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A First Look at the Federal Health Law

A First Look at the Federal Health Law and its Implications for Employers

 

What should employers begin to understand today to decipher reform and prepare for the puzzling array of new regulations that will emerge over the next few years?

Implications for Employers in 2010, 2011, and 2013:
Insurance companies will experience direct effects this year (beginning September 23), but those directives will bring coverage changes for employers.  New and existing individual and group health plans (those in place prior to September 22) will be prohibited from rescinding coverage, except in cases of fraud, or excluding children under the age of 19 with a pre-existing condition.  All health plans, including self-insured plans, will also be prohibited from placing lifetime limits on the dollar value of coverage and will be further limited in their application of certain annual coverage limits (annual coverage limits are not prohibited entirely until 2014).  

All new health plans, including self-insured plans, will also be required to include wellness and prevention benefits, such as immunizations and screenings, at no cost to the insured.  This means that covered employees will not be required to furnish any co-payment or deductible towards these preventive services.

For large self-insured employers, coverage will be required for employee dependents up to age 26; a requirement already imposed by the state of Illinois for privately-insured
plans.  Those “grandfathered plans” (those in place prior to September 22) will be required to furnish this dependent coverage only if the dependent is not eligible for other employer-based coverage.

The coverage changes, on the surface, are helpful to the employee, but they may also translate into higher costs for the employer as insurers are forced to absorb more risk.  Under the new law, the Illinois Department of Insurance is given the authority to review and possibly reject any “unreasonable” premium increases, but employers should be prepared to absorb higher coverage costs as a result of the changes.

Employers that offer health flexible spending arrangements or health savings accounts will also want to note that beginning in 2011, participants will no longer be able to use these funds to purchase over-the-counter medications that are not specifically prescribed.  By 2013, contributions to these accounts will be further limited to $2,500 a year.

Small employers, those with fewer than 25 employees and an average annual payroll below $50,000, may also qualify this year for new tax credit assistance for the purchase of employee health insurance.  The full credit, worth up to 35% of the employer’s contribution towards the employee’s premium, however, is only available to employers with 10 or fewer employees and the size of the credit diminishes as firm size and payroll increase.  Qualifying employers must also furnish at least half of the total premium cost.

Small employers interested in taking advantage of the credit should note that beginning in 2014, coverage must be purchased through the new state health insurance exchange in order to maintain eligibility for the credit.  The credit itself ends in 2016, which means these small employers will be on their own unless the credit is extended under subsequent state or federal legislation.

Employers should also be aware of two lesser known provisions that take effect in 2011, one of which requires employers to begin reporting the value of company-provided health benefits on the employees’ W-2s beginning with the 2011 tax year.  The new law defines “applicable employer-sponsored coverage” as coverage under any group health plan made available to the employee regardless of whether the employer or the employee paid the cost.  This reporting requirement will include coverage provided under flexible spending accounts or health savings accounts.

The W-2 reporting requirement serves as a verification of coverage and coverage amounts, and represents the first step towards application of the new employer coverage mandates in 2014 and the subsequent excise tax on high-cost health plans in 2018.  

The other provision employers should be aware of is the requirement to begin automatic payroll deductions in 2011 to fund a new federal long-term care insurance program that will allow enrollees to access benefits should they ever require community-assisted living and supports.  While the new long-term care insurance program has been advertised as a “voluntary” program, employers of all sizes are mandated to institute the automatic payroll deductions for each of their employees.  It is incumbent upon the employee to opt-out in order to avoid the additional payroll deduction or “tax.”  

There are still a number of questions surrounding this new national insurance program, known as the Community Living Assistance Services and Supports (CLASS) program, and the benefits it may or may not provide to the employees required to “voluntarily” pay-in to the new program, but employers should be aware of their implementation obligations as they apply to the new CLASS program.

Implications for Employers in 2014 and Beyond
The largest and most direct changes to employers and their current and prospective options will occur in 2014 when employers with more than 50 full-time employees will be required to not only offer coverage, but offer coverage that is considered “adequate” under the new law.  Employers who offer coverage, but fail to subsidize coverage sufficiently will also face a penalty for employees who choose to purchase federally-subsidized coverage in the new state health insurance exchange.

The employer mandate for health coverage does not apply to employers with fewer than 50 full-time employees, but employers will need to pay close attention to how the new law and any subsequent rules and regulations define a “full-time” employee.  Under the law, employees who work 30 hours or more for at least one week in a month are considered “full-time.”

The new coverage requirements in 2014 will therefore be a factor to consider in employment decisions that may result in expansions or contractions of the workforce, particularly for those mid-sized employers.  Furthermore, employee scheduling decisions will also play a larger role in determining when and how the employer coverage requirement may or may not kick in for those employers at or near the 50-employee threshold.

Beginning in 2018, employers, particularly larger employers that offer high cost health plans or “Cadillac plans” will also be subject to a new excise tax of up to 40% of the plan’s value if it exceeds $10,200 for individual coverage or $27,500 for family coverage.  The aggregate value of the health plan includes reimbursements under a flexible spending account, employer contributions to a health savings account and coverage for supplemental health insurance (excluding dental and vision).

As employers look to 2018, they will want to closely evaluate the value of their health benefits. The imposition of the new tax may influence employer coverage decisions in the years prior to 2018.

Conclusion
The new Patient Protection and Affordable Care Act, and its companion, the Health Care and Education Affordability Reconciliation Act, still bear much uncertainty for the employer community and the healthcare community as a whole.  The aforementioned implications for employers represent only a snapshot of the changes that will inevitably impact employers.  The provisions signed into law last month and how they translate in the workplace and the marketplace is further dependent on a number of factors, not least of which are forthcoming federal regulations, as well as subsequent state interpretation and application of those rules and regulations.

As with every major policy change, however, there will be those even within the employer community that are impacted more than others.  The bottom line is that the new law will demand employers of every size, now more than ever, be engaged in their coverage and benefit decisions.  For employers that currently offer coverage, begin a dialogue now with your insurance broker/consultant or insurance company.  For employers that do not offer coverage, now is the time to familiarize yourself with the options available to you in the coming years.

The Illinois Chamber is committed to providing ongoing assistance to employers as implementation progresses and to helping employers navigate the changes in the months and the years to come.  The Chamber, through its Healthcare Council, will also continue to produce updated information and analyses as federal/state rules and regulations provide further implementation guidance.

I invite everyone to view the Healthcare Council's preliminary analysis  of the new reform law and its impact on employers.  In order to stay on top of the latest developments and to help formulate the employer’s response to ever-changing healthcare policies and laws, I further encourage employers to participate in the Chamber’s Healthcare Council. You can help shape our response to implementation issues and concerns in a way that is of value to employers of all sizes.

Employer participation is important as the Illinois Chamber continues to develop programs, conferences, webinars and other means of providing information and analysis to help our members cope with what is often an overwhelming and confusing avalanche of information.

For more information on the Healthcare Council and membership opportunities, please contact the Council’s Executive Director, Laura Minzer, at lminzer@ilchamber.org.


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