- Health Care Reform: What You Need to Know Now
- June 3, 2010 | Author: Tyler S. Andersen
- Law Firm: Jackson Walker L.L.P. - Austin Office
President Obama signed the health care reform bill into law on March 23, 2010. The law spans some 3,000 pages and includes many far-reaching changes. Viewed in this light, health care reform can seem overwhelming. To combat this feeling, it is important for employers to find a starting point and understand what needs to be done for 2010-2011. Many of the most publicized aspects of health care reform, such as the individual and employer mandates to have and provide health insurance, the exchanges and the cadillac tax, do not take effect until at least 2014. The most immediate health care changes affecting employers include:
Health Insurance Reforms
Both self-funded and fully insured health insurance plans must comply with the following reforms effective the first plan year after September 23, 2010:
(i) Lifetime/Annual Limits. Health insurance plans can no longer have lifetime dollar limits on essential benefits. There is also a restriction on annual dollar limits on essential benefits for 2011-2013 until the complete abolishment of annual limits in 2014. Exactly what an “essential benefit” is, is not known at present.
(ii) Dependent Coverage until Age 26. Health insurance plans must offer dependent coverage for married or unmarried adult children until age 26. The definition of dependent for purposes of this extension is broader than the traditional tax definition. The residency and support tests described in the Internal Revenue Code do not apply.
(iii) Rescission of Coverage. Health insurance plans are prohibited from rescinding coverage to anyone currently enrolled in the plan.
(iv) Pre-Existing Condition Exclusions. Children under the age of 19 cannot be excluded from the plan on the basis of pre-existing conditions. In 2014, no one can be excluded from a plan on account of pre-existing conditions.
These reforms apply to self-funded and fully-insured plans regardless of “grandfathered” status. In other words, even a grandfathered plan is subject to these reforms. A grandfathered plan is a plan in existence on March 23, 2010, the day the health care reform bill passed. Any plan established after March 23, 2010, or any plan modified enough to lose grandfathered status, will be subject to additional reforms not mentioned here. Guidance regarding permissible modifications for grandfathered plans will be forthcoming.
Over-the-Counter Drug Reimbursements
Starting January 1, 2011, employees will no longer be able to pay for over-the-counter drugs through an account-based medical plan, like a HSA, HRA or FSA. However, the cost of prescription drugs and insulin can still be paid from one of these plans. The typical “grace period” for calendar year plans may be affected by this change. Also, the excise tax imposed on non-medical distributions from a HSA increases from 10% to 20%.
Small Employer Tax Credit
Effective immediately, small employers can qualify for a federal tax credit if they offer health insurance coverage to their employees. A small employer is defined as an employer with fewer than 25 employees. The average annual wages of employees must be less than $50,000. If an employer meets these criteria, it can receive a tax credit worth up to 35% of the cost of insurance premiums. It is estimated that 250,000 Texas employers are eligible for this credit.
Temporary High Risk Pool
Health insurance coverage will be universally available to all in 2014 with the elimination of pre-existing condition exclusions. Until then, those currently excluded based on medical status will be eligible to receive coverage through a temporary high risk pool. This pool will be effective in June 2010 and will replace the Texas health insurance pool.
Once promulgated by the Secretary of Health and Human Services (“HHS”), a standard summary of benefits must be provided to employees. Employees must also be given 60 days notice prior to any material plan changes. Increased disclosure obligations are in the pipeline as well. Employers must report the aggregate value of each employee’s health coverage on the W-2 beginning with the 2011 tax year. Annual reports must be provided to HHS and employees regarding health care quality, wellness initiatives and other metrics.