Passage of Health Care Reform Will Change Game for Employers

March 22, 2010 - by: HR Hero 6 COMMENTS

Updated Thursday, March 25, 2010

Since President Barack Obama signed part of an expansive health care reform package into law on Tuesday, March 23, 2010, employers should prepare for many changes to their health and benefits plans. The President signed the U.S. Senate’s Patient Protection and Affordable Care Act (H.R. 3590), which the U.S. House of Representatives passed by a 219-212 vote on March 21, 2010. On that same day, the House also passed the Health Care and Education Affordability Reconciliation Act of 2010 (H.R. 4872), a compromise reconciliation bill designed to provide a package of “fixes” to the Senate’s original bill. The total legislation package (the original Senate bill and the reconciliation bill) will have far-reaching effects on employers.

Audio Conference: Health Care Reform Is Here: Impact and Answers for Employers

Immediate Reforms
The legislative package contains several provisions that would immediately affect employers by subjecting health insurance plans to several reforms. Such reforms include:

  • prohibiting lifetime limits on coverage;
  • barring rescissions of coverage in most circumstances;
  • restricting annual limits on coverage;
  • requiring certain plans to provide coverage for dependent children up to age 26;
  • placing limitations on excessive waiting periods; and
  • banning preexisting condition exclusions for children.

The bill also would establish a temporary reinsurance program that would reimburse participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees. Additionally, certain small employers would be eligible to receive tax credits to purchase health insurance coverage for their employees.

Employer Requirements, Fines, and Taxes
Although the health care reform package doesn’t require employers to provide insurance coverage to their employees, it will penalize employers that don’t offer coverage or don’t offer coverage that is considered good enough. For example, employers with 50 or more full-time equivalent employees that don’t offer coverage will have to pay an assessment ($2,000 for each full-time employee) to help offset the cost of health insurance if their employees are receiving help from the federal government to purchase insurance. Employers that offer coverage may also face penalties if their employees are receiving federal subsidies.

The package of bills also creates a tax on employer-sponsored high-end “Cadillac” coverage. Under the original Senate bill, the tax is 40 percent of the “excess benefit” of plans that exceed the thresholds of $8,500 for individual coverage and $23,000 for family coverage. However, when the original Senate bill is combined with the reconciliation bill:

  • the effective date of the provision is changed from 2013 to 2018;
  • the original thresholds are raised to $10,200 for individual coverage and $27,500 for family coverage;
  • standalone dental and vision benefits are exempted from the tax; and
  • certain employers are allowed to make adjustments to their cost of coverage if they have higher health costs because of their employees’ age or gender.

More Reforms in the Future
The health care reform package also contains many other provisions that would affect employers and become effective in the next several years. Among other things, the new package would:

  • prohibit preexisting condition exclusions (effective in 2014);
  • ban annual limits on coverage (effective in 2014);
  • limit annual contributions to health flexible spending arrangements under cafeteria plans (effective in 2013);
  • eliminate the deduction for expenses allocable to the Medicare Part D subsidy (effective in 2013);
  • establish rules regarding which employers can participate in the new exchanges;
  • require employers with more than 200 full-time employees that offer health benefit plans to automatically enroll employees in one of the plans they offer;
  • require certain large employers to report the health insurance coverage they offer on a return;
  • require employers to report the cost of employer-sponsored health coverage on Form W-2s;
  • limit distributions for qualified medicine under health savings accounts (HSAs), Archer medical savings accounts (MSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs) to prescription drugs and insulin (effective in 2011);
  • increase the additional tax on distributions from HSAs and Archer MSAs that aren’t used for qualified medical expenses to 20 percent of the disbursed amount (effective in 2011); and
  • require certain employers to provide qualified employees with “free choice vouchers” to be used to purchase qualified health care plans on an exchange.

Next Steps
Although the President signed the original Senate bill into law, he has not yet signed the reconciliation bill since Congress had to first agree upon that part of the package’s language. The Senate passed the reconciliation bill on March 25, 2010, but eliminated a couple of provisions that violated reconciliation rules. Later that day, the House approved the bill and sent it to the President for his signature. We will continue to keep you updated on the health care reform package and will also keep you informed on how it will affect your workplace.

Keep up with the latest legal changes affecting employer benefits and trends in employee benefits with the Benefits Complete Compliance and with changes in federal employment laws in the Federal Employment Law Insider.

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6 COMMENTS

1 Frances
11:24:05, 26/03/10

Businesses can’t print more money like the Feds always do, so how does Washington think this monstrosity will be paid for? This will lead to socialized medicine which in turn will lead to poorer care, lack of innovation, more bureaucracy, bad service, etc.
This bill gives unions exemptions the rest of us don’t have-not fair but typical of government. There will be an underground economy as a result of this very bad bill.

2 Judith
10:45:56, 29/03/10

This bill certainly does not go far enough, and I am not surprised that insurance companies and employers (such as AT&T) have taken immediate steps to “pass on costs” to the victims – I mean customers. We truly need to have health care available for no charge to all–that way employers would not even need to be involved, and there would be no need for the insurance companies to be involved either. Yes, of course, it would be paid for by our taxes, and taxes would go up, and that is the way it should be. We are one of the few civilized countries to not make health care available to all its citizens, and it shows.

3 Char
14:39:30, 01/04/10

Lost in all this is the sheer complexity of the new Law, the latest Gordian Knot created to strangle businesses that give jobs.

Can any ember of Congress actually say that they understand this Law in its entirety ? If they don’t understand what they are voting for…………

4 John
16:36:52, 01/04/10

The problem with a federal healthcare is that they have no idea what our needs are on the local level.
The truth is; employees will make less money than they did before. Companies view employees in terms of overall compensation not just salary.
If you are a company owner, as I am, you have most likely cut to your core staff already and can not afford to cut more.
Additionally you can not afford another expense and your clients will not accept an increase for your product.
Get ready for the salary cuts.
This bill is horrible….

5 Help
11:52:32, 16/04/10

Does anyone have some solutions, or suggestions? Complaining isn’t helping.

6 Butch
12:08:32, 25/04/10

Certainly the bill is far from perfect, but businesses, corporations and company owners of today cannot be counted on to do the right thing for their employees. Had these employers been fair with their employees from the beginning I doubt we would be seeing such sweeping changes.

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