Top 10 Employer Considerations Under Healthcare Reform

Content provided courtesy of Fidelity Investments On Sunday, March 21st, the U.S. Senate's health care reform bill, the "Patient Protection and Affordable Care Act" (H.R. 3590), passed the U.S. House of Representatives by a vote of 219-212. In addition, the “Health Care and Education Reconciliation Act of 2010” (H.R. 4872) passed by a vote of 220-211. On March 23, 2010, President Obama signed the health care reform legislation into law; however, the reconciliation bill must now pass the Senate, where strict budget reconciliation rules may complicate or delay passage.

According to Brad Kimler, executive vice president of Fidelity Consulting Services, the passage of this health care reform bill will have many ramifications on the world of employee benefits. "Despite all the rhetoric about the long-term consequences of this bill's passage, many employers will not experience any short-term impact on their plans, nor will they see significant relief from rising health care costs. Because the bill does not overtly address cost controls that most employers had hoped for, it is imperative that employers now redouble their efforts to address both cost and quality of care through their own plans and understand the future tax implications as their benefits costs increase and could be categorized as high cost health plans."

In preparation for the major changes in the delivery of health care that this landmark legislation may have on the employer market, we have highlighted ten key provisions of interest to all employers:

1. Exchanges

  • State-regulated Exchanges will be created to allow individuals and small employers to purchase health insurance coverage
  • States may allow large employers to purchase coverage through an Exchange beginning in 2017
  • If an employee purchases coverage through an Exchange and receives a federal subsidy, the employer may be penalized
  • Employers may be required to provide vouchers to certain employees for whom the employer coverage is considered unaffordable, to help pay for Exchange coverage
  • The reconciliation bill added requirements that each Exchange provide information to the Secretary of the Treasury and taxpayer. This newly required information includes 1) the period of coverage, 2) the premium paid, 3) identification of each individual covered under the plan, and 4) information on eligibility for tax credits.

Things to consider:

Employers should consider whether employer-sponsored coverage meets the minimum essential coverage and affordability requirements – if not, employers may be penalized if employees receive federal subsidies to purchase coverage through a state Exchange.

2. State High Risk Pools for Individuals with Preexisting Conditions

  • Pools will be created to insure individuals with preexisting conditions
Things to consider:

Employers may not encourage, through any financial incentives or otherwise, employees with preexisting conditions to drop employer-sponsored coverage in favor of coverage through the high-risk pool program.

3. Plan Design Changes (Within First Year After Enactment):

  • * Coverage of dependents to age 26
  • * No lifetime or unreasonable annual limits on the dollar value of "essential benefits"
  • * No pre-existing condition limitations for children under age 19
  • Mandatory coverage of certain preventive care without cost-sharing
  • Ability to designate pediatrician as primary care provider for children
  • No requirements for referrals to go to OB-GYN
  • No requirements for prior authorization for emergency care
  • New claim appeals procedures
Things to consider:

Employers will need to assess whether plan amendments are needed for 2011 and how these changes affect costs to plans.
NOTE: Items marked with an asterisk (*) indicate provisions that will now apply to grandfathered plans; both insured and self insured, pursuant to the reconciliation bill.

4. Plan Design Changes (Effective by 2014):

  • No preexisting condition exclusions
  • No discrimination based on health
  • Annual cost-sharing limits cannot exceed HDHP limits
  • Deductible limitation for small groups ($2,000 individual / $4,000 family, which may be increased by maximum amount reimbursed under FSA)
  • * Limits waiting periods to no more than 90 days
  • Expansion of coverage for clinical trials

Things to consider:
Employers will need to monitor future guidance and make plan design changes, including possible plan amendments, accordingly.
NOTE: Items marked with an asterisk (*) indicate provisions that will now apply to grandfathered plans; both insured and self insured, pursuant to the reconciliation bill.

5. New Administrative Rules and Reporting Requirements

  • New disclosures applicable to insured and self-funded plans
  • New Health Plan Identifier requirement
  • W-2 reporting of the value of health benefits
  • New Standard for Electronic Funds Transfer
  • New Operating Rules for Standard TransactionsM
  • New Certification of Compliance with Transaction Rules
  • Employers subject to the Fair Labor Standards Act must give notice of coverage options to employees

Things to consider:
Employers will need to examine existing procedures to ensure compliance. To facilitate these new administrative rules, plans may need to contract for external review services.

6. Employer Mandate

  • Employers offering health coverage that meets or exceeds the minimum essential requirements will only be subject to penalties if employees do not enroll in the employer coverage and instead receive federal subsidies to purchase coverage through a state Exchange; the amount of the penalty for each such employee will be up to $3,000 per year.
  • Employers offering health coverage that is not minimum essential coverage, or that do not offer any healthy coverage, will be subject to a penalty if even one employee receives a federal subsidy for purchase of coverage through a state Exchange; the penalty will be up to $2,000 per year for each full time employee. However, the first 30 full time employees are excluded.
  • Employers with more than 200 employees that offer coverage must automatically enroll and renew coverage, subject to notice and opt-out requirements
Things to consider:
Employers offering coverage must evaluate if that coverage meets the minimum standards, including affordability.

7. Tax on High Cost Health Plans - “Cadillac Health Plans”

  • A 40 percent excise tax will be imposed on the health benefits provided by an employer for the value of the benefit over $10,200 for single coverage and $27,500 for a family coverage (higher dollar thresholds may apply)
  • Dollar limitation is increased based on the increase in cost of health insurance for federal employees from 2010 to 2018.
  • The new effective date is January 1, 2018.
  • Employer-sponsored health coverage subject to the tax now excludes separate dental and vision coverage.


8. Changes to FSAs, HRAs and HSAs

  • Beginning in 2013, employee contributions to health care flexible spending accounts (FSAs) will be limited to $2,500
  • Coverage based on salary reductions for health FSAs, and employer contributions to health savings accounts (HSAs) and health reimbursement arrangements (HRAs) are included in the calculation of health plan costs for purposes of the "Cadillac Plan Tax"
  • Penalty on HSA distributions for non-qualified medical expenses is increased from 10% to 20%
  • Distributions from FSAs, HSAs or HRAs for over-the-counter (OTC) medicine or drug purchases are no longer deemed a qualified medical expense, unless the purchase was pursuant to a prescription or is for insulin
Things to consider:
Employers should consider whether plan amendments and communications are necessary.

9. "Free Choice Vouchers"

  • Employers who offer minimum coverage must provide a voucher to "qualified employees" who meet household income requirements and whose premium contribution is considered “unaffordable” relative to their salary. The voucher will be available for use in purchasing coverage through an Exchange; the voucher’s value is the amount the employer would have contributed under the employer-sponsored plan
  • Employers will not be subject to the employer shared responsibility penalty for those employees who use vouchers to purchase Exchange coverage


10. Repeal of Tax Exclusion for Medicare Part D Subsidy

  • Regarding retiree prescription drug plans, repeals the current federal income tax deduction for an employer’s Medicare Part D subsidized expenses beginning in 2013, although there is an immediate financial statement impact in the first quarter of 2010.