By: Larry Morgan, MAIR, SPHR, GPHR
Hanratty & Associates

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act were passed in March 2010 and provide new guidelines for employers and health care insurers. The Health Care Reform Act is complex and many of the changes will be phased in over the next several years.

The following is a guide to help navigate the initial health care changes. As items are likely to change through technical corrections and further clarification, we’ll focus on the most significant items that will take effect in the next few years. This article will address key changes between now and 2012 and should not be viewed as a comprehensive listing.

Existing plans are “grandfathered”
As of March 23, 2010, all plans that were in existence are “grandfathered” for certain provisions. Immediate changes may not be required, although compliance down the road must occur. Collectively bargained plans that were in existence as of March 23 are also grandfathered, although the employer and union may jointly agree to modify terms prior to the expiration date.  Therefore, existing plans (as of March 23) may maintain current coverage levels until the first of plan year (generally January 1) to make any changes.

Plans may lose their “grandfathered status” if the changes to the plan significantly alter the current benefits with items such as:

• Elimination of all or substantially all benefits to diagnose or treat a particular condition
• Increases to an individual’s percentage coinsurance requirements
• Increases in fixed dollar cost-sharing such as deductibles and out-of-pocket expense items
• Increases in copayments in excess of the greater of the rate of medical inflation plus 15 percentage points or $5 as adjusted for medical inflation
• Decreases in the employer contribution of the cost of any tier of coverage by more than 5 percent of this contribution in effect on March 23, 2010
• Certain changes to lifetime and annual benefit changes that would adversely affect plan participants

Dental and vision coverage
The health care changes do not impact “stand-alone” dental and vision plans. If a dental or vision plan is integrated within the medical plan, it may be included with these changes.

What’s in effect right now?
Here are some changes that employers should be aware of that went into effect when the plan was enacted on March 23, 2010. These changes also affect grandfathered plans unless noted.

• Based on a federal tax law change, Minnesota and Wisconsin employers no longer have to charge imputed income to employees covering non-dependent children to age 26 as of March 30, 2010.If desired, employers may voluntarily allow employees to bring children onto plans regardless of student, tax dependent or marital status now. However, grandfathered plans do not have to cover adult children until 2014 if they are eligible for coverage through their employer’s own plan.Employers may need carrier approval, although most major carriers have already agreed to allow this. If allowed, this change requires notification to employees and a 30-day enrollment period.
  In the past, in order to be covered, dependents had to qualify under Section 152 of the tax code, which required children to be financially dependent, live at home at least five months during the year or be a full-time student if over age 19. Under the recent changes, tax dependency and student status are no longer required. Section 152 was not modified, but Section 105 of the tax code was changed to provide tax-preferred treatment.

  It is important to note that spouses of children and grandchildren do not qualify unless the grandchild qualifies as a tax dependent under Section 152. This can become complex based on individual tax circumstances. Consultation with a tax expert may be required.

  Adding children to the plan based on this change is also viewed as a qualifying event (the IRS allows midyear changes if they meet certain criteria such as marriage, birth or adoption, divorce, death, loss of job, etc). Employees are allowed to adjust their flexible spending account contributions within 30 days of this change, provided the contribution change is related to the addition of the child.

  A new program will provide reinsurance for age-qualified persons for claims between $15,000 and $90,000 until 2014. This affects retirees ages 55-65 who are not eligible for Medicare. It is likely that the allocated funds will be spent prior to 2014.

• Small businesses may qualify for tax credits to assist with medical care if they employ 25 or fewer employees and contribute 50 percent or more of the cost of coverage. The tax credit may be up to 35 percent of the company’s contribution toward health care. A full tax credit is available for 10 or fewer employees if average wages are less than $25,000.
• Persons currently on Medicare Part D prescription plans may receive a $250 rebate from the federal government to assist in covering the “donut-hole” gap in coverage until 2014. No action is needed by employers on this issue.
• A “high risk pool” for persons otherwise uninsured and who have pre-existing conditions will be established until 2014. This program will provide an additional safety net for persons that otherwise may not be eligible for coverage.  No action is needed by the employer on this program.
• While already in place within Minnesota statutes, employers in all states must provide a reasonable break time and private location — other than a restroom — for employees to express breast milk for one year after a child’s birth. No wage payment is required for time not worked.

What happens in fall 2010?

• As mentioned above, dependent coverage changes with plan years following Sept. 23, 2010. Health care plans are now required to extend the age limit of children of employees up to age 26 if this action was not performed earlier. For most employers, this will be Jan. 1, 2011. Eligibility is extended to children, regardless of tax-dependent status.Employers may voluntarily allow children on the plan through the calendar year in which they attain age 27 and not subject the employee to imputed income.A parent’s employer’s group health plan is not required to offer coverage to a child who has group health coverage available through the child’s employer. This exception changes in 2014, when group health plans will have to offer coverage to children to age 26 regardless of the child’s eligibility for coverage through the child’s employer.Coverage does not extend to the spouse of a child or the employee’s grandchild.
• Employers should review W-2 data fields with payroll providers to ensure that they may meet the requirement for health care costs to be reported, effective Jan. 1, 2011.
• Employers should notify employees of a change to flexible spending accounts effective January 1, 2011. (See note below under Jan. 1, 2011.)

What happens with the first plan year following Sept. 23, 2010?
Several changes go into effect once the plan renews or is modified (as defined earlier under the grandfathering provisions). The following are some of the significant changes:

1. Plans cannot deny coverage based on pre-existing conditions for children under age 19.
2. Emergency services must be covered at “in-network” levels.
3. Lifetime limits on dollar value of coverage are prohibited.
4. Insurers are prohibited from rescinding coverage except for cases involving fraud or an intentional misrepresentation of material facts.
5. Plans must provide minimum coverage required for checkups and preventative care (no copayments or other cost-sharing may be allowed). NOTE: Under current Minnesota law, minimum coverage levels are generally required and this will not be a significant change.

Jan. 1, 2011

1. Effective as of calendar year 2011, employers must track the employer and employee health care contributions for reporting on W-2 statements. This includes medical, dental, vision and applicable HRA payments. This does not subject the employee to additional taxation. This will not affect most employees until January 2012 when W-2s are released for tax year 2011. An employee who terminates early in 2011 may request the W-2 upon termination.
2. Flexible Spending Account administration will be modified effective Jan. 1, 2011, as employees are no longer allowed to claim over-the-counter medications unless accompanied with a doctor prescription. Other non-prescription items, such as Band-Aids, contact lens solution, etc. are still allowed (a full list of allowable expenses exists on the IRS website). Prescribed medication and Insulin continue to be eligible for reimbursement.
3. A new long-term care program called Community Living Assistance Services and Support (CLASS) will be provided as a national, voluntary insurance program. This will be a 100 percent employee-paid, salary-reduction program. The plan will pay $50 per day for community living expenses if the participant is too disabled for normal daily activities. As details are disclosed, employers may need to establish a new paycheck entry field to allow for pretax deductions and data feeds to the program.
4. HSA distributions not used for qualified medical expenses will have a taxation rate change from 10 percent to 20 percent.

This is just a review of the major changes from the health care reform bills. Employers must be aware of upcoming changes and monitor issues as they may be subject to change.

Submitted By:

Larry Morgan, MAIR, GPHR, SPHR
HR Advisor
Hanratty and Associates
v 763-746-7861
f 763-746-7841
c 952-210-0742
larrym@hanrattyassoc.com
www.hanrattyassoc.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.