Surviving Health-Care Reform

(from Maine Townsman, May 2010)
by David Barrett, Director of Personnel Services & Labor Relations, MMA

In late March, the Congress passed the Patient Protection Affordable Care Act and the Health Care & Education Affordability Reconciliation Bill of 2010. Taken together, these laws represent the largest overhaul of the U.S. health-care delivery system in generations.

Clocking in at over 1,000 pages, the legislation starts to take effect this year and has other provisions that will be implemented between now and 2018. The reform is intended to eventually provide health-insurance coverage to 32 million individuals currently without coverage, slow the rate of increases in health-insurance premiums and is projected to lower the federal deficit by $140 billion over the first 10 years and $1 trillion dollars over 20 years.

The laws will have a significant impact on health-insurance plan design, new requirements on employers and new requirements for employees. Municipalities are considered employers and therefore many of the reforms will affect how municipal employers provide health-insurance benefits to employees.

The first effects of the legislation will be felt by the end of the year, as health insurance plans will have to be amended to include a number of new or modified provisions. From the perspective of an employer, these changes will be made by your insurance provider, but it will be important for each employer to make sure that their insurer complies and provides updated documents. These plan design changes:

• Prohibit dropping an individual’s coverage when they get sick.

• Prohibit pre-existing condition exclusions for children.

• Eliminate maximum lifetime limits on benefits and in 2014 eliminate annual limits on benefits paid to an individual.

• Require plans to allow dependent children up to their 27th birthday to stay on a parent’s plan.

• Require plans to cover preventative medicine and immunizations without cost-sharing.

• Require companies to provide effective appeal processes for insurance company decisions.

• Start closing the “doughnut hole” in the Medicare Part D prescription drug plan, and provide a $250 rebate for seniors who hit that limit in 2010.

• Provide a temporary high- risk insurance pool for people who are currently uninsured due to a pre-existing condition.

• Limit maximum out-of pocket expenses to $6,000 per year for an individual and $12,000 for a family.

Another major provision taking effect this year, which will not affect municipalities, is a tax credit for small businesses that provide health insurance coverage for their employees. This tax credit is only available to private employers or non-profit organizations. It is an income-tax credit for small businesses and a payroll-tax credit for non-profit corporations. Governmental entities are not eligible. This tax credit is being provided to help small business and non-profit organizations provide or continue to provide coverage for their employees.

Already in Maine

Several of the newly enacted provisions are already in effect as the State of Maine had previously restricted insurance companies from denying coverage for pre-existing conditions or excluding dependent children.

Stephen Gove, Director of the Maine Municipal Employees Health Trust, said the Trust is looking at the health-care reform legislation to identify all modifications the Trust will need to make to its existing plans to bring them in compliance. Once identified, the Health Trust Board of Trustees will vote to amend the plan and will notify employers and participants of those changes. Gove also said many of the provisions will be subject to additional rule making at the federal level and that the Trust will continue to monitor the rule making process.

There are significant new requirement on employers and, for the most part, municipalities are considered employers in this new legislation. First, the insurance policies that local governments provide to the employees, just like all employers, must meet the minimum standards. Some of those standards are the ones listed above. Second, local governments that already offer insurance will have to provide insurance to all workers – full-time or part-time.

For the purposes of this section, full-time employees are defined as persons working 30 hours or more per week. This employer mandate covers employers with 50 or more employees and takes effect in 2014. Municipalities, like any other employer, may decide not to provide insurance coverage for their employees. If the municipality does not provide a subsidy for employees to go out and get their own insurance, the municipality would be subject to the same penalties in place for any other employer – up to $3,000 annually per full-time employee.

Additional changes include a requirement that employers report the value of their health-insurance premium payment on each employee’s W-2 wage statement. This requirement starts for tax year 2011. If the municipality does its own payroll, it will have to include this information. If the municipality uses a payroll company, it must provide that information to the payroll company so it can be included.

There are a number of other provisions that employers will need to respond to, and they start taking effect in 2010 and continue to come online through 2017.

Employer Requirements 2010-2017:

2010: Employees may now enroll dependent children up to 26 years of age on their employer provided health-insurance plan. Employers should notify their employees of this option and enroll those who wish to be covered. These young adults will be considered dependents just like any other dependent child. The provision does not mandate any change in the portion of premium paid by the city or town for dependent coverage.

2011: As noted above, the value of the employer provided health-insurance needs to be added to the 2011 W-2 wage statement that all employees receive.

Also, employers who offer Health Savings Accounts (HSA) or Health Flexible Spending Accounts (HFSA) will need to notify employees that over-the-counter medicines and drugs will no longer be considered eligible expenses in employer-provided health plans. If the town’s HFSA or HAS is administered by an outside vendor, it will deny ineligible claims. If the HAS or HFSA is administered in house, it will be the town’s responsibility to appropriately classify eligible claims.

2013:The maximum amount of money an employee may set aside in a Health Flexible Spending Account to use to pay for reimbursement of qualifying medical expenses will be $2,500 per year, down from the current maximum of $5,000 per year.

2014: States will, by this time, have established health-care exchanges that will provide health-insurance plans for small employers, those defined as having less than 100 employees. These exchanges will be another option for employers to look at when deciding where to purchase health-insurance coverage for employees.

2014 also is the year that penalties kick in for employers with 50 or more full-time equivalent employees which do not offer health-insurance coverage. “Full-time equivalent” appears to be defined as an employee working 30 or more hours per week. Employers who do not provide coverage will be fined up to $3,000 annually per employee. Employers must also provide a free choice voucher for the purchase of health-insurance coverage for any employee earning less than 400 percent of the federal poverty level.

Employers with more than 200 employees will now be required to automatically enroll all employees in the employer’s health-insurance plan. Any individual employee may elect to opt out of the employer’s plan.

Many employers have waiting periods for new employees before they are permitted to enroll in the employer’s health-insurance plan. Effective this year, no waiting period can exceed 90 days and fines will be levied for waiting periods longer than 30 days. Employers should check their personnel policies or plan documents to ensure that the waiting period you have is what you want it to be.

While not an employer requirement, this is also the year that the individual health-insurance mandate kicks in. Individuals who elect not to be covered by any type of health-insurance plan will be assessed an annual amount. The assessment starts at $95 per year in 2014 and rises to $695 per year in 2016. Thereafter, the penalty is indexed to inflation.

2017: Employers with more than 100 employees may now opt to provide health insurance to employees through a state health-insurance exchange.

Many unknowns

There remains much to learn about the health-care reform effort. Much remains unknown as the federal agencies responsible for implementation of the effort start to issue rules and guidance on implementation.

What is clear is that, in the early stages, most of the changes will be in provisions that health-insurance companies must change or include in their health-insurance products. From an employer’s point of view, these changes should happen more or less automatically, without the need to take any action. As more time goes by, there are more specific changes that employers themselves will have to make.

MMA will continue to monitor health-insurance reform and will stay positioned to assist municipalities with the ongoing implementation of health-insurance reform.