Healthcare Reform: Surviving The Change

While the New Year will bring fresh client budgets to be spent and new products to be sold, it also brings changes for businesses of all sizes thanks to the new Patient Protection and Affordable Care Act (PPACA). The PPACA is redefining what is acceptable and affordable for healthcare plans in the eyes of the U.S. government (i.e., child coverage, grandfathering and plan affordability). It will mean changes to some healthcare plans for small supplier and distributor companies, while larger companies will need to watch for penalties, higher plan premiums and new taxation pitfalls.

The information in this article is based on the new PPACA guidelines at press time; they may or may not change before the pending start dates listed below. Even with potential power shifts in Congress due to upcoming and future elections, it will take great effort to rescind the PPACA unless enough votes are found to override a presidential veto.

Changes Effective Now And Beyond

The following changes are required by the PPACA to all employer healthcare plans:

• Regulations are being written detailing each part of the PPACA. The Internal Revenue Service (IRS) and Department of Labor (DOL) are listening to employers and individuals on how the regulations should be written. Comment by going to the IRS (www.irs.gov) or DOL (www.dol.gov) websites.
• COBRA subsidy eligibility ended on May 31, 2010, for terminated employees. This benefit may or may not reappear later this year depending on whether funding can be found to pay for the extension again.
• Grandfathering healthcare plans enforced before March 23, 2010, is allowed. However, you may find grandfathering will not work due to all of the PPACA- related fees, which may increase your premiums. To keep grandfather status, you cannot change the deductible or pass along any costs to your employees as a shared premium. To do so under the grandfathering status is a violation of the PPACA and will cause not only your plan to come under ERISA (Employee Retirement Income Security Act) scrutiny, but it may trigger additional audits by other governmental agencies such as the IRS or DOL.
• For all plans starting or renewing on or after September 23, 2010:
-Plans will no longer be allowed to have lifetime maximums.
-Plans must cover adult children up to age 26 regardless of whether they are in school or married. Unless young adults have insurance at their place of employment they are to be covered on your plan.
-There are no child pre-conditions allowed. In other words, children must be covered under all plans up to age 18.
-The primary care provider for children can be their pediatrician, and women may choose their OB/GYN if desired instead of a general practitioner.
-An appeal process must be in effect with all insurance carriers. Most carriers already have appeal processes for claims, but now the process must be publicized and easy to follow.
• Insurance carriers will have to maintain a Medical Loss Ratio of no more than 80 percent. This ratio is a calculated difference between what is paid in premiums and what it will cost the insurance carrier to pay the claims. The lower the loss ratio, the more profit the carrier makes. Today most carriers like to keep a 75 percent or lower ratio.
• W-2 reporting of medical benefits has been one of the most talked about parts of the Act. While the benefit information must be put on the W-2 starting in 2012, this is a separate line item. The total is not added into your gross wages as some reports are advising.
• Flex Savings Accounts will no longer allow over-the-counter medications unless the patient has a prescription from a doctor. It’s not clear why this action was taken, but if aspirin or other OTC products are purchased using a Flex Savings Account, patients may want to stock up and get their reimbursement before December 31, 2010.
• The Health Savings Account (HSA) penalty increases from 10 percent to 20 percent for non-medical expenses. Just be careful not to use a HSA for non-medical charges going forward or be prepared to face the increased penalty.
• Wellness grants for small-employer groups will be available for those who have not had a wellness program previously. Be sure to check past experience in your organization before applying as these grants will be closely watched for abuse.
• For all those wanting an assisted living service, one is being established on a national level. It will be similar to Medicare Taxation in that one may have the option to participate pre-tax through payroll deduction. The difference is employers do not have to participate or even take the deduction for the covered employee. This is a nice plan for those who think they’ll need care in a nursing home or long-term care facility, but the benefits are limited to only $50 per day and are vested over five years. For long-term care, I suggest looking at private options also.
• Pharmaceuticals will have a newly imposed fee. While on the surface this may get lots of people cheering, remember fees always get passed along the line. We expect to see higher costs for prescriptions in the months to come as pharmaceutical companies pass along fees at the pharmacy counter.

Changes Effective In 2012 And Beyond
• All we need is more paper, but since many people do not understand all the forms and summary plan documents needed when buying insurance, a four-page plan summary of benefits will now be required. This summary will be more basic and easy to understand with all of the most important information provided in one place. Hopefully it will be a help to everyone who never before understood all those crazy descriptions for services.

Changes Effective In 2013 And Beyond
• The Flex Savings Account (FSA) limit will be set at $2,500. This is a departure from current practices as companies set the limits for FSA based on their risk comfort level versus law.
• A notice of available exchange options will be required from employer to employee on tax-credit and cost-sharing subsidies. It is not clear what this will look like yet because it won’t take place for two years.
• A $1 per person administrative fee will be charged by each insurance plan. It will increase in 2014 and expire on September 30, 2019.
• The Medicare payroll tax will jump from 1.45 percent to 2.35 percent for those making more than $200,000/individual or $250,000/family.

Changes Effective In 2014 And Beyond
• Some of the most controversial parts of the Act begin in 2014. By requiring everyone to have insurance there is a lot of controversy concerning rights of states and individuals. It will be a wait-and-see as to how the Supreme Court rules on these points going forward. Individual penalties for lack of insurance will be phased in starting 2014 through 2016. Penalties will be less than $695/individuals, $2,085/family or 2.5 percent of income, whichever is the least amount. I look for these to be ruled out.
• Companies must cover all employees within 90 days.
• Annual maximums will be eliminated permanently as lifetime maximums.
• All plans must include adult kids up to age 26; even grandfathered plans will no longer have the ability to keep these young adults from being covered.
• Employers will have to start providing the IRS, HCA, DOL and HHS notification of plans as it required for other benefit plans such as 401ks.
• Health plan fees increase to $2 per person.
• One part of the Act that has many people happy is the prohibition of pre-existing conditions. While this is great news on one front, there will be price increases to make up the loss of funds to carriers. The good news is the 80 percent ratio limit is enforced too.
• Small groups will have to limit their deductibles to a maximum of $2,000/person and $4,000/family. Again this is good news on one side, but we will pay the price in premiums.
• Employers with more than 50 full-time equivalents (FTEs) that do not provide insurance will pay a $2,000 per employee penalty. Exclude first 30 employees or pay $3,000 per person receiving the assistance (whichever is less).
• Voucher options will be available for employees unable to pay for insurance premiums:
-Employees with income less than 400 percent of the Federal Poverty
Level, and
-Cost more than eight percent of the employer’s plan, but less than 9.8 percent of income
-Employers have no penalties if a voucher system is used
• Small group/individual state exchanges will be made available to groups and individuals so everyone has availability to coverage. Price may become an issue and the burden is on the state taxpayers to supplement the cost.

Changes Beyond 2014
Because of the extended time and potential changes that can occur, this article won’t address the PPACA beyond the 2014 timeline. However, PPB will provide updated information as it becomes available.

As we all start to understand the impact of the PPACA on our companies and organizations, you can keep up to date by accessing the following:

www.IRS.gov
www.DOL.gov
www.ppailaw.org
twitter.com/PPAI_HR

Also, contact your U.S. Senators and Representatives to let them know how the PPACA is affecting your company. Whether you like the changes the PPACA offers or not, your voice and vote make a difference in Washington.

Kathy Goodin-Mitchell, SPHR, is director of human resources for PPAI.