I knew health care reform would be a great topic for this column, but I didn’t expect it to be so daunting. With all the conflicting information available from so many sources, and many of the facts in flux, it’s no wonder this subject is a constant source of debate.
Despite ongoing legal challenges, several provisions of the law have taken effect and are changing the way people pay for medical care. Below I provide a primer as well as some online resources to keep you abreast of this ever-changing legislation. Although health care reform has initiatives through 2018, this article will take you through 2013, since the topic is currently in transition.
What is health care reform?
The Patient Protection and Affordable Care Act (PPACA) became effective on March 23, 2010, and changed the way private health insurance is regulated. It also has a major impact on the medical benefit plan design employers offer to their employees.
Tax breaks for associations
Associations with fewer than 26 employees that pay more than half of employees’ health premiums, as well as average annual wages of less than $50,000, can receive a tax credit of up to 35 percent of the cost of the premiums for years 2010 through 2013. For example, if you (the AE) are the only employee, make $49,999 a year, and the association pays 51 percent of your annual health care premium of $4,000, then the association can now receive a tax credit of up to $714. Even tax-exempt 501(a) organizations can claim the credit, which will be increased to 50 percent of the cost of the premiums beginning in 2014.
So, even if—as some predict—health care premiums increase as a result of the reform legislation, any increase to your association should be offset by a tax credit. This tax credit provides a great incentive to associations currently not offering health insurance to consider doing so. As for associations who have had coverage with the same carrier for more than five years, the new health care reform provides an opportunity to negotiate lower rates or get bids from other carriers to ensure that premiums are in line with the current market.
You already see the benefits
There is a mandate to add the following benefits to your health plan in the next plan year, if they were not already in place. Other benefits (marked with an asterisk) are not required to be added to your existing health plan, as long as you don’t make other changes to it (see sidebar). They would, however, be a part of any new health plan you enter into.
- If your plan covers dependent children, they would now be covered up to age 26. However, it is not mandated that all plans cover dependent children.
- Lifetime and annual limits were eliminated.
- Children under the age of 19 cannot be subject to preexisting condition limitations.
- *Preventive health and immunizations must be covered at no cost (no copay or deductible) to the employee. Depending on your age, this rule may apply to blood pressure, diabetes, and cholesterol tests; mammograms; colonoscopies; flu shots; routine vaccinations; and well-baby and well-child visits; as well as other services.
- *Eligibility cannot be based on an employee’s salary, nor can you discriminate in favor of higher-paid employees.
- *Your plan must include a claims appeals process.
- *If your plan requires employees to choose a primary care provider, they must be able to choose any participating provider who will accept them. In addition, if a primary care provider must be chosen for children, employees must be able to choose an in-network pediatrician.
- *Plans that cover hospital emergency room services must now do so without any type of prior authorization, and regardless of whether the services were rendered out of network.
- OB/GYN services may be sought without prior approval from a patient’s primary care physician.
*These provisions are not required to be added to your existing health plan as long as you don’t make other changes to it (see sidebar on grandfathered plans), but would be a part of any new health plan you enter into.
Changes to health cost reimbursements
One of the major benefits of pretax Flexible Spending Accounts, Health Reimbursement Accounts, or Health Savings Accounts is that employees can obtain reimbursement for over-the-counter or prescription medications, and other health-related costs. In 2011, a prescription is required to obtain reimbursement from these pretax accounts for over-the-counter medications (e.g., pain relievers, cold medicine, cough medicine, etc.). However, nonmedicinal items, such as bandages, contact lens solution, etc., are still reimbursable. See the IRS Web site for a complete list of reimbursable and non-reimbursable items at www.irs.gov/publications/p502/index.html.
By 2013, employee contributions to pretax health Flexible Spending Accounts will be limited to the company’s plan maximum or $2,500 (whichever is less).
In the year 2013, a state-based health insurance exchange will become available to consumers. Operating like an online portal, these state-run health exchanges are intended to enable consumers to review and compare a variety of private health insurance plans in a single location (and eventually force competitive pricing among insurance companies). Think Lending Tree, but for health insurance. Through these portals, consumers could compare premiums, deductibles, copays, and covered services, as well as out-of-pocket limits on expenses. Bloomberg Businessweek estimates that approximately 25 million people will utilize the state-run exchanges. Small employers are hopeful that with these state exchanges and their pooled coverage, their premiums may become comparable to those of large corporations.
Effective March 1, 2013, you’ll be required to notify your employees about the state-run health exchanges available. The notice must include:
- information about the services offered by the exchanges and how the employee can contact them
- notice that the employee may be eligible for a tax credit on the premium and a cost-sharing reduction if the employer’s plan covers 60 percent of the total allowed cost of benefits and the employee purchases insurance through the exchange instead
- notice that the employee will lose the employer contribution to the premium if the employee purchases state exchange coverage and the employer did not offer the employee a free choice voucher, and that all or a portion of the contribution is pretax
An additional FICA tax of 0.9 percent will be imposed for employees whose wages are over $250,000 (if employee is married and files a joint return); $125,000 (for employees who are married and file separately); or $200,000 for all other employees. Employers will not incur the additional FICA tax.
In addition, employers will no longer receive the tax deduction for subsidy payments for Medicare Part D-eligible employees.
If a business does not offer health insurance to its employees, it will have to pay a $2,000 per person penalty. However, tax-exempt organizations with 50 or fewer employees are excluded.
I’m sure there will be many more changes to Health Care Reform in the years ahead. Stay informed by signing up for automatic updates via the White House Web site: www.whitehouse.gov/healthreform. NAR’s REALTOR.org Web site also has various links for information on health care reform and its impact on membership and small businesses. Aon, NAR’s insurance broker for employee coverage, has a great site that outlines health care reform www.aon.com/healthcarereform as well. I’ll be sure to keep you up to date as we move into uncharted territory!
Grandfathered v. non-grandfathered plans
In order for your association’s health plan to be considered “grandfathered” (meaning that the association’s medical plan was in place prior to Health Care Reform and therefore exempt from some of the provisions for a certain period of time), the association may not change the insurance policy, carrier, or funding mechanisms. In addition, the association may not transfer employees among plans in connection with a merger, acquisition, or business restructuring for the sole purpose of eliminating grandfather status. An association may not transfer employees among grandfathered plans without a bona fide employment-based reason.
The following actions would also cause an association's health plan to forfeit grandfathered status:
- Eliminate substantially all benefits to diagnose or treat a particular condition;
- Increase the amount of cost sharing, with the exception of co-payments, by more than the medical rate of inflation since March 2010, plus 15 percent.
- Add an annual dollar limit on benefits, especially if no dollar limit was in place on or prior to March 23, 2010;
- Impose an annual dollar limit that is less than the lifetime dollar limit; or decrease the annual dollar limit;
- Decrease the employer contributions by more than 5 percent from what they were on March 23, 2010; Provide new insurance coverage; or not renew the current benefit plan.