On March 23, President Obama signed into law the Patient Protection and Affordable Care Act (the Act), legislation that is likely to have a dramatic impact on health insurance in the United States as it is implemented over the coming months and years. The Act, as modified by the Health Care and Education Reconciliation Act of 2010—which was approved by Congress on March 25 and is expected to be signed by President Obama during the week of March 29—contains several provisions that have a direct effect on the manner in which employers provide health insurance benefits, as well as certain related tax obligations.
The following summarizes several key terms of the Act that affect how employers currently supply health coverage to their employees, as well as some notable provisions about how the employer-provided health insurance system may change in the future.
- Changes to Exiting Plans for Next Year—Starting with the first plan year that begins after September 23, 2010, employer-provided health plans must meet the following requirements:
- Coverage for Children until Age 26. Plans must offer coverage to the adult child of an employee until the child reaches the age of 26. Until 2014, such coverage must be provided only if the adult child is unable to obtain coverage under a plan maintained by the child’s employer (for example, because the child’s employer does not provide such coverage) or another employer-sponsored plan.
- Lifetime Benefit Caps. Plans are not permitted to include annual or lifetime limits on benefits. The application of this requirement will be based on future interpretive guidance from the Department of Health and Human Services.
- Auto-Enrollment for Large Employers. Employers with 200 or more full-time employees must, subject to applicable waiting periods, automatically enroll new full-time employees in health coverage. Such new employees must be given relevant notices about coverage and must have the opportunity to opt out.
- Flexible Spending Account Changes. Over-the-counter medications will no longer be eligible for reimbursement under flexible spending accounts, health savings accounts and other similar arrangements. In addition, effective in 2013, a new annual limit of $2,500 (as indexed in later years) on health flexible spending accounts will apply.
- Reporting Obligations. The Act requires that employers report the aggregate cost of an employee’s health coverage (medical, dental and vision) on that employee’s annual Form W-2, beginning with the Form W-2 delivered during January 2012.
- Key Changes with Later Effective Dates
- Insurance Exchanges and Excise Taxes for Larger Employers. Beginning in 2014, health insurance exchanges must be established in each state. The exchanges will provide various levels of coverage and pricing that ignore pre-existing conditions. These exchanges are expected to affect employers as follows:
- The employees of smaller employers (generally those with fewer than 50 employees) would be eligible to purchase insurance within the exchange (and possibly with a federal subsidy) without penalty to the employer.
- If a larger employer does not offer full-time employees affordable coverage, and such employees are forced to purchase insurance through the exchange, the employer may be subject to annual excise taxes which can reach as high as $3,000 per full-time employee.
- Pre-Existing Conditions and Waiting Periods. Also beginning in 2014, employer health plans will be prohibited from including waiting periods in excess of 90 days and pre-existing condition exclusions.
- Reporting Obligations. Starting in 2014, employers with 50 or more employees will be required to report whether they offer coverage to full-time employees, the length of applicable waiting periods, the cost of coverage, the employer’s share of total costs, and the number and names of full-time employees receiving coverage.
- Excise Tax on “Cadillac Plans.” Beginning in 2018, certain high cost health insurance plans will be subject to a 40% excise tax on insurance companies (for policies sold in the group insurance market) and plan administrators (for self-funded plans). The tax would not apply to individual policies.
While the above is a list of some of the Act’s key provisions that will affect employers, many other provisions will undoubtedly impact employers as the provisions of the Act become effective and the government issues regulations and other guidance.