On March 23, 2010, President Obama signed the health care reform bill, or Affordable Care Act (ACA), into law. ACA makes sweeping changes to the U.S. health care system. ACA's health care reforms, which are primarily focused on reducing the uninsured population and decreasing health care costs, will be implemented over the next several years. 

EXPANDED INSURANCE COVERAGE

• Extended Coverage for Young Adults. Group health plans and health insurance issuers offering group or individual health insurance coverage that provide dependent coverage of children must make coverage available for adult children up to age 26. There is no requirement to cover the child or spouse of a dependent child. This requirement applies to grandfathered and non-grandfathered plans. However, grandfathered plans need not cover adult children who are eligible for other employer-sponsored coverage, such as coverage through their own employer, until 2014.
  
  ACA also added a new tax provision related to health insurance coverage for these adult children. Effective March 30, 2010, amounts spent on medical care for an eligible adult child can generally be excluded from taxable income.
  
  Note: A "grandfathered plan" is one in which an individual was enrolled on March 23, 2010. A plan will retain its grandfathered status even if covered individuals renew their coverage after March 23, 2010, family members are added to coverage or new employees (and their families) enroll for coverage. A health plan will lose its grandfathered status if there are significant cuts to benefits or increases in participants' out-of-pocket spending. Grandfathered status is significant because many ACA reforms do not apply to grandfathered plans.
• Access to Insurance for Uninsured Individuals with Pre-existing Conditions. The health care reform law created a temporary high-risk health insurance pool program, called the Pre-existing Condition Insurance Plan (PCIP) to provide health insurance coverage to individuals who have been uninsured for at least six months because of a pre-existing condition. The program will end in 2014, when the health insurance exchanges are scheduled to be operational.
• Identifying Affordable Coverage. As required by ACA, the Department of Health and Human Services (HHS) established an Internet website - www.healthcare.gov - through which residents of any state may identify affordable health insurance coverage options in their state. The website also includes information for small businesses about available coverage options, reinsurance for early retirees, small business tax credits, and other information of interest to small businesses. So-called "mini-med" or limited-benefit plans are precluded from listing their policies on this website.
• Reinsurance for Covering Early Retirees. ACA established a temporary reinsurance program to reimburse 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. This program was designed to end on Jan. 1, 2014, or earlier, if the $5 billion in funding was exhausted. Due to the program's popularity, it closed to new applications effective May 5, 2011. In early December 2011, HHS announced that, because the program had already provided more than $4.5 billion in reimbursements, it would not accept reimbursement requests for claims incurred after Dec. 31, 2011. 

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 under age 19. This provision applies to all employer plans and new plans in the individual market. This provision will also apply to adults in 2014.
• Coverage of Preventive Care Services. Group health plans and health insurance issuers offering group or individual health insurance coverage must provide coverage for certain preventive care services without cost-sharing (for example, deductibles, copayments or coinsurance). Grandfathered plans are exempt from this requirement.
• Prohibiting Rescissions. The health care reform law prohibits rescissions, or retroactive cancellations, of coverage, except in cases of fraud or intentional misrepresentation. Also, plans and issuers must provide at least 30 days' advance notice to the enrollee before coverage may be rescinded. This provision applies to all grandfathered and non-grandfathered plans.
• Lifetime and Annual Limits. Group health plans and health insurance issuers offering group or individual health insurance coverage may not impose lifetime limits or unreasonable annual limits on the dollar value of essential health benefits. This requirement applies to all plans, although plans were allowed to request a waiver of the annual limit requirement through HHS. The annual limit waiver program closed to applications effective Sept. 22, 2011. All annual limits will also be prohibited beginning in 2014.

HEALTH PLAN ADMINISTRATION

• Improved Claims and Appeals Process. Group health plans and health insurance issuers offering group or individual health insurance coverage must implement an effective process for benefit claims and appeals of coverage determinations. A plan's or issuer's internal claims and appeals process must comply with the claims procedure regulation issued by the Department of Labor (DOL) in 2001. In addition, ACA requires plans and issuers to:
  • Have an internal claims and appeals process in effect that provides claimants with a full and fair review;
  • Provide information to claimants in a culturally and linguistically appropriate manner in some situations;
  • Comply with additional content requirements for denial notices; and
  • Continue to provide coverage to a claimant pending the outcome of the appeals process.

A grace period for some of ACA's additional claims and appeals requirements was provided until plan years beginning on or after Jan. 1, 2012. Plans and issuers must also implement an external review process that meets applicable state or federal requirements.

• Nondiscrimination Rules for Fully Insured Plans. Fully insured group health plans will have to satisfy nondiscrimination rules regarding eligibility to participate in the plan and eligibility for benefits. These rules prohibit discrimination in favor of highly compensated individuals. This reform does not apply to grandfathered plans. This requirement was set to take effect for plan years beginning on or after Sept. 23, 2010. However, it has been delayed indefinitely pending the issuance of regulations. The regulations will specify the new effective date.

MEDICARE/MEDICAID

• Rebates for the Medicare Part D "Donut Hole." Currently, there is a coverage gap, or "donut hole," in most Medicare Part D plans. Once the plan and participant have paid $2,930 in total drug costs ($2,970 for 2013), the participant is in the coverage gap. The coverage gap ends when the participant has spent $4,700 ($4,750 for 2013) out of pocket for drug costs in a calendar year. For 2010, ACA provided a $250 rebate check for all Medicare Part D enrollees who entered the donut hole. Starting in 2011, the health care reform law provides discounts on brand-name drugs and generic drug coverage in the donut hole. The donut hole gap will be filled by 2020.
• Medicaid Flexibility for States. States are given an option under the health care reform law to cover additional individuals under Medicaid. States will be able to cover parents and childless adults up to 133 percent of the Federal Poverty Level (FPL).

FEES AND TAXES

• Small Business Tax Credit. The first phase of the small business tax credit for qualified small employers began in 2010. Eligible employers can receive a credit for contributions to purchase health insurance for employees. The credit is up to 35 percent of the employer's contribution to provide health insurance for employees. There is also up to a 25 percent credit for small tax-exempt organizations. When the health insurance exchanges are operational, the tax credits will increase, up to 50 percent of premiums.
• Indoor Tanning Services Tax. An additional tax imposed by the health care reform law is a 10 percent tax on amounts paid for indoor sun tanning services.

EXPANDED INSURANCE COVERAGE

• Community Living Assistance Services and Supports Program (CLASS Act). ACA created a voluntary, long-term care insurance program for disabled adults. Although the program was technically effective Jan. 1, 2011, significant portions were not required to be established until 2012. On Oct. 14, 2011, the CLASS Act's implementation was suspended due to concerns about the program's fiscal sustainability and affordability.

HEALTH PLAN ADMINISTRATION

• Improving Medical Loss Ratios. Health insurance issuers offering group or individual health insurance coverage (including grandfathered health plans) must annually report on the share of premium dollars spent on health care and provide consumer rebates for excessive medical loss ratios. 
• Standardizing the Definition of Qualified Medical Expenses. ACA changed the definition of "qualified medical expenses" for health savings accounts (HSAs), health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) to the definition used for the itemized tax deduction. This means that expenses for over-the-counter (OTC) medicines and drugs may not be reimbursed by these plans unless they are accompanied by a prescription. There is an exception for insulin. Also, OTC medical supplies and devices may continue to be reimbursed without a prescription.
• Cafeteria Plan Changes. ACA created a simple cafeteria plan to provide a vehicle through which small businesses can provide tax free benefits to their employees. This plan is designed to ease the small employer's administrative burden of sponsoring a cafeteria plan. The provision also exempts employers who make contributions for employees under a simple cafeteria plan from certain nondiscrimination requirements applicable to highly compensated and key employees.

MEDICARE/MEDICAID

Medicare Part D Discounts. In order to make prescription drug coverage more affordable for Medicare enrollees, ACA provided a 50 percent discount on all brand-name drugs and biologics in the "donut hole." It also began phasing in additional discounts on brand-name and generic drugs to completely fill the donut hole by 2020 for all Part D enrollees.

Additional Preventive Care Services. ACA provided a free, annual wellness visit and personalized prevention plan services for Medicare beneficiaries and eliminated cost-sharing for preventive care services beginning in 2011.

FEES AND TAXES

• Increased Tax on Withdrawals from HSAs and Archer MSAs. The health care reform law increased the additional tax on HSA withdrawals prior to age 65 that are not used for qualified medical expenses from 10 to 20 percent. The additional tax for Archer MSA withdrawals not used for qualified medical expenses also increased from 15 to 20 percent.

HEALTH INSURANCE REFORM

• Additional Preventive Care Services for Women. Beginning in 2010, non-grandfathered group health plans and health insurance issuers offering group or individual non-grandfathered health insurance coverage were required to provide coverage for preventive care services without cost-sharing requirements. Effective for plan years beginning on or after Aug. 1, 2012, the required preventive care services include specific services for women, including contraceptives and contraceptive counseling. Exceptions to the contraceptive coverage requirement apply to religious employers.

EXPANDED INSURANCE COVERAGE

• Community Living Assistance Services and Supports Program (CLASS Act). As noted above, the CLASS Act, which would have created a voluntary long-term care insurance program for disabled adults, was technically effective Jan. 1, 2011. However, significant aspects of the program, such as enrollment and premium payment rules, were to be established in 2012. Implementation of the CLASS Act was suspended on Oct. 14, 2011 due to concerns on fiscal sustainability and affordability.

HEALTH PLAN ADMINISTRATION

• Uniform Summary of Benefits and Coverage. All non-grandfathered and grandfathered health plans must provide a uniform summary of the plan's benefits and coverage to participants. The summary must be written in easily understood language and is limited to four double-sided pages. Any mid-year changes to the information contained in the summary must be provided to participants 60 days in advance. ACA indicated that plans would be required to start providing the summary by March 23, 2012, but this deadline was pushed back.
Plans and issuers must start providing the summary by the following deadlines:

• Issuers must provide the summary to health plans effective Sept. 23, 2012;
• Plans and issuers must provide the summary to participants and beneficiaries who enroll or re-enroll during an open enrollment period starting with the first day of the first open enrollment period that begins on or after Sept. 23, 2012;
• Plans and issuers must provide the summary to participants who enroll for coverage other than through an open enrollment period (for example, newly eligible individuals and special enrollees) starting with the first day of the first plan year that begins on or after Sept. 23, 2012.
• Reporting Health Coverage Costs on Form W-2. ACA requires employers to disclose the value of the health coverage provided by the employer to each employee on the employee's annual Form W-2. This requirement was effective, but optional, for the 2011 tax year and is mandatory for later years for most employers. This requirement is optional for small employers (those filing fewer than 250 Form W-2s) at least for the 2012 tax year and will remain optional until further guidance is issued. Employers that file at least 250 Forms W-2 must comply with this reporting requirement for 2012 (for W-2 Forms that must be issued by the end of January 2013) and future years.
• Medical Loss Ratio Rebates. Sponsors of fully insured plans will receive rebates by Aug. 1, 2012 if they qualify for a rebate from their health insurance issuers due to the medical loss ratio (MLR) rules. The MLR rules require insurance companies to spend a certain percentage of premium dollars on medical care and health care quality improvement, rather than administrative costs. Any portion of a rebate that is a plan asset must be used for the exclusive benefit of the plan's participants and beneficiaries. This may include, for example, reducing participants' premium payments.

FEES AND TAXES

• Comparative Effectiveness Research (CER) Fees. Effective for plan years ending on or after Oct. 1, 2012, issuers and sponsors of self-insured health plans must pay CER fees to fund health care research. The CER fees do not apply for plan years ending on or after Oct. 1, 2019. Thus, for calendar year plans, the CER fees will be effective for the 2012 through 2018 plan years. For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the research fee is $1 multiplied by the average number of lives covered under the plan. The fee goes up to $2 for plan years ending on or after Oct. 1, 2013 and before Oct. 1, 2014, and will be indexed for future years. CER fees must be reported and paid by July 31 of each year, and will generally cover plan years that end during the preceding calendar year. The first possible due date for paying CER fees is July 31, 2013.

HEALTH PLAN ADMINISTRATION

• Administrative Simplification. Beginning in 2013, health plans must adopt and implement uniform standards and operating rules for the electronic exchange of health information to reduce paperwork and administrative burdens and costs. For example, effective Jan. 1, 2013, health plans must comply with HHS's operating rules for electronic health care transactions regarding eligibility for health plan coverage and health care claim status.
• Limiting Health Flexible Savings Account Contributions. Effective for plan years beginning after Dec. 31, 2012, ACA limits the amount of salary reduction contributions to health FSAs to $2,500 per year, indexed by CPI for subsequent years.
• Employee Notice of Exchanges. By March 1, 2013, employers must provide a notice to employees regarding the availability of the health care reform insurance exchanges. HHS has indicated that it plans on issuing model exchange notices in the future for employers to use.
• HIPAA Certification. By Dec. 31, 2013, employers with group health plans must certify that their plans comply with certain HIPAA rules on electronic transactions. HHS intends to issue more guidance on this requirement in the future. 

FEES AND TAXES

• Eliminating Deduction for Medicare Part D Subsidy. Currently, employers that receive the Medicare Part D retiree drug subsidy may take a tax deduction for their prescription drug costs, including costs attributable to the subsidy. The deduction for the retiree drug subsidy will be eliminated in 2013.
• Increased Threshold for Medical Expense Deductions. ACA increases the income threshold for claiming the itemized deduction for medical expenses from 7.5 percent of income to 10 percent. However, individuals over 65 would be able to claim the itemized deduction for medical expenses at 7.5 percent of adjusted gross income through 2016. 
• Additional Medicare Tax for High Wage Workers. ACA increases the Medicare hospital insurance tax rate by 0.9 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 percent tax on net investment income in the case of taxpayers earning over $200,000 ($250,000 for joint returns). 
• Medical Device Excise Tax. ACA establishes a 2.3 percent excise tax on the first sale for use of a medical device. Eye glasses, contact lenses, hearing aids, and any device of a type that is generally purchased by the public at retail for individual use are exempted from the tax.
• CER Fees. For plan years ending on and after Oct. 1, 2012 and before Oct. 1, 2019, self-insured plans and issuers must pay fees per covered life. The initial fee is $1 per covered life, increasing to $2 per covered life for plan years ending on or after Oct. 1, 2013 (and adjusted annually for later plan years). The first possible payments are due on July 31, 2013.

COVERAGE MANDATES

• Individual Coverage Mandates. ACA 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 percent 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. Individuals may be eligible for an exemption from the penalty if they cannot obtain affordable coverage.
  • Legal challenges to the health care reform law have focused on whether Congress had the constitutional authority to enact the individual coverage mandate.
  • On June 28, 2012, the U.S. Supreme Court addressed these legal challenges and upheld the individual coverage mandate as constitutional. This means that the mandate will go into effect in 2014 as planned, unless it is repealed by Congress.
  • Employer Coverage Requirements. Employers with 50 or more employees that do not offer coverage to their employees will be subject to penalties if any 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 who offer coverage, but whose employees receive tax credits because the coverage is unaffordable or does not provide minimum value, will be subject to a fine of $3,000 for each worker receiving a tax credit, up to an aggregate cap of $2,000 per 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

ACA provides for health insurance exchanges to be established in each state in 2014. Individuals and small employers will be able to shop for insurance through the exchanges. Small employers are those with no more than 50 employees. If a small employer later grows above 50 employees, it may still be treated as a small employer. However, states may limit employers' participation in the exchanges to businesses with up to 50 employees until 2016. Large employers with over 100 employees are to be allowed into the exchanges in 2017.

States have three options with respect to their exchanges. They can (1) establish and run a state-based exchange, (2) have HHS establish a federally facilitated exchange (FFE) for their residents or (3) partner with HHS so that some FFE functions can be performed by the state.

The health care reform legislation provided that workers who qualified for an affordability exemption to the coverage mandate, but did not qualify for tax credits, could use their employer contribution to join an exchange plan. This requirement is known as the "free choice voucher" provision. The federal appropriations bill signed by President Obama on April 15, 2011, eliminated the free choice voucher provision from health care reform.

HEALTH INSURANCE REFORM

Additional health insurance reform measures will be implemented beginning in 2014.

• Guaranteed Issue and Renewability. Health insurance issuers offering health insurance coverage in the individual or group market in a state must accept every employer and individual in the state that applies for coverage and must renew or continue to enforce the coverage at the option of the plan sponsor or the individual.
• Pre-existing Condition Exclusions. Effective Jan. 1, 2014, group health plans and health insurance issuers may not impose pre-existing condition exclusions on any covered individual, regardless of the individual's age.
• Insurance Premium Restrictions. Health insurance issuers in the individual and small group markets will not be permitted to charge higher rates due to heath status, gender or other factors. Premiums will be able to vary based only on age (no more than 3:1), geography, family size and tobacco use. The rating limitations will not apply to health insurance issuers that offer coverage in the large group market unless the state elects to offer large group coverage through the state exchange (beginning on or after 2017). Also, these restrictions do not apply to grandfathered coverage.
• Nondiscrimination Based on Health Status. Group health plans and health insurance issuers offering group or individual health insurance coverage (except grandfathered plans) may not establish rules for eligibility or continued eligibility based on health status-related factors.
• Nondiscrimination in Health Care. Group health plans and health insurance issuers offering group or individual insurance coverage may not discriminate against any provider operating within their scope of practice. However, this provision does not require a plan to contract with any willing provider or prevent tiered networks. It also does not apply to grandfathered plans. Plans and issuers also may not discriminate against individuals based on whether they receive subsidies or cooperate in a Fair Labor Standards Act investigation.
• Annual Limits. Restricted annual limits will be permitted until 2014. However, in 2014, the plans and issuers may not impose annual limits on the coverage of essential health benefits. 
• Excessive Waiting Periods. Group health plans and health insurance issuers offering group or individual health insurance coverage will not be able to require a waiting period of more than 90 days.
• Coverage for Clinical Trial Participants. Non-grandfathered group health plans and insurance policies will not be able to terminate coverage because an individual chooses to participate in a clinical trial for cancer or other life-threatening diseases or deny coverage for routine care that they would otherwise provide just because an individual is enrolled in such a clinical trial. 
• Comprehensive Benefits Coverage. Health insurance issuers that offer health insurance coverage in the individual or small group market will be required to provide the essential benefits package required of plans sold in the health insurance exchanges. This requirement does not apply to grandfathered plans.
• Limits on Cost-Sharing. Non-grandfathered group health plans will be subject to limits on cost-sharing or out-of-pocket costs. Out-of-pocket expenses may not exceed the amount applicable to coverage related to HSAs and deductibles may not exceed $2,000 (single coverage) or $4,000 (family coverage). These amounts are indexed for subsequent years. Proposed guidance on this requirement indicates that the limits will apply to plans and issuers in the small group market only and not self-funded plans or plans in the large group market.
• Risk-spreading Mechanisms. The health care reform law includes reforms related to the allocation of insurance risk through reinsurance, risk corridors and risk adjustment. The purpose of these reforms, which become effective in 2014, is to protect against risk selection and market uncertainty as insurance changes and the health insurance exchanges are implemented. Under reinsurance program, which will operate from 2014 through 2016, health insurance issuers and third party administrators (TPAs) will be required to make contributions based on a federal contribution rate established by HHS. States may collect additional contributions on top of the federal contribution rate.

EMPLOYER WELLNESS PROGRAMS

Under health care reform, the rules for employer wellness programs will be changed slightly. Existing wellness regulations under HIPAA permit wellness incentives of up to 20 percent of the total premium, as long as the program meets certain conditions. Under health care reform, the potential incentive increases to 30 percent of the premium in 2014 for employee participation in the program or meeting certain health standards. Employers must offer an alternative standard for those employees whom it is unreasonably difficult or inadvisable to meet the standard. Following a governmental study on wellness programs, the incentive may be increased to as much as 50 percent.

FEES AND TAXES

• Individual Health Care Tax Credits. ACA makes premium tax credits available through the exchanges to ensure people can obtain affordable coverage. Credits are available for people with incomes above Medicaid eligibility and below 400 percent of poverty level who are not eligible for or offered other acceptable coverage. The credits apply to both premiums and cost-sharing.
• 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 percent of premiums.
• Health Insurance Provider Fee. The health care reform law imposes an annual, non-deductible fee on the health insurance sector, allocated across the industry according to market share. The fee does not apply to companies whose net premiums written are $25 million or less.

• Employer Coverage Requirements. Employers with 50 or more employees that do not offer coverage to their employees will be subject to penalties if any 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 who offer coverage, but whose employees receive tax credits because the coverage is unaffordable or does not provide minimum value, will be subject to a fine of $3,000 for each worker receiving a tax credit, up to an aggregate cap of $2,000 per full-time employee (excluding the first 30 employees). Employers will be required to report to the federal government on health coverage they provide.

HIGH COST PLAN EXCISE TAX

A 40 percent excise tax is to be imposed on the excess benefit of high cost employer-sponsored health insurance. This tax is also known as a "Cadillac tax." The annual limit for purposes of calculating the excess benefits is $10,200 for individuals and $27,500 for other than individual coverage. Responsibility for the tax is on the "coverage provider" which can be the insurer, the employer or a third-party administrator. There are a number of exceptions and special rules for high coverage cost states and different job classifications.

Reporting the Value of Employer Sponsored Coverage on W-2s - Compliance requirements are for the number of filed W-2s, not the number of employees.

• Tax years beginning January 1, 2012 going forward
• Beginning in 2012, the IRS requires employers issuing more than 250 W-2s in 2011 to report the aggregate cost of employer-sponsored coverage on an employee's W-2 form for the 2012 tax year (2012 W-2s are issued in January 2013). Employers issuing less than 250 W-2s may be required to report this information in the future but the compliance timeframe is still pending.
• Even though compliance for employers issuing less than 250 W-2s has been delayed it is possible the IRS may require these employers to report for 2013 (W-2s issued in January 2014).You should check with your payroll provider to understand how they will provide you the ability to track this information.