The health care reform act is officially upon us. On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, and on March 30th the President signed the Health Care & Education Reconciliation Act. Together, these two bills make up the highly-publicized health care reform act.
At the outset, it is significant to note that the Act does not necessarily address the cost of health care by establishing guidelines or limits. Rather, the Act addresses access to health care. The Act generally operates to require all individuals not covered by Medicare or Medicaid to either obtain health insurance or pay a penalty.
The Act, which consists of over 2,500 pages of text and which is soon to be supplemented by thousands of pages of guidance and regulations, has been the subject of countless media discussions and debates. The fanfare, information, and disinformation have made it difficult for the average person to understand precisely how the Act will impact them. Unfortunately, much of how the Act will impact the health insurance landscape is yet to be determined. Nevertheless, here are some of the Act’s general provisions, some of which are effective immediately, with others having delayed effective dates:
- Prohibition of lifetime benefits limits based on dollar amounts.
- Prohibition of coverage rescissions or cancellations, except in cases of fraud or intentional misrepresentation.
- Mandating that dependent insurance coverage up to the age of 26.
- Prohibition of pre-existing condition exclusions for dependent children under the age of 19.
- Requirement that employers report the value of health care benefits on employee’s W-2 tax statements.
- Limitation on medical expense contributions to flexible spending accounts to $2,500 per year.
- Establishment by each state of an insurance exchange where individuals who are not covered under their employer’s health insurance plan can shop for health insurance at competitive rates.
While many of the Act’s provisions appear straightforward, some of the provisions may bring about unintended consequences. For example, the Act provides that effective 2014, employers with more than 50 employees must provide health insurance or pay a fine of $2,000 per worker each year if any worker receives federal subsidies to purchase health insurance.
Clearly, the Act’s intent is to encourage such employers to provide health insurance to their workforce. However, employers focusing on the bottom line may discover that it is cheaper to pay the fine than it is to provide health insurance. In such cases, employees may be left without insurance coverage and employers may end up benefitting financially despite the fine.
Another possible avenue for manipulation involves the manner in which the Act deals with tax credits for small employers. Since the amount of the tax is dependent on the size of the employer and the average annual wage of its workforce, it is possible that some employers may let the tax credit dictate its hiring activities and the manner in which the employer determines the wages of its workforce. Since some of the tax credits are based in part on the average annual wage of an employer’s workforce, employers may choose to keep salaries within the range in order to preserve the tax credit. Moreover, employers may elect to use the services of independent contractors, rather than employees, in order to preserve the maximum tax credit.
Additionally, the Act includes an excise tax on employer sponsored health insurance plans that offer policies with generous levels of coverage. This so-called “Cadillac tax,” which becomes effective in 2018, imposes a 40% tax for any health insurance plan with an annual premium in excess of an inflation adjusted $10,200 for individuals and $27,500 for families. Unfortunately, the practical consequence of this tax may be the elimination of higher quality insurance for executive or key employees.
Regardless of one’s views of the Act’s provisions or the manner in which an employer may elect to operate in light of its terms, it is important for businesses to maneuver through the new law and stay ahead of any changes. By understanding the Act’s implications, it is possible to ensure future success under the new health insurance landscape.
At Setnor Byer Insurance & Risk, we are committed to helping our clients navigate the coming changes and to provide our clients with complimentary answers to their questions. If any of our clients have any questions regarding the Act, contact us.