Health Care Reform | Bellingham HR Consultant

The Society for Human Resources Management (SHRM) released a break down of how the new health care reform signed in by the Obama administration will effect employers and employees. It breaks down to this:

Employer Requirement – Penalties would be assessed on employers with 50 or more employees who fail to offer coverage to employees. The penalty would be assessed if even one employee receives a subsidy to purchase coverage through a health insurance exchange. Employers would also incur penalties if the coverage they offer is considered “unaffordable” to the employee or if the health plan has an actuarial value of less than 60 percent or pays less than 60 percent of covered health care expenses.

Individual Requirement – The new law requires individuals to purchase health insurance coverage or pay a tax penalty beginning in 2014. The penalty, which is phased in, starts at $95 or 0.5% of income per individual in 2014 and increases to $750 or 2% of income in 2016. The penalties for families would be capped at $2,250. Religious and hardship exemptions are available.

Excise Tax on High - Value Health Plans (“Cadillac” tax) – Employers offering health plans that exceed a certain cost (the total employee and employer cost) would be subject to an excise tax on the amount above that value. For individual coverage, the threshold would be $8,500; for family coverage, the threshold would be $23,000. These thresholds would be indexed at Consumer Price Index plus one percentage point. Certain high-risk provisions would have a higher cost threshold.

Insurance Market Reforms – The new law requires insurance plans to provide coverage to any individual who requests insurance. It also includes a prohibition on pre-existing condition restrictions in the individual and small group health care market. Health insurance premiums would be allowed to vary based only on tobacco use, age, family composition, and geographic location. Large employers that purchase coverage through a health care exchange would be eligible for the above insurance protections. Both self-insured and fully-insured plans are required to provide dependent coverage for children up to age 26. Health plans are also prohibited from establishing annual and lifetime dollar limits on coverage.

Wellness Programs – Employers can offer increased incentives or rewards to employees for participation in a wellness program or for meeting certain health status targets beginning in 2014. Rewards or premium reductions up to 30 percent of the cost of coverage are now permissible.

Free Choice Vouchers – Employers offering coverage are required to provide “free choice vouchers” to qualified employees to purchase insurance through the exchanges. To be eligible for a voucher, an employee’s contribution under the employer’s plan would be between 8 percent and 9.8 percent of income, and the employee’s income would be at or below 400 percent of the Federal Poverty Level.

Flexible Spending Accounts (FSAs) – Contributions to health FSAs would be capped at $2,500 beginning in 2011 and over-the-counter medicines would only qualify for reimbursement with a doctor’s prescription.

Medicare Hospital Insurance Tax – Beginning in 2013, an additional Medicare tax of 0.9 percent is imposed on individuals with income in excess of $250,000 for joint filers or $200,000 for single filers.

As of March 24, 2010, break-down below offers comparative detail between what was signed into law and what was originally passed by the House.*

Individual Responsibility
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Yes, requires U.S. citizens to maintain minimum essential coverage beginning in 2014. Individuals who do not purchase coverage will pay the greater of $95 in 2014, $495 in 2015 and $750 in 2016, or up to two percent of income by 2016. Families will pay half the amount for children up to a cap of $2,250 for the entire family. After 2016, dollar amounts will increase by the annual cost of living adjustment.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Decreases the flat dollar amounts from $495 to $325 in 2015 and from $750 to $695 in 2016. Raises the percentage of income assessment from 0.5% to 1% in 2014 and up to 2.5% in 2016 and subsequent years.

Employer Responsibility
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
No requirement to offer coverage, but all employers with more than 50 full-time employees that do not offer coverage (and have at least one full-time employee receiving the premium assistance tax credit) would be required to make a payment of $750 per FTE to the government. If an employee opts out of an employer plan because the premium would exceed 9.8 percent of the employee’s income and receives a tax credit, the employer assessment would be the lesser of $3,000 for each employee receiving a premium credit or $750 for each full-time employee. Employer health care coverage must have an actuarial of at least 60 percent or penalties are assessed.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Amends “free rider” assessment to require employers not offering coverage to pay $2,000 per FTE for all full-time employees if even one employee receives a subsidy and purchases coverage in an exchange. The first 30 employees, however, would be excluded from this calculation. Employers offering “unaffordable” coverage would be assessed a $3,000 penalty for each full-time employee that receives a subsidy and purchases coverage through an exchange. Coverage is considered “unaffordable” if the employee’s premium exceeds 9.5 percent of family income.

Employer Penalty
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
See above. In addition, an employer with more than 50 FTEs that requires a waiting period before an employee can enroll in health care coverage will pay $400 for any full-time employee in a 30-60 day waiting period and $600 for any full-time employee in a 60-90 day waiting period in 2014. Exempts employers with 50 or fewer employees from any of these penalties.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
See above. Eliminates “free rider” penalty for employees in a waiting period but the length of the waiting period could not exceed 90 days beginning in 2014.

Free Choice Voucher
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Requires employers that offer coverage to provide a free choice voucher to employees with incomes less than 400% FPL whose share of the premium exceeds 8% but is less than 9.8% of their income and who choose to enroll in a plan in the exchange. The voucher amount is equal to what the employer would have paid to provide coverage to the employee under the employer’s plan. Employers providing free choice vouchers will not be subject to penalties for employees that receive premium credits in the exchange. Requires employers with more than 200 employees to automatically enroll employees into health insurance plans offered by the employer, allowing for an employee opt-out.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Maintains these provisions.

Employee Retirement Income Security Act (ERISA)
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Retains state regulation of insured health plans and federal regulation of self-insured plans. Allows states to obtain limited waivers of federal health-related laws and regulations to pursue state reform initiatives, but the waivers do not apply to ERISA covered plans.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Maintains these provisions.

Health Care Cooperative
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Yes. Establishes a federal program to assist establishment and operation of nonprofit, member-run health insurance issuers.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Maintains these provisions.

Cafeteria Plans
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Caps FSA contributions at $2,500. Excludes over-the-counter medications without a doctor’s prescription as reimbursable expenses under FSAs, HRAs, MSAs and HSAs. Increases penalties on non-medical HSA and MSA distributions to 20 percent.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Maintains these provisions.

Wellness Provisions
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Allows employers to offer premium discounts and other awards for up to 30 percent of the total premium to individuals who satisfy a health standard and includes provisions to ensure that discriminatory practices do not occur. The Secretary of HHS would have the authority to issue regulations to allow financial incentives up to 50 percent. Provides grants for up to 5 years to small employers that establish wellness programs.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Maintains these provisions.

Health Care Quality Improvements
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Provides access to Medicare claims data for use in measuring provider performance. Establishes a value-based purchasing program for hospitals starting in 2013 and makes improvements to the physician quality reporting initiative.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Maintains these provisions.

Tax credits
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Provides a refundable credit for coverage under a qualified health plan. The premium assistance credit amount is calculated on a sliding scale starting at 2.8 percent of income for those at or above 100 percent of poverty and phasing out to 9.8 percent of income for those at 400 percent of poverty. Provides a sliding scale tax credit to small employers with fewer than 25 employees and average annual wages of less than $50,000 that purchase health insurance for their employees.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate

Excise Tax
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
40% excise tax on insured and self-insured group health coverage that is above a threshold of $8,500 for single coverage and $23,000 for family plans. The tax would apply to the amount of the premium in excess of the threshold. The threshold would be indexed at CPI-U plus one percentage point, and a transition rule would increase the threshold for the 17 highest cost States for the first 3 years. An additional threshold amount of $1,350 for singles and $3,000 for families is available for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Excludes stand alone dental and vision benefits from the excise tax calculation. Delays the effective date to 2018. Increases the thresholds to $10,200 for single coverage and $27,500 for families. Indexes the threshold to the rate of general inflation plus one percentage point beginning in 2019. Includes a permanent adjustment in the threshold for retirees and for employees in high-risk professions.

Medicare HI Tax
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Imposes an increase of .9 percent in the FICA tax paid on wages above $200,000 (single, $250k couples) beginning in 2013. Increase is only applicable to amounts paid by the employee.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
For single taxpayers with adjusted gross income of $200k or more and joint filers with AGI of $250k, imposes an increase of 3.8% in the FICA tax on unearned income from interest, dividends, annuities, rents, capital gains, and royalties.

Retiree Health Care
H.R. 3590, the Patient Protection and Affordable Care Act, signed into law 03/23/10
Eliminates the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees beginning in 2011.

H.R. 4872, the Reconciliation Act of 2010, passed the House on 03/21/10, pending in the Senate
Eliminates the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees beginning in 2013.

*Information provided by the Society for Human Resources Management (SHRM) at www.shrm.org.