Health Care Reform is Now a Reality
 

The final stages of health care reform have essentially formed a two-act play. In the first act, on March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA), HR 3590. In the second act, the Health Care and Education Tax Credit Reconciliation Act of 2010, HR 4872 (Sidecar Bill), currently awaits the President's signature after passing both houses last week.

The Sidecar Bill makes technical corrections to the PPACA. All told, these two pieces of legislation will drastically change the health care landscape in the years to come. Health FSAs and cafeteria plans will be affected. There is no direct change to COBRA.

The following is a time line of some (but certainly not all) of the relevant provisions.

 

Changes for plan years starting after September 23, 2010.

Lifetime plan limits.  Group health plans and insurance carriers may not impose lifetime limits on the value of essential benefits for any participant or beneficiary. The Department of Health and Human Services (HHS) will issue guidance on what is considered an essential benefit.

No rescission of coverage.  Group health plans and insurance carriers cannot rescind coverage except where fraud or intentional misrepresentation occurs.

Preventive care.  First-dollar coverage must be available for preventive care, which at a minimum includes immunizations and screenings for infants and children.

Adult children coverage.  If a plan covers dependent children, it must continue to do so for unmarried and married children until age 26. The tax exclusion has been adjusted accordingly. For plans already in existence on March 23, 2010, the age 26 limit only applies if the child is not eligible for other coverage. This exception ends in 2014.

Nondiscrimination testing. The Subsection 105(h) tests that previously applied only to self-insured plans (e.g., health reimbursement arrangements [HRAs] and Health FSAs) apply to fully-insured plans.

Pre-existing condition exclusions (PCE), Part I.  For children under age 19, plans cannot have a PCE.

Changes for plan years starting on January 1, 2011.

Over-the-counter drugs. Over-the-counter medicines or drugs are not eligible for reimbursement under a Health FSA, HRA or HSA without a doctor's prescription.

HSA Excise Tax. The excise tax for non-medical HSA distributions increases from 10 percent to 20 percent.

New safe harbor for small employer cafeteria plans. The Subsection 125 nondiscrimination rules do not apply for cafeteria plans (and some plans offered through a cafeteria plan, such as group term life insurance, self-insured medical and dependent care assistance) if certain requirements are met. For example, all non-excludable employees must be eligible to participate, and the employer must make a minimum level of contribution. Eligible employers must have 100 or fewer employees during either of the two preceding years (provided it is a full year).

 Changes for plan years starting on March 23, 2012.

New explanation of coverage document.  The plan administrator (self-insured plans) or the insurance carrier (fully-insured plans) must give a coverage summary to all applicants and enrollees, at initial enrollment and open enrollment. This is in addition to the Summary Plan Description (SPD). HHS will provide standards by March 23, 2011. The document can be no more than four pages long and address covered benefits, exclusions, cost sharing and continuation. A $1,000 penalty applies for each failure to provide.

 

Changes for plan years starting on or after January 1, 2013.

Health FSA limit.   Contributions are capped at $2,500 each year, indexed for Consumer Price Index (CPI) starting in 2014. The effective date for noncalendar plan years is currently unclear.

Medicare Retiree Drug Subsidy (RDS) tax deduction.   Employers offering retiree drug coverage have long been able to receive a 28 percent subsidy on the costs. The RDS has been tax deductible. That will end as of this effective date.

 

Changes for plan years starting on or after January 1, 2014.

Annual plan limits.  Group health plans and insurance carriers may not impose any annual limit.

Exchange plans offered through cafeteria plans.  Before 2017, only small employers (up to 100 employees) may participate in the Health Exchange. Before 2016, a state may cap participation to employers with 50 or fewer employees. These employers can use their cafeteria plan to allow participants to pay for Exchange-related coverage that is offered by the employer.

PCEs, Part II.  Plans cannot have any PCEs.

No health status discrimination.  The PPACA basically codifies existing HHS HIPAA regulations with one exception. The maximum incentive amount for a wellness program is increased from 20 percent to 30 percent of plan cost, and the government has discretion to increase it to 50 percent.

Cost-sharing.  Out-of-pocket (OOP) expenses and deductibles cannot exceed those applicable with the HSA-eligible high-deductible health plans.

Reduced waiting periods.  Plans can impose waiting periods that are 90 days or less.

Individual mandate.  Individuals who do not enroll in qualifying coverage are subject to an excise tax. They generally pay the greater of a flat dollar amount (2014: $95, 2015: $325, 2016 and beyond: $695) or a percentage of income (2014: one percent, 2015: two percent, 2016 and beyond: 2.5 percent). There is a hardship exemption for those with incomes below a certain level.

Employer mandate.  Employers with 200 or more full-time employees must automatically enroll all new hires. All employers must provide an Exchange-related notice to new hires. Failure to provide health coverage results in a monthly penalty equal to 1/12 of $2,000 after disregarding the first 30 employees. Therefore, a penalized business with 32 employees would pay a monthly tax equal to two times $183.33 (1/2 of $2,000), or $366.66.

 

Changes for plan years starting on January 1, 2018.

Cadillac Plan tax.  A 40 percent tax is imposed on the monthly value of coverage over 1/12 of $10,200 (single) and 1/12 of $27,500 (family) coverage, indexed to the CPI plus one percent in 2019, then simply CPI thereafter. Allowances are made for retiree coverage, multiemployer plans and high cost states.