The “New” Health Care Reform Bill: What It Means for You and Your Business
Passage of the President’s Health Care Reform Bill will have a dramatic impact upon all Americans. Not since Medicare has the federal government created a health care program of this magnitude. The new legislation encompasses more than 2400 pages and is called the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010.
Changes That Will Affect You Immediately or Within 6 Months:
• Businesses with no more than 25 employees and average annual wages less than $50,000 will be eligible for tax credits to provide employee health coverage.
• Health plans cannot exclude children under 19 with pre-existing conditions.
• Health plans cannot place annual or lifetime caps on benefits.
• Health plans must provide coverage for preventive care without co-pays.
• Health plans must cover adult children through age 26 (unless they are eligible for other coverage).
• A temporary reinsurance program will be available for companies that provide early retiree health benefits for persons ages 55 to 64.
The Budget and Taxes:
The new legislation will add nearly $1 trillion to the federal budget. However, offsetting cost savings in the legislation are promised to reduce the federal budget deficit by more than $100 billion in 10 years. These cost savings will come from fees on health care companies (which may be passed on to consumers), cuts in Medicare and increased taxes. Primarily, these include:
• Medicare Tax. Beginning in 2013, Medicare will add a 3.8% tax on investment income for families making more than $250,000 per year. Also, the Medicare payroll tax will increase by 0.9% to 2.35% for these same families. Special withholding requirements must be followed by employers for any employees earning more than $200,000 per year.
• Excise Tax. Beginning in 2018, health insurers and self-insured companies will pay a 40% excise tax on so-called “Cadillac” plans. These are high-end insurance plans valued at $27,500 for families ($10,200 for individuals).
The Act’s cost savings also rely upon reducing physician fees under Medicare by more than $200 billion. However, if physicians succeed in reversing these cuts, as they have in the past, this would eliminate the projected cost savings and push the Act into deficit spending.
Impact Upon Businesses:
Starting in 2014, companies with more than 50 employees must offer health insurance coverage or face government penalties. Companies that do not offer coverage will be assessed $2,000 per full-time employee (prorated monthly) if at least one full-time employee receives a tax credit to purchase coverage. This so-called “free-rider” penalty is not deductible by the employer. (However, the first 30 employees will be excluded from the calculation so that, for example, a company with 40 employees would pay a penalty of $20,000 or $2,000 x 10 employees.)
Companies with more than 50 employees that do offer coverage, but require an employee to contribute more than 40% of the cost of the coverage or more than 9.5% of the employee’s income, also are subject to penalties. If the company has at least one full-time employee (30+ hours per week) who qualifies for an insurance tax credit, the company must pay the penalty. The penalty will be the lesser of $3,000 for each employee receiving a tax credit, or $2,000 for each full-time employee.
Companies with 50 or fewer employees are exempt from any penalties for not providing health coverage. Part-time employees will be included (on a full-time equivalent or FTE basis) in determining whether an employer meets the threshold or is exempt. However, if an “exempt” employer voluntarily chooses to provide coverage for its employees, the employer may purchase coverage through new state-based insurance exchanges. These exchanges will be available to small employers (with 50 employees or less) beginning 2014, and may be expanded by states to larger employees, including employers with more than 100 employees, by 2017.
Also, beginning in 2014, companies that offer coverage will be required to provide so-called “free choice” vouchers to certain low-income employees. Companies providing free choice vouchers will not be subject to penalties, and the value of the vouchers will be tax deductible.
Employers with more than 200 employees must automatically enroll employees in coverage offered by the employer. However, employees may opt out of coverage.
Tax credits for small businesses. Beginning in 2010, a qualified small business will be given a tax credit for providing health insurance coverage to its employees. A qualified small business generally is a company with no more than 25 employees, and whose employees have annual full-time equivalent (FTE) wages that average no more than $50,000. However, the full amount of the credit will be available only to a company with 10 or fewer FTEs and whose employees have average annual wages of less than $25,000.
Mandatory Coverage for Individuals:
A primary mandate of the Act will be to expand health coverage to 32 million Americans who currently are uninsured. By 2014, almost every American will be required to purchase health insurance or face a tax penalty of $695 up to a maximum of $2,085 per family or 2.5% of household income by 2016. (This is a controversial provision of the Act that is being challenged by some states as unconstitutional.)
Expanded coverage will be made available through employer-mandated coverage and the new health insurance exchanges. By 2014, both businesses and individuals will be able to purchase insurance through these state-based exchanges. Government subsidies will be given to individuals and families with income between 133% and 400% of the federal poverty level, provided they are not eligible for Medicare or Medicaid, and are not covered by an employer.
Impact upon Medicaid/Medicare Programs:
The legislation expands coverage for Medicaid/Medicare beneficiaries, while also attempting to rein in spiraling costs.
Medicaid Expansion for Low Income Families. Medicaid coverage will be expanded to include individuals and families within 133% of the federal poverty level ($29,327 for a family of four). The federal government will pay 100% of costs for covering eligible individuals through 2016. Illegal immigrants will not be eligible for Medicaid.
Medicare Expansion for Seniors. Medicare coverage will be expanded for seniors to close the prescription drug “doughnut hole” by 2020. Seniors who hit the doughnut hole in 2010 will receive a $250 rebate. Also, beginning in 2011, seniors who reach the gap will receive a 50% discount on brand name drugs. The Act also includes a “temporary reinsurance program” that subsidizes employers for the cost of insuring early retirees (age 55-64) until 2014.
At the same time, the Act includes $500 billion in Medicare cuts over the next decade. These are expected to result from the government’s increased efforts to recover fraudulent and excessive payments to Medicare providers, as well as increased use of bundled payments, utilization management and other cost-saving initiatives. Also, certain government payments to Medicare plans, providers and hospitals will be reduced, and Medicare HMOs are now subject to the government’s Recovery Audit Contractor (RAC) program.
Health Plan Reforms:
The new legislation requires more transparency by health plans, as well as reforming insurance practices (e.g. denials for pre-existing conditions). Insurers will be required to explain their premium increases, and states may bar them from the exchanges if these increases are determined to be excessive. Insurers also will be required to provide the government with additional reporting and utilization data.
Many of these initiatives will be phased in over time and will not take effect until 2014. This includes a provision that prohibits insurers from denying coverage for adults with pre-existing conditions. The delay allows insurers time to increase their overall number of insureds in order to offset the costs of accepting people who already have health problems. In the interim, adults with pre-existing health conditions will be able to enroll in a new, but temporary, national high-risk insurance plan.
Because many businesses are self-insured, these new requirements will have a significant impact upon their company health plans, as well as the company’s bottom line. Even if not self-insured, companies may experience higher costs for coverage resulting from the increased costs/benefits of their insurer’s health plans (e.g. resulting from lifting annual caps on benefits). Some, but not all, of these changes may be postponed by grandfathering existing plans to the extent permitted by the Act. However, companies should consult with their advisors to assess the potential impact of this new legislation on their health coverage, employees and financial planning. Now it is time for companies to act, as it appears that health care reform is finally a reality.
For more information, please contact members of our Health Law and Employee Benefits Groups:
Megan R. Browne - (717) 399-1530 - firstname.lastname@example.org
Christopher J. Churchill - (717) 399-1571 - email@example.com
Katherine B. Kravitz - (717) 399-1533 - firstname.lastname@example.org
Christopher W. Mattson - (717) 399-1504 - email@example.com
Harry T. Booker - (717) 399-1561 - firstname.lastname@example.org
Mark A. Smith - (717) 399-1526 - email@example.com
Barley Snyder’s Health Law Group represents hospitals, health systems, long-term care facilities, continuing care retirement communities, physicians, and other health care providers with their increasingly complex legal needs. Our health care attorneys have broad experience in trial advocacy as well as current clinical and health care issues. Barley Snyder’s Employee Benefits Group draws upon a wealth of practical experience and technical knowledge in counseling clients in all aspects of employee benefits and ERISA, including the design and implementation of retirement and welfare benefit plans, administration of retirement and welfare benefit plans, retirement planning, taxation of plan distributions and benefits, and fiduciary law aspects of ERISA. The practice’s clients include large public companies, medium- and smaller-sized privately held businesses, large regional health care systems, local colleges, and a wide variety of public and non-profit employers.