On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “Patient Protection Act” or “Act”). This legislation was originally passed by the U.S. Senate on December 24, 2009 and was approved by the U.S. House on March 21, 2010. On March 21st, the House also passed and sent to the Senate certain changes to the Patient Protection Act that are embedded in the Health Care and Education Affordability Reconciliation Act of 2010 (the “Reconciliation Bill”). The Senate has begun debate on the Reconciliation Bill, and that debate continues.
The provisions of the Patient Protection Act are largely divided between those that become effective in 2011 (for calendar year benefi t plans and individual contracts) and those that become effective in 2014 or later years. The provisions that become effective in 2011 are primarily consumer insurance reforms relating to such subjects as coverage of adult children, annual and lifetime limits, coverage rescissions, claims adjudication, etc. The primary substantive provisions of the Act, relating to the creation of insurance exchanges and individual and employer responsibilities, become effective in 2014.
The Act paints with a broad brush, and thus most of the important details of the legislation will need to be developed through regulations, administrative rulings, and potentially through future clarifying legislation. For example, many of the Act’s requirements build off the concept of “essential health benefi ts,” a term that is broadly defi ned in the Act as medical coverage that is equal to the scope of coverage provided under a typical employer plan. However, the details of what constitutes “essential health benefi ts” will be developed in regulations to be issued by Health and Human Services (“HHS”).
The learning curve for this legislation, and the regulatory guidance to follow, will be long and steep. It is important now for employers to begin to assess the shortterm and long-term ramifi cations of the Act on their health benefi ts programs, and prepare for coming developments as the contours of the Act, and likely amendment under the Reconciliation Bill, are fl eshed out over time.
Vedder Price Webinar April 13
The enactment of the Patient Protection Act and the pending Reconciliation Bill pose obstacles and opportunities for employers. Vedder Price is sponsoring a Webinar from 11:30 a.m. to 1:00 p.m. Central time on Tuesday, April 13th. During that event, we will discuss practical short-term and long-term planning opportunities for employers faced with the health care challenges that lie ahead. To view the invitation or register for this event, please click here.
Interim Consumer Protections
Between the date of enactment and 2014, the Patient Protection Act imposes a series of interim requirements. Some of these provisions are intended to preserve existing benefi ts. Others are intended to limit adverse actions in advance of fi nal reforms.
These interim provisions become effective for plan years beginning 6 months after enactment (i.e., plan years beginning on or after September 23, 2010). For calendar year plans, these provisions apply beginning January 1, 2011. These interim requirements are summarized in the following chart (click here to see chart)
Permitted Grandfathering of Existing Coverage
Patient Protection Act:
The Act contains a broad grandfathering provision for plans in effect on the date of enactment (March 23, 2010). As noted by President Obama in The President’s Proposal (February 22, 2010), this grandfathering provision “allows people who like their current coverage, to keep it.”
- A plan may provide that individuals who are covered on the date the Patient Protection Act becomes law (March 23, 2010) can continue coverage under the plan generally without regard to the requirements of the Act.
- Family members may enroll in the grandfathered plan in the future if family coverage was permitted under the terms of the plan as in effect on March 23, 2010.
- New employees may join the grandfathered plan in the future if the plan permitted new employees to join on March 23, 2010.
- Plans in effect pursuant to a collective bargaining agreement that was ratifi ed prior to March 23, 2010 will remain in effect without change until the collective bargaining agreement expires.
Of the interim requirements described above, only the requirement relating to uniform summary of benefi ts is required to apply to grandfathered plans. Presumably a grandfathered plan may elect to adopt other interim requirements as well.
The Reconciliation Bill requires grandfathered plans to comply with certain provisions of the Act when those requirements would otherwise apply. The requirements that apply to grandfathered plans are:
- No lifetime limits (2011) ¦ Restrictions on annual limits (2011)
- Restrictions on coverage rescissions (2011)
- Extension of dependent coverage to adult children (2011)
- No pre-existing condition exclusions for enrollees under the age of 19 (2011)
- No pre-existing condition exclusions for enrollees of any age (2014)
- Maximum waiting period is 90 days (2014)
Limits on Medical FSAs
Patient Protection Act (2011): Beginning in 2011, Employees may contribute only up to $2,500 to a medical FSA each year. This limit may increase in $50 increments based on cost-of-living increases beginning in 2012. In addition, over-the-counter drugs will no longer be reimbursed under FSAs.
Reconciliation Bill (2013): The $2,500 limitation does not become effective until 2013. Cost-of-living increases begin in 2014.
Increase in Penalty for Non-Qualifi ed Distributions from HSAs and Archer MSAs
Beginning in 2011, the excise tax imposed on non-qualifi ed distributions from HSAs and Archer MSAs (i.e., distributions used for non-medical purposes before age 65 or disability) is increased to 20%.
Reporting Cost of Employer-Sponsored Coverage on W-2s
Beginning in 2011, the aggregate cost of applicable employer-sponsored coverage must be reported annually on the employee’s Form W-2.
Reinsurance for Early Retirees
Within 90 days of enactment (i.e., by June , 2010), HHS is directed to establish a reinsurance program for sponsors of retiree medical programs covering retirees who are 55 or older and not yet eligible for Medicare.
- An employer participating in the reinsurance program may be eligible to be reimbursed for up to 80% of expenses incurred on a medical claim between $15,000 and $90,000.
- Payments received by employers under the program are not considered taxable income to the employer, but must be used to reduce costs under the plan.
- The program has a fi xed $5 billion fund and will end on January 1, 2014.
Note: The legislative language regarding this reinsurance program leaves signifi cant details of the program to be developed.
Once the Patient Protection Act provisions are fully implemented (which is generally 2014), the following requirements will apply - click here to see table.
The Patient Protection Act contains numerous revenue provisions, some affecting individuals, others affecting medical device manufacturers, others affecting services (e.g., indoor sun tanning). The following chart summarizes revenue provisions that will have a direct impact on employers generally - click here to see table.