Health Care Reform Law: Impact on Employers

On March 23, 2010, President Barack Obama signed into law the Patient Protection and Affordable Care Act (the "Act").  The President also signed a second bill into law on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”), which includes a series of “fixes” to the Act.  The following is a summary of some of the Act’s key provisions (as amended by the Reconciliation Act): 

2010 Changes 

  • Reimbursement for Retiree Coverage.  Effective 90 days after enactment through 2014, for retirees between the ages of 55 and 64, the Act will reimburse employers 80% of the cost of health benefits in excess of $15,000 (up to $90,000).   
  • Small Employer Subsidies.  In order to encourage small employers (those with 25 or fewer employees and less than $50,000 in average wages) to provide health insurance coverage, such employers will receive a tax credit.  Through 2013, tax credits will equal up to 35% of the employer’s contribution provided the employer contributed at least 50% of the premium.   
  • Children.  Effective six months after enactment, health plans are required to treat children up to age 26 as eligible dependents.  There is a dispute as to whether the Act, in its current form, requires employers to cease applying pre-existing condition exclusions to children. 
  • Limits on Coverage.  Beginning this year, plans may no longer impose lifetime limits on the dollar value of coverage.  Beginning January 1, 2014, health plans may no longer impose annual limits on the dollar value of coverage.  Likewise, in 2014, the Act will set maximum out-of-pocket costs for plan members and participants.
  • Highly Compensated Employees.  For all plan years beginning six months following the signing of the Act, insured group health plans may not discriminate in favor of highly compensated employees.   

Future Changes  

  • Employer Penalties for Not Offering Insurance.[1]  Beginning January 1, 2014, employers with more than 50 employees will be required to offer health care coverage to employees or pay a penalty.   Employers with 50 or more employees that do not provide health coverage would be penalized in the amount of $2,000 per full-time employee.  In addition, if an employer provides "unaffordable" coverage to its employees, it will be penalized $3,000 per employee receiving a premium credit.  Finally, part-time employees would be counted for purposes of determining whether an employer has 50 or more employees, but penalties would be assessed only for full-time employees who work 30 hours or more per week.
  • Tax-Free Reimbursement Plans.  Beginning in 2013, the Act will prohibit tax-free reimbursements (e.g., from health flexible spending accounts, health reimbursement accounts, and health savings accounts) for over-the-counter drugs. Likewise, beginning in 2013, the Act caps annual pre-tax contributions to flexible spending accounts at $2,500, subject to adjustments for inflation. 
  •  Medicare Tax and W-2 Reporting.  Effective January 1, 2013, the Medicare portion of the FICA tax will increase to 2.35% (from 1.45%) for individuals earning over $200,000 and for couples earning more than $250,000. Beginning in 2011, employers must report the value of each employee’s employer-provided health coverage on an IRS form W-2.
  •  Waiting Period Prohibition.  Beginning January 1, 2014, waiting periods for health plan eligibility cannot exceed 90 days.
  • Automatic Enrollment in Employer Plan. Beginning in 2013, or possibly earlier, an employer with more than 200 employees must automatically enroll its employees in the employer’s group health plan.  An employee thereafter may opt-out of the employer’s group health plan coverage and either obtain other coverage or pay an individual penalty.
  • Cadillac Plans.  Beginning in 2018, employers must pay a 40% excise tax on single coverage, to the extent its value is in excess of $10,200, and family coverage valued in excess of $27,500 (with higher thresholds for those engaged in certain "high-risk" occupations). 

Conclusion

How impactful the Act will be on any employer will need to be assessed on a case-by-case basis.  We will continue to keep you updated as to the progress of the Act.
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 [1]Massachusetts employers of 11 or more full-time employees (FTEs) (employees working at least 35 hours per week) are already subject to penalties if they do not provide health insurance coverage.  Specifically, employers with fewer than 50 FTEs (but more than 11) must pay penalties unless they either (a) have 25% or more of FTEs in a group health plan or (b) offer to contribute 33% or more toward the premium cost of any group health plan offered to employees who have been employed at least 90 days. Employers with more than 50 FTEs must pay penalties unless they either (a) have 25% or more of FTEs enrolled in a group health plan and offer to contribute 33% or more toward premium costs of any group health benefit plan offered to employers employed at least 90 days or (b) have 75% of employees enrolled in a group health plan.