On Sunday, March 21, 2010 the House of Representatives approved the Senate health care overhaul bill. We have many clients wondering what this means to their business and rightly so as the bill was extremely long and included many provisions. With the help of Wells Fargo Insurance Services we’ve compiled an overview of how the changes in the bill will impact employers’ benefit plans starting in 2010 and continuing through 2018.
We know that new developments are unfolding daily, and if there is a particularly relevant update that impacts employers, we will post the details here on our blog.
Please note that the extension of benefits offered under this bill for the most part will become effective 2014. However, some provisions will go into effect earlier. Except as otherwise noted, the provisions described below will become effective for employer plans with plan years beginning six months after the date of enactment (or effective January 1, 2011, for calendar plan years).
- Elimination of lifetime benefit maximums – Group plans will be required to eliminate lifetime benefit maximums. Restrictive annual limits also will begin to be phased out.
- Coverage for adult children – Group health plans will be required to extend coverage to adult children up to the age of 26 if the children do not have access to group coverage. Note that this coverage will be excludeable from federal income taxes. It will not supersede any state health insurance mandate applicable to insured policies that extend coverage to even older adult dependents.
- Prevents insurers from rescinding coverage – An insurance company will be prohibited from rescinding coverage to an individual enrolled in a plan except in cases involving fraud or misrepresentation.
- Elimination of pre-existing condition exclusions for children with illnesses – Group plans will be prohibited from imposing exclusion provisions because of a child’s illness. Elimination of pre-existing condition exclusions as applied to adults will be effective 2014. Adults with pre-existing conditions who have been uninsured for at least six months will be eligible to enroll in a temporary high-risk pool and receive subsidized premiums, starting three months after the enactment of the bill.
- Small business tax credits – Small businesses employing fewer than 25 employees with average wages of up to $50,000 may be eligible for a new tax credit that would subsidize up to 35 percent of the cost of a group health insurance plan. This 35 percent tax credit will be available starting in 2010 and could increase to up to 50 percent by 2014.
- Implementation of retiree reinsurance program – The bill implements a temporary reinsurance program for employers who offer early retiree coverage (for persons ages 55 through 64 who are not eligible for Medicare). The program will reimburse employers or insurers for 80 percent of retiree claims between $15,000 and $90,000. Payments from the reinsurance program would be used to lower the costs for enrollees in the employer plan. This provision is scheduled to be effective 90 days after enactment of the bill through January 1, 2014.
Future Requirements That Impact Employers:
- Changes to health FSA, HRA, and HSA rules – The definition of qualified medical expenses will be standardized for health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs). In addition, only prescribed drugs will be qualified medical expenses. The excise tax for distributions of non-qualified medical expenses from HSAs and medical savings accounts (MSAs) increases from 10 percent and 15 percent, respectively, to 20 percent. These changes will be effective in 2011. A cap on maximum contributions to a health FSA will be set at $2,500 per year, effective in 2013.
- Access to health insurance exchanges – Health insurance exchanges, administered by state governmental agencies or non-profit organizations, will be opened so individuals and small businesses with up to 100 employees can purchase qualified health insurance coverage, effective in 2014. States will be permitted, but not required, to allow businesses with more than 100 employees to purchase coverage through exchanges effective in 2017.
- Elimination of pre-existing condition exclusions – Group health plans will be prohibited from imposing preexisting condition exclusions. This provision is scheduled to become effective in 2014.
- Penalty for not offering employee coverage – Employers who employ at least 50 employees will be charged a $2,000 per employee per year penalty. The penalty excludes the first 30 employees of the employer. For example, an employer who employs 50 employees would be subject to a $40,000 penalty per year (50 employees – 30 employees = 20 employees; 20 employees x $2,000 = $40,000). This penalty is scheduled to be effective in 2014.
- Penalty for offering “unaffordable” employee coverage – Employers with more than 50 employees who offer coverage that is “unaffordable” (premiums for coverage elected by the employee, exceed 9.5 percent of the family income) will be charged $3,000 per full time employee who enrolls in an “exchange” plan and receives a government subsidy. This penalty is scheduled to be effective in 2014.
- Vouchers for employees eligible for “unaffordable plans” – Employees with incomes less than 400 percent of the federal poverty level (FPL) who are exempt from enrolling in their employer plan due to its high cost will be allowed to enroll in an insurance exchange. In order to avoid the $3,000 tax per employee, an employer can offer an employee a voucher equivalent to the employer’s contribution toward health care coverage under their group health plan. The employee would use the voucher to purchase coverage from the exchange, and excess funds would be paid out to the employee in the form of cash. This provision is scheduled to become effective in 2014.
- Elimination of excessive waiting periods – Employers may no longer impose a waiting period for eligibility for benefits of more than 90 days. This provision is scheduled to become effective in 2014.
- Automatic enrollment of employees – Effective in 2014, employers with 200 or more employees are required to automatically enroll employees in their group health plans, unless the employee is already enrolled in another plan or is eligible for the cost exemption.
- Excise tax on “Cadillac” plans – Insurers and self-insured plans will be charged a 40 percent tax on health insurance premiums in excess of $10,200 for individual coverage and $27,500 for family coverage (higher thresholds for plans covering retirees and certain high-risk industries). The tax excludes dental and vision premiums from the calculations. This new tax is scheduled to become effective for all plans in 2018.
*Source: Wells Fargo Insurance Services