On March 23, 2010, after more than a year of debate, President Obama signed the Patient Protection and Affordable Care Act (the “PPACA”). Today, President Obama signed the Health Care and Education Reconciliation Act of 2010 to address concerns that certain members of the House of Representatives expressed regarding the PPACA. Although a number of states and other organizations have already filed legal challenges to the Acts, Health Care Reform is underway.
Health Care Reform will affect all Americans, but employers will face some of the most significant challenges. While the PPACA is more than 2,400 pages in length and will require further analysis, the purpose of this Client Alert is to highlight key provisions that will affect employers. We will provide more information as it becomes available, and expect to present seminars and workshops on this important topic.
Temporary Retiree Reinsurance Program
Ninety days after enactment and until 2014, employers will have access to a federal reinsurance program to provide insurance for early retirees (those between the ages of 55 and 64) until they become eligible for Medicare. The program will reimburse employers for 80% of the cost of such coverage in excess of $15,000 (up to $90,000).
Extension of Dependent Coverage
Six months after enactment, health plans providing dependent child coverage must offer coverage to unmarried adult children up to age 26. The law will not require coverage of grandchildren. Employer contributions for coverage of adult children will be included in the employee’s gross income unless the adult child otherwise qualifies as an “eligible dependent” under federal tax law.
Restriction of Coverage Limitations and Pre-Existing Conditions Limitations
For plan years beginning six months after enactment, existing plans will be prohibited from imposing: (a) lifetime limits on coverage; (b) restrictive annual limits on coverage; or (c) pre-existing condition exclusions for children under age 19. Beginning in 2014, all pre-existing condition exclusions and annual coverage limits will be prohibited.
Small Employer Tax Credit
For years 2010 through 2013, employers who have less than 25 employees and whose average wages are less than $50,000 will be eligible for a tax credit of up to 35% of the employer’s contribution to the employees’ health insurance premiums, provided the employer contributes at least 50% of the total premium cost (or 50% of a benchmark premium).
By 2014, citizens and legal residents will be required to have “qualifying health coverage” or pay a tax penalty, which will be phased in between 2014 and 2016. Each year thereafter, the tax penalty will increase annually by a cost of living adjustment. Exemptions may be granted to individuals based on the cost of plan options and their incomes.
Health Insurance Exchanges
By 2014, states must establish Health Insurance Exchanges where individuals and small businesses with up to 100 employees can purchase qualifying health coverage.
Beginning in 2014, employers with more than 50 employees will be required to offer “affordable” health care coverage to employees or pay a penalty. If an employer with more than 50 employees does not offer health coverage and has at least one full-time employee who receives subsidized coverage under an Exchange, the employer will be fined $2,000 per full-time employee in excess of 30 employees. If an employer with more than 50 employees does offer health coverage but at least one full-time employee receives subsidized coverage under an Exchange because the employer’s plan is “unaffordable,” the employer will be fined the lesser of $3,000 per employee receiving Exchange coverage or $2,000 per full-time employee. A plan will be deemed “unaffordable” if the premiums for the coverage selected by the employee exceed 9.5% of the employee’s household income.
Beginning in 2014, employers who offer health coverage must provide a “free choice voucher” to employees: (a) whose household incomes are less than 400% of the federal poverty level; (b) whose share of the cost of insurance premiums is between 8% and 9.8% of their household income; and (c) who choose coverage under an Exchange. The voucher must be in an amount equal to what the employer would have paid to provide the employee with coverage. Employers will not be subject to penalties for employees who receive the voucher and premium credits in an Exchange.
Increases in Taxes, Withholdings and Reporting
Beginning in 2011, employers must report the value of each employee’s employer-provided health coverage. Effective 2013, taxpayers with adjusted gross income greater than $200,000 ($250,000 for joint filers) will be taxed 3.8% on certain investment income and capital gains. In addition, these taxpayers will face a 0.9% increase in the Medicare portion of their FICA taxes (from 1.45% to 2.35%). Effective 2018, an excise tax will be imposed on insurers of employer-sponsored health plans with aggregate values in excess of certain thresholds ($10,200 on individual coverage and $27,500 on family coverage). This tax on “Cadillac Plans” will be equal to 40% of the value of the plan that exceeds the threshold amounts.
Beginning in 2014, waiting periods for health plan eligibility may not exceed 90 days.
If you would like more information or are interested in Carmody & Torrance LLP providing an in-house seminar or workshop on Health Care Reform or related topics, please contact any member of our Labor & Employment Practice Group.
To view the alert, click here.