s work on the issue.
The following provides a preliminary analysis of the employer impact associated with the new health care reform law, including the changes made by the reconciliation bill.
Some of the high-impact items of the new law for employers are as follows:
■ Individual Responsibility: The law requires individuals to purchase health insurance coverage or pay an income tax penalty beginning in 2014. Enrollment in an employer group health plan satisfies the individual mandate.
■ Health Insurance Exchanges: Beginning in 2014, states are required to create Health Insurance Exchanges where individuals and small employers can purchase health insurance.
■ Employer Responsibility: Employers are subject to a “free rider” penalty, under which employers with at least 50 full-time employees must pay a penalty if a full-time employee receives a federal subsidy to purchase health insurance in the Exchanges. A penalty is assessed if the employer does not offer health coverage at all, if the employee is offered coverage that is considered “unaffordable,” or the plan has an actuarial value of less than 60%. Employers that offer health care coverage and make a contribution toward the cost of the health care coverage must provide “free choice vouchers” to qualified employees for the purchase of qualified health plans through the Exchanges.
■ Grandfathered Plans: Grandfathered plans are subject to certain insurance reforms, such as extending coverage to children until age 26, prohibiting lifetime and annual limits, and prohibiting waiting periods beyond 90 days, among others.
■ Excise Tax on High-Cost Plans: A 40% excise tax will be imposed on the aggregate value of health coverage offered by employers if that value exceeds a certain threshold.
■ Inclusion of Cost of Employer-Sponsored Health Coverage on Form W-2: Employers are required to report the annual cost of health care coverage received by their employees.
■ Automatic Enrollment for Employees of Large Employers: Employers with more than 200 employees must automatically enroll new full-time employees in health care coverage (subject to any waiting period authorized by law).
■ Reinsurance Program for Early Retirees: A $5 billion fund is created to finance a temporary reinsurance program to help employers offset the costs of expensive health claims for retirees ages 55–64 and their families.
■ Flexible Spending Arrangements: Annual contributions to employer-provided health care flexible spending arrangements (FSAs) are capped at $2,500 (indexed) and reimbursement of over-the-counter medicines are limited to those that have a prescription.
■ Medicare Part D Retiree Drug Subsidy (RDS): Employers receiving the Medicare Part D Retiree Drug Subsidy will have to include the payment in income for tax purposes.
■ Additional Medicare Taxes: An additional Medicare tax of 0.9% on wages and 3.8% on unearned income will be imposed on individuals receiving wages in excess of $200,000 (single taxpayers) or $250,000 (couples). These new taxes are imposed only on the employee portion of the Medicare tax, not on the employer portion.
Hewitt will provide a more in-depth report on this new health care reform legislation soon.
Please join Hewitt on April 6 for our complimentary webcast, “Health Care Reform: Now What? Making Sense of What Employers Need to Do and When” where we will discuss how the legislation will change how your organization approaches how it provides health care benefits. Further information on how to register for this upcoming webcast will be forthcoming.