Apr 27, 2010

Health Care Reform for Employers and Employees

I put it off as long as I could, but I finally had to start doing some research on how the new health care reform bill, signed last month, will affect employers and employees. Many of the larger changes in the bill -- such as expanding Medicaid to cover more people, removing limits on coverage, creating health insurance exchanges where insurance can be purchased, and requiring people to either purchase insurance or pay a fine -- have been fairly well-publicized. There has been less coverage of how the law will affect employers and employees.

One set of changes determines the coverage and limits in health care plans. Although these changes will have to be made by the insurance companies themselves, employers will have to make sure the plan(s) they select meets the requirements -- and may have to pay a higher price for it. (Although existing group health plans can be "grandfathered," they still must incorporate some of these changes.) These changes include:

  • Adult children must be treated as eligible dependents until they reach the age of 26.
  • Health plans must not include lifetime or annual dollar limits on coverage.  
  • Exclusions for pre-existing conditions must be eliminated.
  • Out-of-pocket costs may not exceed a set maximum.

Another set of changes is specific to employment. For example:

  • Employers must report the cost of employer-sponsored coverage on each employee's W-2 form.
  • Small businesses (with up to 25 employees) will be eligible for a tax credit if they pay at least half of employees' health care premiums.
  • Group health plans may not discriminate in favor of highly compensated employees.
  • Employee deferral contributions to flexible spending accounts (FSAs) will be capped at $2,500, subject to inflation. Penalties for nonqualified distributions from these accounts will be increased, and deferred money may no longer be used to pay for over-the-counter drugs unless they are prescribed to the employee.
  • Employers must provide breast feeding breaks to nursing mothers during the year after the child is born, and must provide a private place (that isn't a bathroom) for this purpose.
  • Larger employers must automatically enroll employees in the company's group health plan; employees who don't want to participate must opt out.

Then there's that "play or pay" provision. The law doesn't require employers to offer health care coverage. However, it creates penalties for employers that don't provide coverage or that provide less generous benefits. Here's basically how it works:

  • Employers that have more than 50 employees and don't offer coverage must pay an annual fine of $2,000 per full-time employee (those working at least 30 hours a week). The first 30 employees are "free"; the fine begins with employee number 31.
  • Even employers that offer coverage may face a penalty if the employer doesn't pay for at least 60% of the actuarial value of the benefits the plan provides or the employee's cost for coverage is more than 9.5% of the employee's household income. In this situation, a full-time employee would be eligible to receive government-subsidized coverage -- and, if this happens, the employer would have to pay a penalty of $3,000 per full-time employee who receives the subsidy, up to a limit.
  • Employers must offer a voucher to employees who (1) earn less than 400% of the federal poverty line, (2) would have to pay more than 8% of their income for employer-provided coverage, and (3) choose to enroll in a plan from an exchange. The voucher requires the employer to pay what it would have paid to enroll the employee in its own plan.

Want to know more? Check out Nolo's article Health Care Reform: What Employers and Employees Need to Know.