Beyond the headlines: Some Things To Plan for In Federal Health Care Reform Implementation
March 23, 2010
Federal health care reform started with two essential goals: lowering the cost of health care coverage and expanding the availability of coverage. "Bending the cost curve" seemed to take on less importance as the debate progressed than did bringing more of the uninsured under the coverage umbrella.
The bills passed by the House will open Medicaid coverage to many more in the country, raising eligibility thresholds to levels New Yorkers have had had for a number of years. Additionally, there are a number of provisions designed to help small employers and individuals who, unlike large employers, generally have little bargaining power in the market for health insurance, including credits and insurance exchanges. Given the significant number of existing mandates on health plans in NYS — set at the state level — it remains unclear whether small businesses in NY will fully realize the cost savings and benefits anticipated in the federal insurance exchanges.
Because this reform approach has a primary emphasis on bringing more into coverage, this bill fails to really fix the underlying cost drivers of health care coverage, including malpractice reform, in any meaningful way. The major revenue sources in the Reconciliation Agreement derive 48% of payments from increasing the Medicare tax on high income individuals; and 26% of their revenues from fees on the health industry. It anticipates 11% of the overall revenue being generated from the Cadillac plan tax and 8% from individuals. In the long-term, this legislation is more likely to increase costs for NY employers as the cost drivers were not significantly addressed within the context of this bill.
One thing is clear: employers of all sizes will need to put a heavy emphasis on revising the design of the benefit plans they offer to avoid being subject to some of the provisions in the bills including the excise taxes on "Cadillac" plans and penalties or additional taxes for employees opting out of coverage. Additionally, new reporting to the IRS on plans and their benefit thresholds will add additional reporting burdens to most employers. Finally, employers will need to be much more informed on their employees' personal circumstances to assure compliance with items ranging from the new Medicare tax on higher wage earners, to the subsidies available for individuals at the lower end of the wage spectrum.
Congress is going to have to return to health care reform to address issues like Medicare and Medicaid spending if they intend to constrain the growth in health care costs. This bill doesn't appear to do that in any meaningful way. Public programs such as Medicaid and Medicare pay providers at levels less than the actual cost of providing the care. Hospitals, doctors and nursing homes have been and will continue to have to make up that difference through private health insurance plans. The expansion of coverage to new people in public programs will likely exacerbate that balance of payments.
Some details of the health reform plan:
- Employers with over 50 full-time employees (defined as working more than 30 hours per week) will be forced to offer coverage or pay a $2,000-per-employee fee; the first 30 employees are not counted in the payment calculation) . Businesses will also face a $3,000-per-employee fine if the coverage they offer is deemed “unaffordable” for employees (if the employee opts-out and gets a subsidy in the exchange). This means that an employer with low-income employees who offers comprehensive, affordable coverage could nevertheless be fined just as much as an employer who offers no coverage at all. It is estimated that 219,961 businesses could be subject to the employer mandate. The percentage of employees employed by businesses which could be subject to the employer fine is projected to be 26.4 million workers or 22 percent of the entire private-sector workforce.
- Corporations with assets of at least $1 billion must deposit $8 billion in higher estimated tax payments in 2014, meeting fiscal targets for the first five years. But the corporations’ actual taxes would be unchanged; the money would need to be refunded the next year. The net effect is simply to shift dollars from 2015 to 2014.
- The bills budgeted for $53 billion in anticipated higher Social Security taxes to offset health care spending. Social Security revenues are projected to rise as employers shift from paying for health insurance to paying higher wages.
- One of the largest risks for all businesses, is that the Congressional Budget Office expects the cost of the new entitlement spending aimed at coverage expansion in the Senate bill - the premium subsidies in the exchanges and the expansion of Medicaid - to reach about $200 billion by 2019 and then grow at a rate of 8 percent every year thereafter. In other words, this new health entitlement spending is expected to escalate just as rapidly as Medicare and Medicaid have in the past.
- Small employers defined in this bill as those with 100 or fewer employees will be allowed to adopt new "simple cafeteria plans” which are conceptually similar to simple 401(k) plans in current law.
- Beginning in 2011, W-2 statements must include the aggregate cost of employer sponsored health benefits; if the employee receives coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage but exclude contributions to Health Savings Accounts.
- Beginning in 2013, Any large employer subject to rules for maintaining minimum essential coverage must file a return that identifies the employer; certifies whether it offers to its full-time employees the option to enroll in a minimum essential coverage plan; provides the number of full-time employees during each month of the calendar year; and information identifying each full time employee covered under the employer provided health plan. If the employer certifies to offering coverage, it must report additional information relating to the cost and availability of that coverage. Governmental units are subject to the same reporting requirements.
- This also authorizes the Treasury (IRS) to disclose to Health and Human Services relevant individual income tax return information used for determining eligibility for premium tax credits, cost sharing reductions and participation in a state Medicaid program, CHIP, etc.
Some requirements on employer plans:
- Must notify employees upon hire about the exchanges and the possibility that employees may be eligible for a tax credit, as well as any loss in employer contributions toward the employee’s health benefits if the employee purchases health insurance through an exchange.
- Employers that contribute toward the costs of health coverage must make the employer contribution available as a voucher that certain employees could use to purchase insurance through an exchange (vouchers are only required for employees whose contribution toward the plan would be between 8% and 9.8% of their income and whose household income is less than 400% of Federal Poverty Level). The entire amount of the voucher is deductible by the employer and, to the extent used to purchase insurance through an exchange, nontaxable to the recipient.
- Prohibition against lifetime limits.
- All plans offering dependent coverage allow unmarried children to remain covered under a parent’s plan through age 26 (NY already has this insurance mandate with an age cap of 29).
- Beginning in 2014, plans will be prohibited from imposing annual out of pocket limits that exceed the maximum Health Savings Account contribution.
- All annual limits will be prohibited effective in the 2011 plan year.
- Employers with more than 50 employees, as noted above, will be required to report whether they offer their full-time employees and dependents health coverage, the length of the waiting period, the lowest cost option in each enrollment category, the employer’s share of the total allowed costs of benefits, and the number and names of covered employees.
- Effective in the 2011 plan year, the bill establishes a new internal and external review procedure for claims determinations.
- The new excise tax on employers’ group health plans (40%) may force design changes. The tax kicks in 2018 under the Reconciliation Agreement and is based on the total cost of benefits provided under the plan regardless of how those costs are allocated among the employer and the employee. Avoiding the excise tax will require plan design changes as opposed to just shifting some or all of the premium cost to employees.