Understanding Key Provisions in Federal Health Care Reform

1/18/10 - Business Insurance - View Source

By Lauren Melesio

House and Senate negotiators now are working on a final agreement. While federal legislators the past three decades have passed numerous health care-related measures, none has come close in scope to the current reform legislation.

Roughly 30 million of the nation's 46 million uninsured would gain coverage, largely through federal health insurance premium subsidies. Insurance exchanges would be set up in every state where commercial insurers would compete to provide coverage to individuals and small employers.

Insurers would have to revamp their underwriting practices to eliminate, among other things, exclusions for pre-existing medical conditions.

For the first time, employers would face penalties if they do not offer coverage, and some health insurance plans may lose their tax-free status.

To help employers prepare for the changes, Business Insurance provides answers to frequently asked questions about the issues. View the Health Care Reform FAQ at www.businessinsurance.com.

Q: What is the status of the health care reform bills?

The House and Senate each have passed measures. Congressional negotiators are working to iron out differences between the two bills. If they reach an agreement, the full House and Senate must approve the package and the president must sign it to become law.

Q: How does the election of Republican Scott Brown in Massachusetts to fill the seat held by Sen. Edward Kennedy before his death last August affect the drive to pass health care reform legislation?

While there are many unknowns at this point, it clearly will force a change in legislative strategy. Once Mr. Brown takes office, Senate Democrats no longer will hold a filibuster-proof margin. That means if Senate Republicans stay united in opposition, they could block a bill that House and Senate negotiators agreed on. In response, Senate Democrats now are considering a variety of strategies, such as one in which the House would take up the measure the Senate passed in late December, with changes to the measure then inserted in a so-called budget reconciliation bill that legislators later would pass. Reconciliation bills only require a simple majority to win passage.

Q: But aren't there rules on what can be inserted into a reconciliation bill?

Yes. The provisions must have an impact on the federal budget. So, for example, an excise tax on costly health insurance plans could be inserted, but provisions that would establish state health insurance exchanges could not.

Q: How would the “Cadillac” health care plan tax work?

Under this provision addressed only in the Senate bill, health insurance premiums or equivalent premiums in a self-insured plan that exceed $8,500 for individual coverage and $23,000 for family coverage would be taxed. Thresholds for triggering the tax would be slightly higher for plans covering employees in certain high-risk industries, such as mining and construction, and plans covering early retirees. The Obama administration and organized labor, though, have reached a tentative agreement that would, among other things, lift the cost threshold, delay the time in which the cap would apply to collectively bargained plans and temporarily exclude noncore health care-related benefits, such as dental care, in calculating health care costs.

Q: When would the tax begin?

The tax would start in 2013 for most plans and in 2018—under the White House-labor agreement—for plans covered under collectively bargained agreements. In 2014 and succeeding years, the health care plan cost threshold would rise to match the annual increase in the Consumer Price Index plus one percentage point.

Q: Who would pay the tax?

Insurers and plan administrators would pay the tax, but they surely would try to recoup that new cost from employers.

Q: A comparable health care plan tax is not included in the House bill. With stiff opposition from organized labor, what is the likelihood of a health care tax cap being in the final agreement?

The probability is high, given support from President Barack Obama and that the tax is a key revenue source for funding health insurance premium subsidies for the uninsured.

Q: What would happen to FSAs under the legislation?

Employers could continue to offer FSAs, but the tax breaks provided by the arrangements would be curbed. Specifically, under the House bill, starting in 2013, the maximum annual contribution to an FSA would be capped at $2,500, while the $2,500 limit would begin in 2011 in the Senate bill. Current law does not impose a limit.

Under both measures, the $2,500 cap would rise in succeeding years to match annual increases in the CPI.

Q: What penalties would employers face if they do not offer health care coverage to their employees?

Under the House bill, the penalty would be 8% of pay for each employee not covered. Under the Senate bill, the penalty would be $750 per employee not covered.

Q: Does the Senate bill impose more penalties for employers whose coverage is considered to be “unaffordable"?

Yes. If the premiums assessed employees exceed 9.8% of their income and employees receive coverage through state health insurance exchanges, the employer would pay an assessment of $3,000 for each employee who receives coverage through an exchange, or $750 for each employee in their workforce, whichever is less.

Q: Would employers be required to give vouchers to employees who opt out of the employer plan to purchase coverage available through state health insurance exchanges?

The Senate bill has such a requirement, but the provision is written in such a way as to affect relatively few employers.

Among other things, employees would have to be lower-income and the premium contributions imposed by their employers would have to fall within a range of 8% to 9.8% of their income.

The value of the voucher would be what the employer would have paid participants under the plan option where the employer pays the biggest portion of the cost. The voucher would be provided tax-free to employees, but employees would be taxed on the difference between the value of the voucher and the cost of coverage they purchased through the state health insurance exchanges.

Q: Would the legislation extend the 65% federal COBRA health care premium subsidy for involuntarily terminated employees beyond Feb. 28, 2010?

Neither bill has a COBRA premium subsidy provision. However, the House bill would require employers to extend COBRA until the state health insurance exchanges were up and running in 2013.

Q: How would reform legislation affect a 2003 law that provides tax-free federal subsidies to employers whose retiree prescription drug plans are at least equal to Medicare Part D?

The subsidies would continue, but employers would be taxed on the subsidies under both bills.

Q: What changes would employers have to make to their retiree health care plans?

The House bill would bar employers from reducing coverage provided to pre-Medicare-eligible retirees unless they made comparable changes to plans covering active employees. The Senate bill does not include a comparable requirement.

Experts do not, however, expect the provision to be in the final bill due to fears that such a requirement would result in more employers terminating retiree health care coverage before such a requirement took effect.