The Latest on Health Care Reform

The topic of Health Care Reform is on the minds of most business owners, CEO’s, financial and human resource executives across America.  Although the provisions of the plan are subject to change and interpretation at this early date, we are providing this information as a helpful resource to help our clients understand the potential impact to your business.

Much of the information provided was obtained by the Society of Human Resource Management (SHRM), the world’s largest association devoted to human resource management, of which we are members.

In a recent Society for Human Resource Management online news article entitled, “Get Ready for New Plan Reporting Requirements,” a number of upcoming responsibilities were outlined to health insurers and employers.  “The upside is that these requirements will be spread over a number of years,” says Ed Pudlowski, a principal with Ernst & Young’s HR advisory practice, based in Dallas. The expert notes that employers have time to get up to speed on the reforms and their compliance-related requirements.

According to the SHRM article, “In 2011, employers need to make sure their plan meets the minimum requirements,” he advises. For large-employer plans (101 or more employees), that means ensuring that their benefit provisions cover dependent children up to age 26 and that they remove their lifetime limits and “unreasonable annual limits, however that may be defined by the Secretary of Health and Human Services (HHS).” They should make appropriate plan changes, and ensure that they included that information in their plan document.

The new reform will require employers to work with their insurers and, for self-insured plans, with their third-party administrator (TPA), Pudlowski notes, because “even if they outsource this function, it’s the employer’s responsibility to make sure that the documentation is up to date.”

Also in 2011, the exclusion for over-the-counter-drugs from flexible spending accounts, health reimbursement arrangements and health savings accounts takes effect. “Employers will need to modify those plan documents and get the appropriate communications out to employees,” Pudlowski says.

A big requirement in 2012 is reporting the value of employees’ health care costs on their W-2 forms for tax year 2011. “Employers can leverage off of their COBRA-rate calculations to provide this information,” Pudlowski says. “The way organizations develop their COBRA rates, they take the overall average value and tier it based on whether it’s an individual or family contract.

The only difference here is that employers will have to remove the COBRA administrative surcharge in the COBRA premium to get back to the overall value.”

But where do you put that information on the W-2? Expect guidance from IRS on that and other matters, Pudlowski says.

On September 23, 2010

• Reform law will prohibit health plans from setting lifetime or annual caps on benefits.

• Health plans will no longer be able to cancel coverage for plan participants who become ill, except in the case of fraud or intentional misrepresentation of health conditions by plan participants.

• Precludes insurance company’s ability to deny coverage do dependent children of plan participants because of pre-existing conditions.

• Allows children to remain as dependents on their parents’ insurance plan until the age of 26.

By the end of 2010

• Insurers will be required to report how insurance premiums are spent.

• Report must include proportion of premiums collected that is spent on clinical services, quality, and other related costs.

• The amount spent will determine medical/loss ratio.

• Large health plans (101 or more employees) must maintain a medical/loss ratio of at least 85 percent.

• In 2011, health plans not meeting the medical/loss ratio standards will be required to pay premium rebates (on a prorated scale) back to policyholders.

Beginning in 2011

• Prohibits reimbursement of over-the counter medications (unless a physician prescribes them) through an HSA, an HRA or an FSA, beginning in 2011.

• Comply with new disclosure requirements, subject to forthcoming regulations from federal agencies. Much remains to be determined about these disclosures, but a few points are highlighted in the Patient Protection and Affordable Care Act itself, including requirements that large employers must report:

• Whether they offer to their full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan.

• The length of any applicable waiting period.

• The lowest cost option in each of the enrollment categories under the plan.

• The employer’s share of the total allowed cost option in each of the enrollment categories under the plan.

• The number and names of full-time employees receiving coverage.

• Although the law does not change the operation of HSAs directly, it increases the penalty for nonqualified (that is, non-medical) distributions from 10 percent to 20 percent of the inappropriately withdrawn funds.

Beginning in 2012

• Employers will be required to disclose the value of the benefits they provide for each employee’s health insurance coverage on the employee’s annual Form W-2. The set of forms going out in 2012 will reflect coverage provided in 2011.

By March 31, 2013

• Employers must notify employees about state health insurance exchanges, whether the employer’s plan meets minimum coverage requirements, and how to access information regarding premium subsidies that might be available for exchange-based coverage.

• Beginning in 2013, cap health FSA contributions at $2,500 a year, to be indexed annually for inflation.

By 2014

• Employers with more than 200 employees will be required to enroll new full-time employees automatically in their health care option with the lowest employee premium, unless the employee makes an affirmative election to opt out or elects a different option, under the Patient Protection and Affordable Care Act.

• “While the law is silent regarding an effective date for the above provision, the intent appears to be that this provision will become effective in 2014,” according to consultancy Hewitt Associates. Other analysts advise that the requirement could be effective once implementing regulations are issued, and it’s unclear when that will be.

By 2018

• A 40 percent excise tax will be levied beginning in 2018 for high-value health plans (“Cadillac plans”) with an “aggregate value” that exceeds $10,200 (self) and $27,500  (family). Calculation of the aggregate value would encompass HSAs, HRAs and FSAs (but dental and vision coverage are excluded from the value calculation).

Recommended Steps to Take

Employers should take initial steps to address the short-term and long-term implications of health care reform, including the new reporting and notification requirements, according to global consulting firm Hewitt Associates. These steps include:

• Performing a detailed financial impact analysis.
• Communicating the immediate and long-term impact to employees.
• Developing an administration and compliance strategy, along with a transition plan to meet the varying effective dates.
• Adjusting income statements, and the reporting of liability for retiree benefit obligations under Financial Accounting Standards Board statements FAS 109 and 106, to reflect changes in retiree health care obligations. These changes include, beginning in 2013 (but subject to immediate reporting under accounting rules), elimination of the deduction for the federal retiree drug benefit subsidy.