Healthcare Reform Overview
Federal healthcare reform is a source of confusion for many in local government. While many regulations and rules have already been issued by federal agencies, there is much guidance still to be issued and finalized. This article provides a summary of certain provisions of the new federal healthcare legislation and their immediate impact upon employer group health plans through 2013, with a brief summary of future provisions.
The following overview is based solely on how the Local Government Center HealthTrust interprets the law and guidance to date, recognizing that guidance is evolving at a rapid pace. Once the Supreme Court announces its decision regarding the constitutionality of the law in late June 2012, LGC HealthTrust will provide its Risk Pool Groups with more information regarding compliance requirements for the coming years.
The Law and Its Effective Dates
The group health plan provisions of the Patient Protection and Affordable Care Act of 2010, (PPACA), as amended by the Health Care and Education Reconciliation Act, first became effective on and after September 23, 2010. In general, the law’s provisions must be met upon a group plan’s anniversary (January 1 or July 1 for LGC HealthTrust groups). However, certain provisions become effective on a calendar year basis, such as upcoming IRS W-2 reporting, flexible savings account (FSA) plan changes and employer reporting to the IRS and employees. This article identifies relevant effective dates that are different than the customary group’s anniversary date.
Current Status
PPACA is still in effect despite congressional proposals and court challenges to repeal or modify it, and employer groups must comply with its provisions and related guidance. Of special note, in late March the Supreme Court heard oral arguments regarding the constitutionality of the law and the Court is expected to render its decision in late June of this year. Whether or not the Supreme Court finds that all or any portions of the law are unconstitutional, there will be subsequent actions undertaken by Congress and the regulators that will impact employer group health plan requirements.
Provisions Already In Effect
The most significant requirements already in place for group health plans are:
- Coverage for dependent children to age 26 regardless of residency or student or marital status.
- No lifetime or annual dollar limits on “essential health benefits,” which include most plan benefits. Non-dollar (e.g. office visit) limits on such benefits are still permitted.
- No patient costs for preventive services—in order to remove any financial barrier to care, there can be no deductibles or visit copays for a broad list of preventive services. Examples of preventive services are: physical exams; routine vision and hearing exams; screenings such as mammograms, colonoscopies, and lab work; immunizations; smoking cessation counseling; and women’s health needs, including contraceptives (for January 2013 or July 2013). This list will expand in subsequent years.
- No pre-existing medical condition exclusions—coverage must be provided for existing conditions. (LGC HealthTrust plans have not had such exclusions.) General eligibility waiting periods before a person qualifies for health coverage are still permitted.
- Health FSA over-the-counter products rules—all over-the-counter drugs must have a physician’s prescription before they can be reimbursed.
Essential Health Benefits
While LGC HealthTrust plans have always provided an expansive array of benefits, some insurers only provided limited coverage. The law now mandates that certain insured and other health plans must cover “essential health benefits” (EHB), which include: ambulatory patient services; emergency services; hospitalizations; maternity and newborn care; mental health and substance use services; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services; chronic disease management; pediatric services (including dental and vision care); and contraceptive services (January 1, 2013).
As noted previously, there cannot be any annual dollar limits on such benefits. However, visit limits are still allowed for such services as physical therapy, occupational therapy, and speech therapy.
W-2 Reporting to the IRS
Employers that filed more than 250 W-2s in 2011 must report the full value of an employee’s health plan coverage on the employee’s W-2 for the 2012 tax year before January 31, 2013. Employers that filed fewer than 250 W-2s in 2011 do not have to comply with the requirements for 2012, until further IRS guidance is provided. A good source of information about this requirement can be found at http://www.irs.gov/pub/irs-drop/n-12-09.pdf. In order to comply, affected employers will need to update their payroll systems.
Uniform Summary of Benefits and Coverage
The U.S. Department of Health and Human Services (HHS) has issued rigid standards requiring all group health plans to produce a four-page, two-sided Summary of Benefits and Coverage (SBC) form for each benefit plan option available to eligible employees of the group. SBCs are intended to provide a uniform document with a standard format throughout the country that explains plan benefits and exclusions.
This requirement takes effect at a plan’s first annual “open enrollment” after September 23, 2012. (For LGC HealthTrust groups, this would be November 1, 2012 for January renewals and May 1, 2013 for July anniversary groups.) LGC HealthTrust will provide its Risk Pool Groups with group-specific SBC templates for their medical/prescription drug plan options. The groups will be required to distribute the documents to enrolled as well as eligible employees annually at open enrollment. New employees must also be given the documents upon being hired. Importantly, if “material changes” are made to a plan off the customary anniversary month, the employee must be given notice 60 days in advance of such changes. This new requirement likely will have implications for Collective Bargaining Agreements and the timeliness in which the employer can achieve cost savings due to mid-year changes in plan benefits.
The SBC documents may be distributed electronically, either by email or on the group’s website, as long as all recipients have access to such methods and after they have been provided by a written notice (such as through a postcard or payroll stuffer). Guidance providing specific rules on permitted SBC distribution methods is being developed by the Department of Labor and HHS.
Healthcare Flexible Spending Accounts
Effective January 1, 2013, an employee’s maximum salary reduction contribution to a Health FSA cannot exceed $2,500 for any calendar year, regardless of overlapping plan years. Therefore, July plan-year groups will need to ensure that January through June 2013 and July 2013 through December 2013 total contributions do not exceed $2,500. In the absence of IRS guidance, LGC HealthTrust is implementing the new $2,500 limit effective July 1, 2012 for July plan-year groups. Employers that currently allow employee Health FSA contributions in excess of $2,500 should contact their FSA vendor to ensure compliance. This new contribution limit does not apply to Dependent Care FSA contributions.
[NOTE: After this article was published, the IRS provided guidance on May 31, 2012, that the $2,500 limit for Flexible Spending Accounts does not apply for plan years that begin before 2013. Therefore, employer plans that started in 2012 are not subject to the limit until their renewal happens in 2013.]
2014 and Later Provisions
Due to the lack of final guidance on PPACA provisions that will take effect in 2014, this section provides only a broad summary of those future provisions. LGC HealthTrust will revisit the impact of these requirements in a separate article once further guidance is available.
Benefit Changes Scheduled for 2014
Employers cannot impose any waiting period (probationary period) that exceeds 90 days. Any current enrollment practice that states that a new hire may enroll as of “the first day of the month following 90 days of employment…” may need to be changed because the person technically may not be enrolled within 90 days of hire. This is clearly an area in need of clarification, and LGC is awaiting further guidance on this issue.
Employer Reporting to the IRS
This requirement will only impact “large employers”—those who have greater than 50 Full-Time Equivalent (FTE) employees. An employer must count all full-time and part-time employees, but not seasonal employees, to determine if they are subject to this reporting requirement. If the addition of all the employees and their hours equates to 50 or more full-time employees, the employer will be subject to this reporting.
These IRS reports will require information such as the employee’s name, social security number, and dependents covered, the portion of premium paid by employer, a certification as to whether the employer offers its employees the opportunity to enroll in minimum essential coverage, the length of any waiting period, the months during the calendar year for which coverage was available, the monthly premium for the lowest cost option in each of the enrollment categories under the plan, the employer’s share of the total allowed costs of benefits provided under the plan, the number of full-time employees for each month during the calendar year, and other information Treasury may require. There will be a penalty of $50 per return not to exceed $250,000 for all returns for a calendar year that were not filed with IRS.
In addition, the employer must provide a summary of the IRS information to each of its employees. There will be a penalty of $50 per return not to exceed $100,000 for all returns not provided to the individual employees.
Minimum Essential Coverage
Large employers (50 or more FTE employees) must provide “minimum essential coverage” to full-time employees (30 hours or more) and their dependents, whereby the plans must cover at least 60 percent of costs for in-network covered services. This does not mean the employer has to pay 60 percent of the premiums, only that the benefit plan will cover 60 percent of the expected costs of healthcare services. This provision needs additional definition and clarification by IRS.
“Pay or Play”
If the large employer does not provide coverage to “all or substantially all” full-time (30 hour or more) employees and at least one employee obtains subsidized coverage through the new healthcare “Exchange,” the employer will be assessed a $2,000 per employee annual fee for all full-time employees (over and above the first 30 full-time employees). This provision could have significant financial consequences for employers, but also needs additional definition and clarification by the regulators.
Unaffordability Provision
If a large employer does offer coverage but the employee obtains Exchange coverage and premium assistance due to “unaffordability,” the employer must pay a penalty. Employer plan coverage is “unaffordable” if the employee’s required contribution for single coverage in the employer’s lowest cost plan option exceeds 9.5 percent of the employee’s household income. Since most employers do not know the employee’s household income, the IRS (see IRS Notice 2011-73) allows use of the employee’s W-2 wages, instead of family income, as a safe harbor in determining the affordability of employer coverage. The penalty for having an employee obtain coverage through an Exchange is the lesser of $3,000 for each affected employee or $2,000 per employee for all full-time employees.
Excise Tax on Certain High-Cost Plans
This provision will come into effect in 2018 and will mandate a penalty on the total premium costs of high-cost employer sponsored plans that exceed $10,200 for single coverage and $27,500 for other than single coverage. The penalty will be a payment of 40 percent of the excess premium charged over the above stated limits. Of note, LGC HealthTrust has approximately 18 percent of its existing employer groups that already exceed these premium limits in 2012. This provision of PPACA is expected to bring in $32 billion in tax revenue.
Richard Dwyer is the Risk Pool Information Analyst for the New Hampshire Local Government Center. Contact Richard at rdwyer@nhlgc.org.
Employer Resources Regarding PPACA
LGC HealthTrust is communicating updates to its Risk Pool Groups
and enrollees at: www.nhlgc.org/coverage/healthcare_reform.asp.
The following are some additional resources:
U.S. Department of Health and Human Services