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.
for plan years starting after September 23, 2010.
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
Preventive care. First-dollar coverage must be available for
preventive care, which at a minimum includes immunizations and screenings for
infants and 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.
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.
condition exclusions (PCE), Part I. For
children under age 19, plans cannot have a PCE.
Changes for plan years starting on January
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
for plan years starting on March 23, 2012.
New explanation of
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.
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.
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.
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.
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
PCEs, Part II. Plans cannot have any PCEs.
No health status
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 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
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.
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.
The information above is what is known as of May 26, 2010,
but these rules and regulations are being modified regularly. As we become aware of changes,
we will do our best to make sure our clients have the most up-to-date information. Please
check back with us before relying on any of this information.