The New Healthcare Landscape for Businesses under the Affordable Care Act
On June 28, 2012, the Supreme Court upheld key provisions of the Patient Protection and Affordable Care Act (ACA), signed into law by President Obama in March 2010. Although the Court struck the Act’s Medicaid expansion provision, it upheld the individual mandate, the key feature of the Act. The Act includes several provisions that will affect employer-sponsored health plans and also mandates several new requirements for employer healthcare plans that will increase employers’ costs.
Certain provisions have already gone into effect as of September 23, 2010, such as the requirement that adult children may stay on their parents’ healthcare policies until the age of 26. For all plans created after the law was enacted in March of 2010, young adults are eligible for coverage regardless of: whether they reside with a parent, their financial dependency, their eligibility to enroll in their employer’s plan, and student and marital status. However, until 2014, certain employer plans that existed before the law’s enactment (“grandfathered plans”) are not required to provide young adults coverage until age 26 if they qualify for coverage under an employer-issued plan. Currently, the ACA also prohibits lifetime limits on the dollar amount of coverage and imposes restrictions on annual coverage limits, which limits will be prohibited beginning in 2014. Further, for plans issued after March 23, 2010, insurers cannot deny coverage to dependent children of plan participants because of pre-existing conditions. Beginning in 2014, this practice will be banned as to all insured individuals. The ACA also requires all new policies created post-March 2010 to cover the cost of most preventive without cost-sharing.
The Act will also change the insurance environment through its creation of Health Benefit Exchanges. By January 1, 2014, the Act requires the States to establish “Health Benefit Exchanges,” one for individuals and one for small employers with 100 or fewer workers. In 2017, the States may choose whether to open the exchanges to large employers as well. Employees may opt out of the employer’s plan and choose to participate in the exchange. Those who opt out of the employer’s plan may receive a tax credit if the employer’s coverage is not affordable, i.e., (1) if the employee’s required contribution to the insurance premium is greater than 9.5% of his income or (2) if the employer plan pays less than 60% of the cost of covered care, the ACA’s standard of “qualified coverage.”
In addition, the ACA introduces other new regulations and reporting requirements that may increase costs on businesses. As of 2018, employers will be required to pay an excise tax of 40% on high cost health insurance that exceeds a certain cap. The cap has been set initially at $10,200 for individuals and at $27,500 for families. Effective 2013, contributions to flexible spending accounts will be capped at $2,500. As of 2014, employers with more than 200 full-time employees to automatically enroll all new full-time employees in the employer’s health insurance plan. The Act also contains new disclosure and reporting requirements. For example, for new plans, employers must offer an external appeals process for employee appeals of benefit decisions, and beginning in 2012, employers must report the cost of employer-sponsored health insurance on employees’ W-2 statements.
Other costs include an annual fee on health insurance providers effective 2014, an annual fee on manufacturers and importers of brand-name pharmaceuticals effective 2011, and an excise tax on manufacturers and importers of certain medical devices effective 2013.
Notably, as of 2014, “large” employers with more than 50 full-time employees or their equivalent will be required to offer healthcare coverage to their full-time employees or pay a penalty, and full-time employees are defined as those who work at least 30 hours per week. Two basic rules affect employers’ obligations under this system. First, if a large employer does not offer healthcare coverage that complies with certain standards to all full-time employees, and any employee obtains tax-subsidized coverage on an individual exchange, the employer must pay $2000 for every full-time employee, not counting the first 30 employees. Second, if an employer offers coverage but the plan is not affordable (i.e., it does not cover 60% of the cost of covered expenses or if the employee’s contribution for single coverage is greater than 9.5% of the employee’s income), the employee can receive tax-subsidized coverage on the exchange; if this occurs, the employer must pay a $3000 penalty for that employee.
Small employers with 25 or fewer employees and wages of $50,000 or less per employee are eligible for a tax credit if the employer offers health insurance and pays at least 50% of the premium cost. For firms of no more than 10 workers and wages of $25,000 or less per employee, the maximum credit is 35% of the employer’s contribution for tax years 2010 through 2013 and 50% for tax years 2014 and 2015. As employers increase in size and wages per employee, the credits decrease, and none are available after 2015.
Some of the new rules will not apply to “grandfathered” plans, defined as individual or group health plans in effect before the Act was enacted on March 23, 2010. For example, employers with “grandfathered” plans may require employees to pay a share of preventive healthcare costs and are not required to establish the appeals procedure to review employee claims. They are also not subject to the Act’s new requirements regarding patients’ choice of health care providers and access to emergency care. Nevertheless, even grandfathered plans may not impose lifetime dollar limits on coverage or cancel coverage because of an “honest mistake” on an insurance application. In addition, grandfathered employer, but not individual, plans may not deny children coverage based on pre-existing conditions.
However, to maintain “grandfathered” status, an employer may not: change insurers, significantly reduce benefits, decrease employer contributions by more than 5%, raise copayment charges by more than $5 (adjusted each year for inflation), raise deductibles by a certain percent, increase co-insurance charges, or impose a new or harsher annual limit.
In light of these changes to the healthcare landscape, employers should consult with their insurance brokers to develop a plan for the future and with their legal counsel to ensure compliance with the Affordable Care Act.