Health Care Reform Update

The comprehensive healthcare reform legislation signed by President Obama will impose new requirements on all employers, although companies which employ 50 or fewer full-time (or full-time equivalent) workers will be subject to major responsibilities to either offer health insurance to their employees or pay a penalty for failure to provide such insurance.

The new requirements will be phased in over several years and will be implemented through a series of regulations to be issued by the Department of Health and Human Services. NAMM will monitor regulatory developments and possible legislative revisions to healthcare reform and will work in concert with other affected industry groups to minimize the adverse impacts.

The timeline below outlines the major provisions of healthcare reform that will take effect. In most cases, specific effective dates will be determined by government regulations.

2010
• tax subsidies begin for small businesses to provide coverage for 25 or fewer employees and average wages of $50,000 or less; subsidy phases out if over 10 employees and average wage over $25,000
• health insurance reforms begin for plan years beginning in September
o eliminates lifetime limits and constrains annual limits, allows dependents to be covered to age 26, prohibits pre-existing condition limitations for children under 19
o mandatory coverage of preventative services without cost-sharing
o emergency services must be covered as in-network regardless of provider
• all group plans must comply with nondiscrimination rules (IRS Code §105(h)]that prohibits discrimination in favor of highly-compensated individuals

2011
• new federal long term care program (CLASS Act) begins, under which people pay premium into the system for at least five years and become eligible for support payments if they need assistance in daily living (e.g., long-term care)
• all employers must enroll all employees and process premiums; employees can opt out; no employer contribution required
• all employers report value of health care benefits provided on Form W-2; first filing is in January, 2012 and annually thereafter
• no reimbursement for non-prescription drugs in flexible spending arrangements
• eligibility for health coverage based on compensation prohibited

2012
• payments to corporations made after January 1 become subject to requirement for filing year-end Form 1099 if payments exceed $600 per year
• expands reporting requirements to include payments for property (e.g., office supplies) as well as services
• old law applicable only to payments made to individuals for services
• first reporting due in January, 2013

2013
• all employers must provide notice to employees of health coverage options
• new Medicare taxes on individuals earning more than $200,000/year and couples filing jointly earning more than $250,000/year (modified adjusted gross income); tax on wages rises from 1.45% to 2.35%
• new 3.8% tax on unearned income (e.g., dividends and interest) applies to Subchapter S corporations
• flexible spending accounts capped at $2,500/year (no limit under current law); cap indexed for inflation
• medical expense deduction on individual income tax returns increases from 7.5% to 10% of adjusted gross income for taxpayers 64 or younger; increase for taxpayers over 65 goes into effect in 2017

2014
• new mandate for individuals to purchase insurance; federal subsidies for families with up to $88,000 in annual income
o penalties provided for failure to purchase insurance
 $95/year or 1% of household income, whichever is greater
 in 2015 penalties increase to $325 or 2%
 in 2016 penalties increase to $695 or 2½% ($2,085 family max); adjusted for inflation in subsequent years
• exchanges begin where people w/o employer coverage (and small businesses) can shop for coverage; national plans available
• new mandate on employers with more than 50 employees (FTE’s) to provide affordable coverage (to be determined) to full time employees or pay a fine
 part-timers used only to calculate full-time equivalent (30 or more hours/week); total PT hours per month divided by 120=FTE’s
 seasonal workers not included unless work more than 120 days/year
 penalty for full time worker w/o coverage is $2,000 per employee
• penalty is $166.67/month/employee; not tax deductible
• calculation excludes for 30 full-time workers
 penalty for full time worker w/o affordable coverage (cost exceeds 9.5% of family income and/or fails to meet minimum standard) is $3,000 for each such FT worker up to a cap of $2,000 times every FT worker
• penalty is $250/month/subsidy-eligible worker, nondeductible
• penalty calculation excludes first 30 employees
• employees offered qualified coverage must accept unless cost to worker exceeds 9.5% of family income
 exchange subsidy results in $3,000 penalty
 if cost to worker is between 8-9.5% of family income, employee may opt out to obtain alternative coverage
 opt-out employee takes employer’s contribution and may keep any surplus between contribution and cost of coverage
• new federal tax on all group plans to fund federal comparative effectiveness research; tax is $2 per enrollee annually
• new penalty on employers with health insurance waiting periods in excess of 90 days
• all employers must report certain information to employees regarding number of months employee was covered by employer-provided insurance
• all employers must annually provide report to IRS, including length of waiting period, monthly premium information, employer share of total cost and number of FTE’s covered per month
• insurance premiums may vary by 30% (up from current 10%) for participation in wellness activities (HHS can by regulation increase this to 50%)

2017
• large businesses (more than 100 employees) can buy coverage through insurance exchanges, if state permits it

2018
• 40% federal excise tax imposed on all employer-sponsored “high cost” health plans
o tax is on “excess benefits,” i.e., cost above $10,200 for individual coverage and $27,500 for family coverage (indexed for inflation later)
o employer must calculate tax and communicate amount to insurance company or plan administrator

Effective Dates Need Clarification
• employers of 50 or more FTE’s must provide separate room (not a bathroom) for employee breastfeeding unless can show undue hardship
• employers of 200 or more must automatically enroll all employees in health insurance plans with opportunity for opt-out (to be effective after DoL issues regulations)