National Health Care Reform Legislation Signed Into Law
On March 30, 2010, President Obama signed the Health Care and Education Reconciliation Act of 2010 (H.R. 4872), which modified the Patient Protection and Affordable Care Act (Public Law 111-148) passed by Congress and signed by the president last week. Together, these two new laws make national health care reform a reality. For health care providers, insurance companies, employers and, of course, individuals, the new law will significantly change the way health care is delivered and managed throughout the country. In the coming weeks and months, we will post commentary and materials to help clients and friends interpret and comply with health care reform.
Whatever one's political inclinations, most commentators agree that the passage of comprehensive health care reform certainly represents a major legislative achievement and ushers in a potentially revolutionary change in the way health care services and benefits are provided in this country. Most of the changes in law highlighted here will take effect for any given health plan as of the first plan year beginning on or after September 23, 2010. However, as described below, many changes (including some of the most significant ones) will be phased in over time. In addition, a considerable amount of guidance will be published by HHS and other federal agencies involved in the interpretation and enforcement of these sweeping new laws.
The scope of the changes in law set in motion by the health care reform legislation far exceeds the limitations of this space, but highlights include the following:
Mandated Preventive Care Benefits. Health plans must provide preventive care without cost sharing, and cover certain child preventive services. Plans (1) must allow enrollees to select their primary care provider (pediatrician in the case of a child) from available participating providers; (2) may not require prior authorization or increased cost-sharing for emergency services; and (3) may not require authorization or referral to an obstetrician-gynecologist. (Grandfathered plans escape this requirement.)
Rescission Prohibited. A group health plan may not rescind coverage for individuals enrolled under the plan except in cases where the individual engaged in material fraud or misrepresentation.
Coverage and Pre-Existing Condition Restrictions. Group health plans must eliminate lifetime dollar limits on the value of essential health benefits, to be defined by regulations. In addition, beginning in 2014 plans may not: impose restricted annual dollar limits on the value of essential health benefits or limit coverage for pre-existing conditions for any individual. Moreover, beginning in 2014, coverage waiting periods exceeding 90 days will be banned.
Coverage for Adult Dependents. Group health plans (both fully-insured and self-funded) must extend coverage to employees' dependents up to age 26 if the dependent is not eligible to enroll in another group health plan. (Prior to 2014, "grandfathered plans" are required to offer coverage only to such dependents who are not eligible for other employer-sponsored health coverage.)
Non-Discrimination Rules for Insured Plans. The rules that have historically prohibited discrimination in favor of highly compensated participants under self-funded group health plans will apply to fully-insured plans.
Health Flexible Spending Accounts, Health Reimbursement Accounts, Health Savings Accounts. Beginning in 2011, the cost of over-the-counter drugs (except insulin) will no longer be reimbursable expenses for employees under health FSAs, HRAs and HSAs without a doctor's prescription. In addition, the tax on HSA withdrawals taken prior to age 65 that are not used for reimbursement of health care expenses will be increased from 10% (the current rate) to 20%. In 2013, a $2,500 cap (indexed for inflation) on contributions to health FSAs will go into effect.
Small Business Tax Credit. Effective for the 2010 tax year, businesses with 25 or fewer employees and average annual wages of less than $40,000 are eligible for a credit of up to 50% of non-elective contributions made on behalf of their employees for insurance premiums. Tax-exempt organizations are entitled to a 35% credit against payroll taxes. Employers with 10 or fewer employees and average wages of less than $20,000 per employee (indexed after 2013) will receive 100% of the credit; the credit is phased out, up to the 25-employee limit.
Retiree Health Care Coverage. The law provides employers with a limited financial incentive to continue retiree coverage. Beginning 90 days after enactment, a temporary $5 billion government fund will be put in place to reimburse employers for 80 percent of each claim falling between $15,000 and $90,000 for retirees age 55 through 64 or dependents of active employees who are not Medicare-eligible.
Cost Accounting Reports/Medical Loss Ratio Requirements. By January 1, 2011, health insurance issuers and self-insured plans must begin to report to HHS the percentage of premiums used to pay medical claims as opposed to plan administrative expenses. In the case of the large group market, if the ratio of costs expended on medical-related coverage or other activities to increase health and wellness to the total amount of revenue is less than 85%, the plan would be required to provide an annual rebate to each enrollee on a pro rata basis.
Grandfathered Plans. Importantly, a group health plan that was in effect on March 23, 2010 may be considered a "grandfathered plan" exempt from many of the mandates contained in the new rules. The scope of this protection is not entirely clear, and the manner in which grandfathered status for plans may be preserved is still to be determined. Future agency guidance is expected to establish the parameters of this exception and address the treatment of grandfathered plans in detail.
Much More Guidance to Come. The passage of the Affordable Care Act and the Reconciliation Act is just the beginning of health care reform. Three agencies have regulatory and enforcement responsibility for the implementation for PPACA – IRS, DOL and HHS – and all three agencies are expected to issue guidance interpreting the new law in the coming months and years. We will follow developments in health care reform that relate employee benefit plans and will update this blog from time to time to share our thoughts regarding those developments.