June 1, 2010

On March 30, President Obama signed HR 3590, the Patient Protection and Affordable Care Act, into law. The new law has features that went into effect right away, several others that go into effect later in 2010 and a timeline of changes going out to 2018.

However, employers may keep their current policies on a grandfathered basis if the only changes made to the plan are to add or delete new employees or dependants. Very few other changes can be made if the plan doesn’t comply with the new regulations, said Jon Braddock, president/CEO of ISG Advisors, Madison, Wis., during a recent CUES Webinar on the topic (playback of the Webinar is available here). But, for the most part, all the changes will impact grandfathered plans by increasing the costs, “we expect,” he said.

In 2010:

The small business premium tax credit goes into effect. Employers with fewer than 25 employees may be eligible for a tax credit--on a sliding scale based on number of employees and average payroll--of up to 50 percent of premiums for up to two years if the employer contributes at least 50 percent of the health care premium. The average salary must be $50,000 or less. Businesses with no tax liability and non-profits, including credit unions, are eligible for the credit. Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit. This is one of the many unknowns in the long and complicated bill. 

All group plans will be required to comply with the IRS 105(h) rules that prohibit discrimination in favor of highly compensated individuals by Sept. 23.

Lifetime limits on the dollar value of benefits for any participant or beneficiary for all fully insured and self-insured groups and individual plans, including grandfathered plans, are prohibited as of Sept. 23. According to Braddock, some plans have a $1 or $2 million limit. Plans renewing after Sept. 23 will need to comply with this. However, annual limits for non-essential benefits, such as some drug coverage, will be allowed until 2014. Regulations detailing the limited use of annual limits are expected soon, said Braddock.

Dependent coverage will change as of Sept. 23. All group and individual plans, including self-insured plans and grandfathered plans, must cover dependents up to age 26. This includes married or unmarried dependents and non-students.

Four major insurers will begin complying with that before Sept. 23. “Several are moving forward with this right now, rather than waiting until Sept. 23,” Braddock said, including Humana, Blue Cross, UnitedHealthcare and WellPoint.

Through 2014, grandfathered group plans only have to cover dependents who do not have another source of employer-sponsored coverage.

Another change is a ban on pre-existing conditions for children 19 and under. This will affect plan years beginning on or after Sept. 23.

There is also a ban on rescission. An insurance company cannot rescind any coverage except in the case of fraud or intentional misrepresentation of material facts.

A few insurers have announced ceasing rescissions on pre-existing conditions, effective May 1, Braddock said.

Emergency services must now be covered at in-network cost, regardless of the provider.

Wellness: On Oct. 1, a federal grant program for small employers providing wellness programs will take effect. To be eligible, the employer must have fewer than 100 employees who work at least 25 hours or more per week and not have any form of wellness program in place as of March 23, 2010.

Preventive services must be provided at no cost sharing, such as deductibles or co-pays. Grandfathered plans are exempt. But, this could be a significant cost change for many plans, Braddock said.

Nursing mothers: Employers must provide, effective immediately, reasonable break time and an appropriate place (i.e., not a bathroom) to express milk for up to one year after the birth of a child. There is an exception for companies with fewer than 50 employees if doing so would cause significant difficulty or undo hardship on the business.

In 2011:

Increased tax on HSAs: Tax on distributions from a health savings accounts that are not used for a qualified medical expense increases from 10 to 20 percent.

Over the counter drugs will no longer be eligible for reimbursement under health savings accounts, flexible spending arrangements, health reimbursement accounts and Archer medical savings accounts unless prescribed by a doctor.

CLASS Act goes into effect. The Community Living Assistance Services and Support Act creates a national, voluntary long-term care program. Employers can opt out. If they do participate, they are expected to enroll employees into the program unless the employee chooses to opt out.

“The cost will be comparable to what the cost would be if an individual went out and bought long-term care insurance for themselves,” Braddock estimated. “The positive is it will create more awareness of the need for long-term care insurance.”

In 2012

All plans must provide a summary of benefits to enrollees. It can be no more than four pages in length and must be “culturally and linguistically appropriate so everybody can understand it.” The summary can be provided in either electronic (such as on an intranet) or written format.

Employers will pay a $1,000 fine per enrollee for the “willful failure to provide this information,” Braddock said.

In 2013

Some tax changes go into effect:

• an additional 0.9 percent Medicare Hospital Insurance tax on high-income taxpayers ($200,000 for individuals or $250,000 for joint filers);
• new 3.8 percent Medicare contribution on certain unearned income from individuals with adjusted gross income over $200,000 or $250,000 for joint filers;
• the threshold for the itemized deduction for un-reimbursed medical expenses increases from 7.5 percent of AGI to 10 percent for regular tax purposes. This will be waived for those age 65 and older for tax years 2013 through 2016.
• medical FSAs will have a $2,500 cap, which will be annually indexed for inflation. The $5,000 dependant care FSA limit does not change.

In addition, in 2013 all employers must provide notice to employees of the existence of state-based exchanges (see more on these below).

In 2014

“This is where most of the things are very impactful,” said Braddock.

All American citizens and legal residents are required to purchase qualified health insurance coverage. There are some exceptions for:

• religious objectors,
• individuals not lawfully present,
• incarcerated individuals,
• taxpayers with income under 100 percent of poverty and those who have a hardship waiver,
• members of Indian tribes,
• those who were not covered for a period of less than three months during the year, and
• people with no income tax liability.

Individuals not on the above list will have to pay a penalty, either a percentage of income or a flat dollar fee, whichever is higher. In 2014, the percentage fee is 1 percent, then 2 percent in 2015 and a 2.5 percent fee cap by 2016. The fixed dollar amount goes from $325 per person in 2014 to $695 in 2016.

States are required to create an exchange to facilitate the sale of qualified benefit plans to individuals.

• In addition, states must create “SHOP Exchanges” to help small employers purchase coverage. States can choose to set up one exchange that will cover both individual and group needs. And states may allow large groups (more than 100 employees) to purchase coverage through exchanges in 2017.

At this time, employers are required to provide coverage if they employ 50 or more full-time employees. If an employer does not provide coverage and one employee receives a tax credit through the exchange, the employer will pay a penalty for all full-time employees. The fine is $2,000 per employee annually but the first 30 employees are not counted. So, if an employer has 51 employees and doesn’t provide coverage, the employer pays the fine for 21 employees.

“Employers might choose to pay the fine and send people out to the exchanges to get covered,” Braddock speculated.

If an employer with more than 50 employees does provide coverage but has at least one FTE receiving a tax credit in the exchange (because the employer-provided coverage is too expensive), the employer will pay the lesser of $3,000 for each employee receiving a tax credit or $2,000 for each of their full-time employees total.

An individual who has employer-sponsored coverage and has family income up to 400 percent of the federal poverty level is eligible for a tax credit if:

• the actuarial value of the employer’s coverage is less than the minimum standard; or
• the employer requires the employee to contribute more than 9.5 percent of the employee’s family income toward the cost of coverage.

Other changes:

• Coverage for all plans that renew Jan. 1, 2014, must be offered on a guarantee issue basis in all markets and be guaranteed renewable.
• Exclusions based on pre-existing conditions are prohibited in all markets.
• There will be full prohibition on any annual or lifetime limits of care in all group (even self-funded plans) or individual plans.
• Small groups are redefined as up to 100 employees.
• All small group policies (and larger groups purchasing coverage through the state exchanges) must abide by strict modified community rating standards; experience ratings will be prohibited. Experience ratings refer to a calculation insurance companies currently use to determine cost. It takes into account the policyholder’s history of past claims. So an individual with a history of several claims could pay more premiums than someone with fewer claims. Premium variations will only be allowed for age, tobacco use, family composition and geography.
• Waiting periods for coverage may not exceed 90 days.
• Employers with 200 or more employees will be required to auto enroll employees into a health plan.

Beyond 2014

The so-called “Cadillac” tax goes into effect in 2018. This will be a 40 percent excise tax that insurance companies will pay for health plans with aggregate values that exceed $10,200 for singles and $27,500 for families. This is an attempt to keep the cost of health insurance affordable, Braddock said. “These numbers are pretty high. I haven’t seen too many plans that come close to that.”

Many details for the new bill are not yet finalized, Braddock said. He predicts the details will be firmed up in 2011, but that depends a lot on the results of the November elections. 

Q&A

At the end of the Webinar, Braddock answered several questions:

What sort of credit would a CU receive?

“The same credits as any other employer would,” he said, but it is not clear yet how credit unions and other non-profits will apply for the credit.

Would it be wise to offer one health plan or several? HMO or PPO?

An employer could offer both as long as they both meet the minimum requirements for coverage and do not discriminate in favor of highly compensated employees, such as saying only executives can be in the PPO. “Depending on the complexity of things to come, it might be easier on your life to offer one plan,” Braddock suggested.

How much will the changes impact premiums?

“A lot. At the end of the day, I think insurance premiums are going to go up,” he said. “If I could buy home owners insurance the day after my home burned down, would the cost go up or down? The answer is up.

“I think all these changes are going to impact premiums. This year or next we’ll see some pretty high increases.”

But, don’t panic, he said. “Take a breath. Let’s just wait and see how things shake out.”

Further Reading:

The Patient Protection and Affordable Care Act Wikipedia page.

http://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act

Theresa Witham is a CUES editor.