Health Care Reform:
Employers’ Responsibilities
Timothy A. Davis
913.205.8647
[email protected]
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Health Care Legislation
• President Obama signed the Patient
Protection and Affordable Care Act
(“PPACA”) on March 23, 2010
• Reconciliation Act signed on March 30,
2010 to make certain changes to PPACA
• Combined, these acts constitute what is
known as health care reform
• Future changes?
• Repeal?
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Overview of Impact on Employers
• Health care reform will impose significant
new responsibilities on plan sponsors
• Requirement to amend plan documents
• Many new reports and administrative
requirements
• Employers will have very little time to
adjust to the new requirements
• Many changes effective as early as
September 23, 2010
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Wellness Initiatives
• Wellness Initiatives
– Significant push to expand wellness offerings
– Establishment of a national agency to
coordinate federal prevention, wellness and
public health activities
– Creation of a grant program to offer delivery
of prevention and wellness services aimed at
strengthening prevention initiatives, reducing
chronic disease rates and addressing health
disparities
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Wellness Initiatives
• Wellness Initiatives
– Elimination of cost-sharing provisions for
preventive services in Medicare and Medicaid
[2010]
• Medicare recipients would receive a
comprehensive health risk assessment and
personalized health prevention plan
– Incentives for Medicare and Medicaid
participants to complete wellness behavior
modification programs [2010]
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Wellness Initiatives
• Wellness Initiatives
– Grants for up to five years to small employers that
establish wellness programs [2011]
– Wellness program rules modified to increase
permitted financial incentives (premium discounts,
waivers of cost-sharing requirements, etc.) from 20%
to 30% of cost of coverage (and up to 50% if deemed
appropriate) [2014]
• Employers must still offer a reasonable alternative
standard for employees for whom it is
unreasonably difficult or inadvisable to meet the
wellness standard
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Grandfathered Plans
• Plans in place on March 23, 2010 that
have not been significantly changed
• Avoid certain of the mandates, and certain
of the design features required in 2014
• Regulations describe changes that will
cause loss of grandfathered status:
– Elimination of all or substantially all benefits
for a particular condition
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Grandfathered Plans
• Loss of grandfathered status (cont.):
– Increase in percentage cost-sharing
– Increase in fixed-amount cost-sharing (other
than a copayment) if greater than medical
inflation
– Increase in fixed-amount copayment if in
excess of greater of (i) $5 increased by
inflation, or (ii) increase in inflation plus 15%
– Decrease in contribution rate by employer of
more than 5%
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Health Care Changes – 2010
•
•
•
•
Elimination of lifetime limits
Elimination of annual limits
Coverage of children up to age 26
Rescission of coverage only for fraud or
misrepresentation
• Elimination of pre-existing condition
exclusiong for children under 18
• Prohibition limiting eligibility only to highly
compensated employees
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Health Care Changes – 2010
• To implement the new age 26 dependent
coverage requirement, employers will have to
notify plan participants that their children may be
eligible for coverage
• The new regulations require a “special
enrollment” (similar to the current HIPAA special
enrollment)
• Likely will be done in regular open enrollment,
but the rule could apply to other children (e.g.,
who lose other coverage)
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Health Care Changes – 2010
• Prohibition of requirement for prior
authorization or increased cost sharing for
emergency services
• Prohibition of requirement for authorization
or referral for ob/gyn care provided by
specialist
• Requirement of coverage for preventive
services and immunizations without cost
sharing
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Health Care Changes – 2010
• Employers must implement an effective internal
appeals process for coverage determinations
and claims
• The appeals process must comply with any
applicable State law requirements
• If no State process, or health plan is selfinsured, then HHS will deem the existing claims
procedures to be in compliance
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Health Care Changes – 2010
• Covered individuals must be allowed to
select their primary care provider from any
available participating primary care
provider
• This applies to pediatricians in the case of
children
• No distinction between in network and out
of network physicians
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Health Care Changes – 2010
• Reinsurance Program
– Temporary measure for employers providing
health insurance coverage to retirees over
age 55 who are not eligible for Medicare
– Would reimburse employers 80% of retiree
claims between $15,000 and $90,000
– Payments would be used to lower costs for
enrollees in the employer plan
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Health Care Changes – 2010
• Small Business Tax Credit [2010-2014]
– Who would receive the small business tax
credit?
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• Employers with 25 or fewer employees and
average annual wages of less than $50,000 that
provide group health coverage
• For tax years 2010-2013, employer would receive
tax credit of up to 35% of contribution toward
health insurance premium if employer contributes
at least 50% of total premium cost or 50% of a
benchmark premium
• Employers with 10 or fewer employees and
average annual wages of less than $25,000 would
be eligible for the full tax credit
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Health Care Changes – 2010
• Small Business Tax Credit [2010-2014]
– Tax-exempt small employers meeting the
requirements would also be eligible for a tax credit of
up to 25% of the employer’s contribution to the
employee’s health insurance premium
– For tax years 2014 and later, eligible small
businesses that purchase coverage through an
insurance exchange will receive a tax credit of up to
50% of the employer’s contribution toward the
employee’s health insurance premium if the employer
contributes at least 50% of the total premium
– This tax credit would be available for two years
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Health Care Changes – 2011
• Over the counter (“OTC”) drugs not
allowed in health reimbursement
arrangements (“HRAs”) or cafeteria plan
medical flexible spending accounts
(“FSAs”)
• OTC drugs may be reimbursed from a
health spending account (“HSA”), but will
be taxed
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Health Care Changes – 2011
• The employer must disclose the value of
health benefits provided to employees on
their Forms W-2
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Health Care Changes – 2011
• Insured group health plans must report
annually on the percentage of premiums
spent on clinical services
• If plans spend less than 85% of premiums
on clinical services (80% for small plans),
the plan must rebate the excess to the
participants
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Health Care Changes – 2011
• Public Option
– What is the public option?
• Health insurance plan sponsored by the Federal
Government
– Why a public option?
• A way to hold insurance companies accountable
for the costs passed on to consumers
• However, detractors argue a governmentsponsored health insurance plan would kill free
market competition between insurance companies
– Public option lost out to health insurance
exchanges
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Health Care Changes – 2011
• Health Insurance Exchanges [2011-2017]
– The creation of state-based insurance exchanges is
viewed as a way to provide a more organized and
competitive marketplace for consumers to purchase
health insurance
– The insurance exchanges would offer a choice of
health plans and provide consumers with
standardized information regarding benefit levels and
costs associated with each plan
– Would also provide administrative mechanisms for
enrolling participants and for adjudicating claims and
processing consumer complaints
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Health Care Changes – 2011
• Health Insurance Exchanges [2011-2017]
– Office of Personnel Management required to
contract with insurers to offer at least two
multi-state plans in each insurance exchange
• At least one plan would be offered by a non-profit
entity
• The other plan would not provide coverage for
abortions outside those allowed by federal law
• Each multi-state plan would be licensed in each
state and must meet qualifications of a qualified
health plan
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Health Care Changes – 2011
• Health Insurance Exchanges [2011-2017]
– Would also create the Consumer Operated
and Oriented Plan (“CO-OP”)
• Used to foster the creation of non-profit, memberrun health insurance companies in all 50 states to
offer qualified health plans
• Would create four categories of plans plus a
separate catastrophic plan to be offered through
the insurance exchange and in the individual and
small group markets
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Health Care Changes – 2011
• Health Insurance Exchanges [2011-2017]
– State-based American Health Benefit Exchanges and
Small Business Health Options Programs (“SHOP”)
Exchanges will be created, which would be administered
by governmental agencies or non-profit entities
– Would allow individuals and small employers with up to
100 employees to purchase qualified coverage
– Employers with more than 100 employees would be able
to purchase coverage in the SHOP Exchange [2017]
– States would be allowed to form regional exchanges or
have more than one exchange to operate in a state so
long as each exchange serves a distinct geographic area
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Health Care Changes – 2012
• Nothing
• Time out for elections?
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Health Care Changes – 2013
• Cafeteria Plan Health Care Spending
Accounts
– Limitation on the amount of contributions to
flexible spending accounts
• Participants would be limited to contributing no
more than $2,500 annually
• Limit would be increased for inflation for future
years
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Health Care Changes – 2013
• Employers will need to adjust their payroll
systems to include the new 0.9% Medicare
tax on both employees and the employer
(in addition to the current 1.45% tax on
each)
• The new tax applies to a single employee
with compensation greater than $200,000,
or an employee who is married and files
jointly where the family income is greater
than $250,000
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Health Care Changes – 2014
• No pre-existing condition (“PEC”)
exclusion for adults
• No waiting periods > 90 days
• Plan must offer “essential health benefits”
package to avoid employer penalty
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Health Care Changes – 2014
• Waiting Periods
– Generally capped at 90 days
– Employers that impose a waiting period
before employees begin coverage would be
required to pay:
• $400 for any full-time employee in a 30-60 day
waiting period
• $600 for any full-time employee in a 60-90 day
waiting period
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Health Care Changes – 2014
• Employers must provide notice to
employees about the availability of
coverage through the State sponsored
health insurance exchanges
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Health Care Changes – 2014
• Employers must report annually to HHS
information about whether essential
minimum health coverage has been
offered to its employees
• The employer must also provide a notice
to each individual whose name is included
in the annual notice to HHS
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Health Care Changes – 2014
• Employers with more than 50 employees
must report annually to the Internal
Revenue Service whether minimum
essential coverage is offered through an
“eligible plan”
• A notice must be given to each employee
whose name is included in the notice to
the IRS
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Health Care Changes – 2014
• Wellness programs that are designed to
promote healthy behavior may impose a
reward/punishment of up to 30% of the
premium for the employee’s coverage
• The current reward/punishment limit under
a wellness program is 20%
• HHS may determine that it is appropriate
to raise the limit to 50%
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Health Care Changes – 2014
• Free Choice Voucher
– Employers that offer group health coverage
would be required to provide vouchers to
employees making less than 400% of the
Federal Poverty Level (currently $10,830)
whose share of the total premium exceeds
8% but less than 9.8% of their income and
who choose to enroll in a plan offered in a
state insurance exchange
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Health Care Changes – 2014
• Free Choice Voucher
– Voucher amount must equal what the
employer would have otherwise paid to
provide coverage under the employer’s plan
– Voucher can be used by the employee to
offset the cost of premiums in insurance
exchanges
– Employers who provide free choice vouchers
would not be subject to play or pay penalties
for employees who enroll in the insurance
exchange
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Health Care Changes – 2014
• Automatic Enrollment
– Employers with more than 200 employees will
be required to automatically enroll employees
in the employer’s group health plan(s)
– However, employees may opt out of the group
health plan(s)
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Health Care Changes – 2014
• Any employee who is automatically
enrolled in the health plan must receive a
notice of the enrollment, and an
explanation that the employee may
choose to opt out of the plan
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Health Care Changes – 2014
• Employer Mandate: Play or Pay
– General aim of health care reform is to
encourage employers to offer group health
plan coverage to employees or pay a penalty
tax (“play or pay”)
– This feature is central to President Obama’s
goal of health care reform and is provided for
in both PPACA and reconciliation bill
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Health Care Changes – 2014
• Employer Mandate: Play or Pay
– The “play” option is presented as involving
employer “contributions” to insurance,
however, the money is coming from what
would be employees’ wages
– Employers with 50 or fewer employees would
be exempt
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Health Care Changes – 2014
• Employer Mandate: Play or Pay
– Employers who offer coverage must either:
• Provide coverage that is “qualifying coverage” and
pay at least 60% of the cost, or
• Pay the lesser of $3,000 for each employee
receiving a premium credit, or $2,000 for each fulltime employee
– Employers who don’t offer coverage must pay
$2,000 for each full-time employee, excluding
the first 30 employees
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Health Care Changes – 2014
• Individual Mandate [2014-2016]
– Those without health insurance coverage
would be required to a pay penalty tax of the
greater of $695 per year, up to a maximum of
three times that amount per family ($2,085),
or 2.5% of household income
• The penalty would be phased in accordingly:
– $95 in 2014, or 1.0% of taxable income
– $325 in 2015, or 2.0% of taxable income
– $695 in 2016, or 2.5% of taxable income
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Health Care Changes – 2014
• Individual Mandate [2014-2016]
– Beginning after 2016, the penalty will be increased
annually according to cost-of-living adjustment
– Exemptions would be granted for: financial hardship;
American Indians; religious objections; those without
coverage for less than three months; undocumented
immigrants; incarcerated individuals; if the lowest cost
plan option exceeds 8% of the individual’s income;
and, if the individual has income below the tax filing
level
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Health Care Changes – 2014
• The plan must offer an essential health
benefits package to be a qualified plan
(and avoid the taxpayer penalty)
• The required features:
– Minimum level of coverage (described below)
– Provide employer-paid benefits of at least
60% of the full actuarial cost of the plan
– Limit annual cost-sharing under the plan to
the annual HSA limits (currently $5,950 for
individual and $11,900 for family)
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Health Care Changes – 2014
• Minimum coverage must include:
– Ambulatory patient services
– Emergency services
– Hospitalization
– Maternity and newborn care
– Mental health and substance abuse
– Prescription drugs
– Rehabilitative services and devices
– Laboratory services
– Preventive and wellness services
– Pediatric services
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Health Care Changes – 2018
• Excise Tax on “Cadillac” Plans
– Insurers must pay a 40% tax on the amount a
health plan’s total annual premiums increase
above:
• $10,200 for individual plans
• $27,500 for family plans
• Amounts indexed for inflation beginning in 2020
– Unions were instrumental in getting this
delayed for an additional 5 years
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Surprise Provisions?
• Nutrition labeling of standard food items at
chain restaurants
• Reasonable break time for nursing
mothers
• During first year after birth of child
• Opportunity to express breast milk
• Place other than bathroom, shielded from
view and free from intrusion
• Do not need to compensate for break
• Not applicable if < 50 employees and
hardship
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QUESTIONS?
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