As Massachusetts residents and business operators know,
then-Governor Mitt Romney signed into law the Massachusetts
Health Care Reform Act in 2006. In March 2010 President
Obama signed into law the federal Health Care and Education
Reconciliation Act of 2010 and the Patient Protection and
Affordable Care Act. Collectively, these two pieces of legislation
have become known as the new federal Health Care Reform
Act. This legislation is similar in a number of respects to the
insurance law that was enacted a few years ago in Massachusetts.
By passing this federal legislation, President Obama and
Congress indicated they were seeking to give medical coverage
to the more than 32 million Americans who presently do not
have health insurance. Using a carrot and stick approach,
the Act attempts to achieve its broad coverage objectives in a
number of ways by incentivizing and/or penalizing employers
who do or do not offer insurance coverage to their employees
and similarly penalizing employees who do not obtain
coverage – which is similar to the approach taken under the
Massachusetts law. Among the approaches employed by the Act
to increase the number of persons with health care coverage,
Congress uses favorable tax credits and creates “health insurance
exchanges.” Additionally, it penalizes employers that do not offer
affordable coverage to individuals, expands Medicare Part D,
and taxes so-called “Cadillac” health insurance plans.
While the most notable and costly aspects of the Act do not
go into effect until 2014 and beyond, there are a number of
provisions within the Act that took effect in 2010 and 2011. In
this article, I will briefly introduce the key concepts of some of
the most significant changes from 2010 and 2011. In reviewing
the following material, readers are asked to keep in mind that
the Act does provide that certain individual and group health
plans that were in effect on March 23, 2010 (the day Congress
voted on the law) are grandfathered and exempt from some
aspects of the law until one’s health plan is renewed or the
collective bargaining agreement to which the insurance relates
is terminated. Given the sheer volume of the Act(2600+ pages),
and given further its complexity and minute details, readers
are also reminded that there may be numerous nuances to one
or more of the below discussed aspects that are not addressed
in this very short article. There are also a few changes that take
effect in 2010 and 2011 but are believed to be of less relevance to
a small business audience and were accordingly not included.
TAX CREDIT FOR SMALL BUSINESSES
Under the Act, a small employer is considered to be one which
has twenty-five or fewer full time employees. Assuming one’s
company is small and further assuming the average salary of
those employees is $50,000 or less, one’s business is considered
to be a “qualified small employer” under the Act. Qualified small
employers are eligible to receive a tax credit of up to thirty-five
percent of the employer-paid portion of the premiums it pays
for the family or individual health insurance coverage it provides
its employees. The size of the credit turns on the precise size of
the business and the average salary of its employees. Whereas
many qualified small employers in Massachusetts are already
providing this coverage, this law represents a federal tax savings
to which the qualified small business can now realize a federal
tax savings. Qualified small employers should consult with their
CPA to determine the size of their particular tax credit.
MEDICARE PART D DONUT HOLE
While not of primary importance to business owners per se,
another change that went into effect on January 1, 2010 is a
closure of what is known as the Part D Prescription coverage
donut hole. The donut hole is aptly named because there is a gap
in prescription drug coverage for individuals on Medicare Part
D whose prescription spending is between $2830 and $6440.
Pursuant to the Act, persons enrolled in Part D are eligible for
a $250 rebate to put towards prescription costs which fall inside
the coverage gap.
NURSING MOTHER BREAKS
Employers who have fifty or more employees are required under
the Act to provide nursing mothers whose children are one year
old or younger “reasonable” length unpaid breaks to nurse their
infants and/or express milk for an infant child. The Act does
not define “reasonable” length nor does it enumerate how many
“reasonable” nursing breaks an infant’s mother can take in a
given work day. It does, however, require that the employer must
provide the mother a private location (other than a rest room)
where she may perform this act. Employers who have fewer
than fifty employees are expected to comply with the law so
long as doing so does not cause the employer undue hardship.
Practically speaking, a small business that has no extra space
will not be expected to materially reconfigure its office space or
add on to its lease space simply to accommodate this provision.
However, a small business which has an empty, rarely used
office would be expected to comply.
RETIREE REINSURANCE
While Medicare eligibility usually kicks in at age 65, many
employees often retire earlier than that. In recognition of
that reality, and likely in light of recent downsizing and early
retirement incentives being offered by companies, the Act
contains a temporary reinsurance program for employers
who offer health insurance to their pre-Medicare eligible
employees (those retirees between 55-64.) Plan sponsors who
offer health insurance to this group of retirees will be eligible
to be reimbursed up to eighty (80%) percent of the benefits
provided to the retiree so long as those benefits costs were
between $15,000-$90,000.
GREATER PATIENT RIGHTS
While Massachusetts health reform addresses some of the
same items referenced in the federal law, the federal law
provides that new health plans are precluded from requiring
women to receive prior approval or authorization before
seeing an OB/GYN. Similarly, new health plans may not
require prior approval before a participant in the plan goes
to an emergency room. Additionally, there are a number of
preventative health procedures for which the Act eliminates
the employee copayment. While the copayment may have
been removed, that does not mean that the insurance
company will not add the cost of what would have been the
deductible to the cost of the health plan’s annual premium.
EXPANSION OF COVERAGE ELIGIBILITY
FOR ADULT CHILDREN
Under the Act, adult children may remain on their parents’
health plan as a dependent until the age of twenty-six. There
are a few nuances to this coverage business professionals
should remain mindful. First, to remain eligible the adult
child needs be ineligible to receive coverage from his or her
employer. This means that an adult child who works and
whose employer offers insurance cannot refuse the coverage
in lieu of a lower cost of remaining on his or her parents’
health plan. Second, while the law does ensure that eligible
adult children can continue to get coverage through their
parents plan, the adult child’s children and/or spouse, if any,
are not entitled to coverage under their spouse’s parents’
health plan. As such, it is possible that a young parent would
be on his parents’ health plan while his wife and children do
not have any insurance coverage.
ELIMINATION OF THE PRE-EXISTING
CONDITION EXCLUSIONS
Massachusetts is one of the only states in the United States
that presently prohibits health plans from excluding coverage
for preexisting conditions the insured had before he or she
got on the health plan. The federal Act seeks to mimic that
exclusion by applying a two-phased approach. Initially, plans
may not exclude pre-existing conditions of children under
nineteen years of age. Thereafter, beginning in 2014, health
plans may not exclude against preexisting conditions of
anyone else either. Elimination of Coverage Rescission Due
to Claims Filed Prior to the passage of the federal Act, some
insured individuals were concerned that their coverage would
cease if they filed too many claims against the insurance
company. Under the new legislation, health plans will be
prohibited from rescinding an insured’s coverage regardless
of the number of claims that individual may or may not file.
The only time a health company can unilaterally rescind
health plan coverage will be where the insured has committed
fraud against the insurance company or has intentionally
misrepresented material facts related to one or more aspects
of his or her claim
QUALIFYING MEDICAL EXPENSE (QME)
DEFINITION
As part of the revision of the definition, over-the-counter
medical supplies and medications are no longer covered
under HSA, FSA or HRA medical savings accounts. As such,
employees should keep that in mind when making their
annual monetary elections into their HSA, FSA, or HRA
accounts.
HEALTH CARE COVERAGE EXPENSES
MUST BE ON W2’S
Beginning in tax year 2011, employers must include in
their employees’ W2’s the value of the health care provided
by the employer. While not presently a taxable entry, the
government is seeking this information, presumably, to assess
the relative values of employer provided health care.
MEDICARE PART D “DONUT HOLE”
Much attention has been given to the so-called Medicare
“donut hole.” While there are other changes of note, one of the
most significant is that there will be a 50% discount available
on brand-name drugs purchased by affected individuals.
SMALL EMPLOYER SIMPLE CAFETERIA PLANS
Employers with fewer than 100 employees in each of the
preceding two years may establish “simple” cafeteria plans.
While there are many nuances, affected small employers may
provide tax free benefits to their employees and will have
fewer administrative hurdles doing so than presently exist in
regular cafeteria plans.
CONCLUSION
This article very briefly touched upon the key aspects of
importance to business owners and operators. As time passes
and various aspects of the legislation become more familiar
to business owners and insurance advisors, etc., they will
invariably develop all necessary plans to best comply with
the Act and implement its provisions. In the meantime, I
suggest that business owners engage their accountant to make
sure that they best maximize any potential tax savings for
complying with the law. I also suggest small business owners
speak with their insurance broker to make sure that the plan
his or her company offers timely complies with all mandatory
aspects of the new Act.
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