With the passage of the Patient Protection and Affordable Care Act and the subsequent amendment by the Health Care and Education Affordability Reconciliation Act, employers are now facing major changes to the health care benefit packages. Many of the changes do not take effect until 2014, but there are some items which become effective January 1, 2011. (For health care plans with plan years beginning October, November or December, these changes are effective with the start of those new plan years.) This article will focus on the major changes that an employer needs to consider as part of the planning process for next year.
- Adult Child Coverage: All group health plans, whether self-insured or fully insured, must continue dependent coverage until the child turns age 26. The tax law has also been amended such that this extension of coverage will not result in imputed income regardless of whether the adult child is a dependent for tax purposes of the employee. The law does not require that the child of an adult child (grandchild of the employee) be covered under the group health plan. Note: Minnesota law had previously required fully insured plans to cover these adult children, so this is only a change for Minnesota employers that had self-insured health plans.
- Lifetime Benefit Limits: All group health plans, whether self-insured or fully insured, may not establish lifetime limits on the “essential health benefits.” (Regulations will be issued defining “essential health benefits.”) Lifetime limits can be applied to non-essential health benefits.
- Annual Coverage Limits: All group health plans, whether self-insured or fully insured, may have “reasonable” annual limits placed on “essential health benefits” until 2014, at which time there can be no annual limits on those benefits.
- Prohibition of Rescission of Coverage: All group health plans, whether self-insured or fully insured, will be prohibited from rescinding coverage of a participant except for incidents of fraud.
- Preexisting Condition: All group health plans, whether self-insured or fully insured, may not impose any preexisting condition exclusions on children under age 19. Beginning in 2014, no preexisting conditions will be permitted for any participant or dependent.
- Over-the-counter medication: Health Flexible Savings Accounts (FSA), Health Savings Accounts (HSA), and Health reimbursement Arrangements (HRA) will no longer be permitted to reimburse participants for over the counter medicines unless prescribed by a physician.
- Health Savings Accounts: The tax penalty on any HSA withdrawal for reasons other than the reimbursement of qualified medical expenses prior to age 65 will increase to 20 percent.
- Cost Ratio Requirements: A Health Insurance Issuer of a Group Health Plan must provide an annual rebate if the ratio of the amount of the premium revenue spent on both clinical services to enrollees and activities that improve healthcare quality is less than 85 percent. The ratio is reduced to 80 percent in the small market. (This requirement is not applicable to self-funded Group Health Plans.)
- Small Employer Tax Credit: Effective for 2010, an employer with no more than 25 full-time employees and average wages of less than $50,000 may be eligible for a tax credit. The employer must provide health insurance for the employees and pay at least 50 percent of the total premium. The tax credit in 2010-2013 equals up to 35 percent of the employer’s premium cost.
There are other changes that apply to any new health plans that are established after the bill was signed into law (March 23, 2010) which are not addressed in this article. In addition, there are many other changes which will take effect between 2011 and 2014. We will provide information on those changes in future articles, as well as additional information as the regulations are issued that provide more detail on the actual operation of some of these features.