Friday, March 26, 2010
How the Health Care Overhaul will Affect Business
Re-Print: Opelika-Auburn News
Sunday, March 28, 2010
By: Tommy Eden, Attorney
The Patient Protection and Affordable Care Act has now been reconciled by Friday's House vote, with President Barack Obama set for a final signature on Tuesday. Below is how we anticipate the final measure may affect every Alabama employer:
Final Rush: In the rush to pass the bill, the House failed to include children under the immediate elimination of pre-existing conditions. The bill will not protect children with pre-existing health conditions from being denied health coverage until 2014. There will probably be a later fix to solve this problem. But right now, 2014 is the date for eliminating pre-existing condition restrictions for children.
“Pay-or-Play” Penalty: The following employer mandates apply in 2014:
• Employers with more than 50 employees will be required to offer health care coverage to employees or pay a penalty;
• The penalty for failure to provide coverage (applicable if at least one full-time employee receives government-subsidized Exchange coverage) is $2,000 per full-time employee (works at least 30 hours a week) in excess of 30 employees;
• Even if the employer does offer coverage, the employer still must pay an annual penalty if at least one full-time employee receives the government-subsidized coverage (complicated formula requires an actuary to compute);
• This penalty is equal to the lesser of: (a) $3,000 multiplied by the number of full-time employees who receive the premium tax credit, and (b) $750 multiplied by the number of the employer’s full-time employees; and in addition,
• Employers must provide a “free choice voucher” to each employee who: (a) has income below 400% of the federal poverty level, (b) would otherwise have to pay more than 8% of the premium for employer coverage, and (c) enrolls in a plan in the Exchange.
• All new insurance plans sold must exempt preventative care and screenings from deductibles.
• The new health care bill will set up a long-term care insurance program. Individuals who pay premiums into this system for at least five years will become eligible to receive support with daily living assistance.
• The fine on withdrawing funds from a Health Savings Account for non-medical expenses will increase by 5 to 10 percent.
• Employers will also need to start including the cost of health care on employee’s W-2 forms.
Elimination of Deduction for Prescription-Drug Subsidy for Retired Workers: Since 2006, companies have received a 28% federal subsidy, up to $1,330 per retiree, tax-free, to help pay for prescription-drug coverage. Until now, companies could deduct the subsidy from their taxes, essentially getting a second benefit from the money. Under the new law, effective in 2013, companies will no longer be able to deduct the subsidy, but it remains tax-free. The approximately 3,500 companies that have taken advantage of this tax subsidy will have to absorb the cost of its elimination or terminate prescription-drug coverage for retired employers, forcing them into Medicare Part D or Medicaid. The change in the law is expected to affect primarily industrial companies with retirees represented by collective bargaining pacts, whose benefits are more difficult for companies to cut. Companies will continue to receive the tax-free subsidy based on their retirees' contributions, but won't be able to deduct the amounts.
Small Employer Tax Credit: Employers with no more than 25 employees and less than $50,000 in average wages will be eligible for a tax credit for employer-provided health coverage up to 35% of the employer’s contribution if the employer contributes at least 50% of the premium. Beginning 2013 and continuing through 2015, a tax credit of up to 50% of an eligible small employer’s contribution for health coverage purchased through the “Exchange.”
Flexible Spending Plan Restrictions: Tax-free reimbursements (e.g., from health flexible spending accounts, health reimbursement accounts, and health savings accounts) will be prohibited for over-the-counter-drugs beginning in 2011. Annual pre-tax contributions to health flexible spending accounts will be capped at $2,500 beginning 2013.
Health Plans must within 6 months of passage:
• treat children up to age 26 as eligible dependents, and
• may not impose lifetime limits on the dollar value of coverage for children.
Beginning 2014 Health Plans must:
• may not impose annual limits on the dollar value of all coverage;
• start setting maximum out-of-pocket costs for participants;
• may not impose pre-existing condition exclusions on children; and
• must meet certain minimum benefit standards.
Waiting Period Eliminated: Waiting periods for health plan eligibility cannot exceed 90 days beginning 2014.
Highly Compensated Employees: Insured group health plans may not discriminate in favor of highly compensated employees, as has previously been the requirement for self- funded plans. After 2012 the deductibility of executive compensation for health insurance companies is limited to $500,000.
Increased Tax Withholding: The Medicare portion of the FICA tax increases to 2.35% (from 1.45%) for earnings over $200,000 for individuals (the threshold is $250,000 for couples) beginning 2013.
Cadillac Plans: Employers must pay a 40% excise tax on single coverage, to the extent the value is in excess of $8,500, and family coverage with a value in excess of $23,000 (with higher thresholds for certain “high-risk” occupations) beginning with 2018.
Enrollment is Automatic: Employers with more than 200 employees must automatically enroll its employees in the employer’s group health plan beginning in 2013. However, an employee may “opt-out” of the employer’s group health plan coverage and either obtain other coverage or pay the individual penalty. Virtually everyone must have by 2014 at least a minimum level of coverage or pay an individual tax penalty for failing to do so phased in over three years, and will be the greater of $695 per individual per year, up to a maximum of $2,085 per family per year, or 2.5% of household income.
Retiree Health Care: Reimburse employers for 80% of the cost of retiree health benefits in excess of $15,000 (up to $90,000) provided to retirees between the ages of 55 and 6l until 2014.
Common Sense Counsel: count the cost for your business and cast your vote in November for relief. Until then, every Alabama employer should update the benefit sections of their handbooks and ask your health care plan administrator for an explanation of how this law will effect your company.
Tommy Eden is a Lee County native, an attorney with the local office of Constangy, Brooks & Smith, LLP and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at firstname.lastname@example.org or 334-246-2901. Blog at www.alabamaatwork.com