Healthcare Reform - What Employers Need to Know Now

by Kathryn Carlson, Director of Product Marketing at KPA

Healthcare reform is now the law of the land in the form of the Patient Protection and Affordable Care Act of 2010, the bill as passed by the Senate, 60-39, on Dec. 24, 2009, and by the House, 219-212 on March 21, 2010 . President Obama signed the legislation into law on March 23. How will employers, both large and small, be impacted?

• Employer Responsibilities. Beginning in 2014, the legislation will require an employer with more than 50 full-time employees to pay $2,000 per employee if the employer fails to offer health coverage and has at least one full-time employee receiving a premium assistance tax credit or cost-sharing reduction created by the legislation. The first 30 employees of the employer will be excluded from the calculation of the penalty.
• FSA Cap. FSA (Flexible Spending Accounts) are capped at $2500 effective 2013.
• Medicare Tax Increase. The Medicare wage tax increases 0.9 percent and a new 3.8 percent tax for those earning over $200,000 ($250,000 for married couples filing jointly on passive business income) effective 2013.
• Dependent Coverage. Beginning in six months, health plans that provide dependent coverage will be required to provide it up to age 26. In addition, the legislation prohibits health plans from excluding coverage of pre-existing conditions for children. This provision is effective six months after enactment and applies to all employer plans and new plans in the individual market. This provision will apply to all people in 2014.
• Ban on Lifetime Limits. Effective six months from enactment, the law prohibits insurers from imposing lifetime limits on benefits.
• Tax Credits for Small Employers. For small businesses that choose to offer healthcare coverage to employees, the law offers tax credits beginning in 2010. Beginning in 2010, tax credits of up to 35 percent of premiums will be available to firms that choose to offer coverage. The full credit will be available to firms with 10 or fewer employees with average annual wages of $25,000, while larger small employers will see smaller tax credits. In 2014, tax credits will be up to 50 percent of premiums for the smallest employers.
• Ban on Annual Limits. In 2014, the use of annual limits will be banned for new plans in the individual market and all employer plans. Before that ban goes into effect, there will be restrictions on annual limits for new plans in the individual market and all employer plans.
• Ban on Discrimination Based on Pay. Beginning six months after enactment, the law prohibits new group health plans from establishing any eligibility rules for healthcare coverage that have the effect of discriminating in favor of higher wage employees.
• Breaks for Breastfeeding. The legislation will amend the Fair Labor Standards Act to require that employers provide unpaid breaks for employees to express breast milk. The legislation will also require that employers provide a private location for employees to have these breaks.
• Tax on “Cadillac” Plans. Beginning in 2018, there will be an excise tax on any “excess benefit” of employer-sponsored coverage. The legislation defines “excess benefit” as one that exceeds $10,200 for individual coverage and $27,500 for family coverage. The thresholds will be indexed to inflation.
• Automatic Enrollment. The legislation will require that employers with more than 200 employees automatically enroll full-time employees in health coverage. The legislation will allow employees to opt-out of the coverage after automatic enrollment.
• Insurance Exchanges. Under the law, states will create insurance exchanges that will be operational by 2014. The exchanges will be open to both eligible individuals and some employers. Before 2017, they will be open to employers with 100 or fewer employees only. Beginning in 2017, each state will be allowed to open up the exchange to larger employers.