Contingent Workforce Solutions

April, 2010 - Understanding Health Care Reform

Health care reform has been getting a lot of attention lately. We believe that the recent health care reform legislation could have a profound impact on the shift to more flexible work arrangements. While we anticipate a limited impact for the next couple of years, we believe the introduction of the Health Insurance Exchanges in 2014 will be the beginning of more individualized or portable healthcare programs. In anticipation of these changes, carriers may introduce more robust plans for individuals prior to the 2014 deadline, but we feel that change is coming and it serves to further liberate the "free agent nation". If these reforms reach their full potential, group health plan benefits could be extended to individuals through these exchanges which will relieve one of the last barriers for individuals seeking career independence. We believe employers will also be incented to support these trends as it will cause a reduction in the costs of employer sponsored benefits as individuals assume the costs on their own.

The following summary offers an outline of the health care reform legislation and critical milestones for implementation.

2010

Expanded Insurance Coverage

• Extended coverage for young adults: Group health plans and health insurance issuers offering group of individual health insurance coverage that provides dependent coverage of children must make coverage available for adult children up to age 26.  Effective March 30,2010, amounts spent on medical care for an eligible adult child can be excluded from taxable income.
• Access to insurance for uninsured individuals with pre-existing conditions: The health care reform bill provides for the establishment of a temporary high risk health insurance pool program to provide health insurance coverage for certain uninsured individuals with pre-existing conditions. The program will end when health insurance exchanges, set to be established in 2014, are operational.
• Identifying affordable coverage: The Secretary of Health and Human Services is required to establish an Internet website through which residents of any state may identify affordable health insurance coverage options in that state.
• Reinsurance for covering early retirees: The new law requires the establishment of a temporary reinsurance program to provide reimbursement to participating employment-based plans for a portion of the cost of providing health insurance coverage to early retirees and their spouses, surviving spouses and dependents.

Health Insurance Reform

• Eliminating pre-existing condition exclusions for children: Group health plans and health insurance issuers may not impose pre-existing condition exclusions on coverage for children. This provision will apply to all employer plans and new plans in the individual market. This provision will also apply to adults in 2014.
• Coverage of preventive health services: Group health plans and health insurance issuers offering group or individual health insurance coverage must provide coverage for preventive services.
• Prohibiting rescissions: Group health plans and health insurance issuers offering group or individual insurance coverage may not rescind coverage once the enrollee is covered, except in cases of fraud or intentional misrepresentation.
• Limits on lifetime and annual limits:  In general, group health plans and health insurance issuers offering group or individual health insurance coverage may not establish lifetime limits on the dollar value of benefits for any participant of beneficiary or impose unreasonable annual limits on the dollar value of benefits for any participant or beneficiary. 

Fees and Taxes

• Small business tax credit: The first phase of the small business tax credit for qualified small employers begins in 2010.  These employers can receive a credit for contributions to purchase health insurance for employees.  The credit is up to 35% of the employer’s contributions to provide health insurance for employees.  When health insurance exchanges are operational, tax credits will increase up to 50% of premiums.
• Indoor tanning services tax: One additional tax imposed by the health care reform law is a 10% tax on amounts paid for indoor sun tanning services.

2011

Expanded Insurance Coverage

• Voluntary long-term care options: The health care reform law creates a long-term care insurance program for adults who become disabled: Participation will be voluntary and the program is to be funded by voluntary payroll deductions to provide benefits to adults who become disabled.

Health Plan Administration

• Reporting health coverage costs on Form W-2: Employers will be required to disclose the value of the health coverage provided by the employer to each employee on the employee’s annual Form W-2.
• Cafeteria Plan changes: The new law creates a Simple Cafeteria Plan to provide a vehicle through which small businesses can provide tax-free benefits to their employees.

2013

Health Plan Administration

• Administrative simplification: Beginning in 2013, health plans must adopt and implement uniform standards and business rules for the electronic exchange of health information to reduce paperwork and administrative burdens and costs.
• Limiting Flexible Savings Account contributions: The new health care law will limit the amount of contributions to health FSAs to $2,500 per year, indexed by CPI for subsequent years.

Fees and Taxes

• Increased threshold for medical expense deductions: The health care reform law increases the income threshold for claiming the itemized deduction for medical expenses from 7.5% of income to 10%.
• Additional hospital insurance tax for high wage workers:The new law increases the hospital insurance tax rate by .9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly). The tax is also expanded to include a 3.8% tax on net investment income in the case of taxpayers earning over $200,000 ($250,000 for joint returns).
• Medical device excise tax: The law also establishes a 2.3% excise tax on the first sale for use of a medical device (excluding eye glasses, contact lenses, hearing aids and any device of a type that is generally purchased by the public at retail for individual use).

2014

Coverage Mandates

• Individual coverage mandates: The health care reform legislation requires most individuals to obtain acceptable health insurance coverage or pay a penalty, beginning in 2014. The penalty will start at $95 per person for 2014 and increase each year. The penalty amount increases to $325 in 2015 and to $695 (or up to 2.5% of income) in 2016, up to a cap of the national average bronze plan premium. After 2016, dollar amounts are indexed. Families will pay half the penalty amount for children, up to a cap of $2,250 per family.
• Employer coverage mandates: Employers with 50 or more employees that do not offer coverage to the employees will be subject to penalties if one employee receives a government subsidy for health coverage. The penalty amount is up to $2,000 annually for each full time employee, excluding the first 30 employees. Employers will be required to report to the federal government on health coverage they provide.

Health Insurance Exchanges

The health care reform legislation provides for health insurance exchanges to be established in each state in 2014. Individuals and small employers (less than 100 employees) will be able to shop for insurance through the exchanges. Large employers with over 100 employees are to be allowed in to the exchanges in 2017.

Health Insurance Reform
Additional health insurance reform measures will be implemented beginning in 2014. Specifically, health insurance companies will not be permitted to:

• Refuse to sell or renew policies due to an individual's health status;
• Exclude coverage for treatments based on pre-existing health conditions;
• Charge higher rates due to health status, gender or other factors;
• Impose annual limits on the amount of coverage an individual may receive; or
• Drop coverage because an individual chooses to participate in a clinical trial for cancer or other life-threatening diseases.

Fees and Taxes

• Individual health care tax credits: The new law makes premium tax credits available through the exchanges to ensure people can obtain affordable coverage.
• Small business tax credit: The second phase of the small business tax credit for qualified small employers will be implemented in 2014. These employers can receive a credit for contributions to purchase health insurance for employees, up to 50% of premiums.

2018

High-Cost Plan Excise Tax
A 40% excise tax is to be imposed on the excess benefit of high cost employer-sponsored health insurance. The annual limit for purposes of calculating the excess benefits is $10,200 for individuals and $27,500 for other than individual coverage.

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