Mid-Atlantic Health Law TOPICS

The Patient Protection and Affordable Care Act (PPACA), better known as federal Health Care Reform, contains a myriad of new programs and rules that affect employers, employees, health insurance plans and health care providers. This issue of TOPICS contains the second installment in our series highlighting some of PPACA's new programs and rules.

A. Early Retirees

PPACA creates a temporary reinsurance program for employment-based health plans that provide coverage to early retirees (retirees who are 55 and older but not yet eligible for Medicare). The program, funded with $5 Billion, reimburses participating employers for a portion of the cost of providing insurance to early retirees and to eligible spouses, surviving spouses and dependents of those retirees.

Plan sponsors are reimbursed for up to 80% of the cost of an eligible enrollee's benefits between $15,000 and $90,000. The reimbursements are not treated as income to the employers, and employers can use the money to lower the costs of their health plans - for instance, to reduce premiums, co-pays, and deductibles.

The program took effect in June 2010, and will last until the money runs out. Employers need to apply to the federal Department of Health and Human Services (HHS) to participate. Both self-funded and insured plans are eligible to apply. Participating employers must implement programs and procedures to generate cost-savings with respect to participants suffering from chronic and high-cost conditions.

B. Small Business Tax Credit

PPACA amends the Internal Revenue Code to provide an insurance tax credit for certain small businesses that contribute to the cost of health insurance for their employers. "Qualified small employers" are employers with no more than 25 FTEs whose average annual salary does not exceed $50,000.

The employers are qualified for a tax credit of up to 50% (35% in the case of tax-exempt employers which get a credit against payroll taxes) of the employer's contribution toward the cost of health insurance for its employees. The amount of the tax credit varies, depending on the size of the employer and the average salary of its employees.

C. The Donut Hole

Before the passage of PPACA, there was a gap in Medicare Part D prescription coverage for enrollees whose total annual drug spending fell between $2,830 and $6,440, known as the "donut hole." Under PPACA, this gap in coverage will be gradually closed.

The first step takes effect in 2010, when Part D enrollees are eligible for a $250 rebate to help cover prescription expenses they incur due to the gap in coverage. Effective 2011, a 50% discount on brand name drugs will become available, and additional discounts and generic drug coverage will be phased in for enrollees who would otherwise experience a gap in coverage due to the donut hole.

The new benefit will come at a cost to some employers. Employers that offer prescription drug coverage to retirees have been receiving a 28% tax-free subsidy from the federal government. That will end in 2013. In addition, such employers have been able to deduct the subsidy from their corporate income taxes. Beginning in 2013, the subsidy will no longer be deductible, although the benefit will remain non-taxable to employees.

D. New Requirements on Employers

PPACA imposes a number of diverse, new requirements on employers, including the following:

1. Nursing Mothers. PPACA amends the Fair Labor Standards Act to require employers to provide reasonable unpaid breaks for nursing mothers to express milk for their infants up to one year in age. Covered employers must also furnish a private space, other than a restroom, for mothers to express milk. The requirements do not apply to employers with fewer than 50 employees, if the requirements would impose undue hardship, difficulty, or expense on the employer.

2. Discrimination. PPACA also amends the Fair Labor Standards Act to prohibit employment discrimination against any employee who receives a credit or subsidy under PPACA, or who reports or provides information regarding an employer's violation of certain provisions of the law.

3. Automatic Enrollment. Borrowing a device used with 401(k) plans, PPACA requires employers with more than 200 employees to enroll new FTEs automatically in health coverage. If an employee does not want health insurance, the employee must affirmatively opt-out.

4. Reporting. There are a number of new reporting requirements for employers. Beginning in tax year 2011, employers must report the value of the benefit provided by the employer for each employee's health insurance coverage on the employee's W-2 form. This information must include the employer's contribution to health, dental, and vision coverage and any employer-contributions to health savings accounts.

Beginning in 2014, large employers must report various information to the government, including: whether the employer offers its FTEs employer-sponsored minimum essential coverage; if so, information about the availability, cost, and amount of the employer's contribution to such coverage; the number of FTEs; the names, addresses, and tax identifications of each FTE employee and the months during which the employee was covered.

Beginning in 2018, when the excise on "Cadillac plans" (plans with an annual premium that is greater than $10,200 for an individual or $27,500 for a family) takes effect, the employer must report to the government the amount of the excess benefit that is subject to that tax.

5. Disclosures. By March 2011, HHS is required to draft new standards for employers to provide enrollees with an accurate summary of benefits, and explanation of coverage. The standards are to be uniform in nature and presented in a "culturally and linguistically appropriate" manner, using language that is easily understood. By March 2012, health insurance issuers and plan sponsors of self-insured plans must provide summaries of benefits and explanations of coverage that comply with the new standards.

Beginning in 2014, employers will be required to notify employees about coverage options available through state exchanges and the employees' eligibility for premium tax credits or cost-sharing reductions, if the employer's premium contribution is less than a certain percentage (the subject of the next PPACA installment in TOPICS).