Issue # 9:  July 15, 2010

The New Health Care Reform Law:
How Will it Affect Non-Profit Employers?

Background

The health care reform law, known as the Affordable Care Act (ACA)*, is the most significant law for people with disabilities since the enactment of the Americans with Disabilities Act (ADA).   It will bring about comprehensive reforms that will benefit Americans with disabilities by transforming our health care system to prohibit discrimination and to improve access, quality of care and affordability. It incorporates many of The Arc and United Cerebral Palsy’s major health and long term services and supports policy priorities for people with disabilities.

The law will also significantly affect other important groups, most notably uninsured individuals, employers, and health care providers. The many provisions impacting these groups will be phased in over the next several years and the federal agencies charged with implementing the various provisions will be developing regulations and guidance.

Chapters of The Arc and affiliates of UCP will continue to have numerous questions about the law in the coming months and years.  The Disability Policy Collaboration will be issuing a series of National Policy Matters to help answer these initial questions.  This first issue looks at the provisions that affect employers to help chapters of The Arc and affiliates of UCP understand what their responsibilities, options and benefits may be.  Specifically: 1) providing health insurance coverage for employees; 2) grandfathered plans; 3) small business tax credits;  4) free choice vouchers;  5) fraud and abuse by Medicaid providers; and 6) other employer provisions.    

1) Providing Health Insurance Coverage for Employees

Will all employers have to provide health insurance for their employees?

No.  The law does not require employers to provide health insurance for their employees.  However, large employers that do not provide any health insurance or do not provide affordable health insurance to their fulltime employees may face penalties.

How do I determine if I am a large employer?

A large employer has 50 or more Full Time Equivalents (FTEs).  Full time is 30 or more hours per week.  “Equivalents” means employers use a formula for determining whether they have 50 or more FTES that includes both full time employees and part time employees.  See examples of the employer size formula below.

Employer A – NOT a large employer

Employer B – a large employer

Large Employer Penalties

There are two types of penalties large employers might face, one for not offering health insurance coverage if certain conditions are met and one for offering unaffordable coverage. 

How is unaffordable coverage defined?

Health insurance is unaffordable if: 1) the employee’s required contribution for self-only coverage exceeds 9.5% of the employee’s household income; or 2) if the plan offered by the employer pays for less than 60% of covered expenses.

Are small employers subject to penalties? 

Small employers are not subject to penalties for not providing any health insurance or affordable health insurance for their employees.

What about part time employees?

You must count part time employees for the purpose of determining what size employer you are.  However, no employer (regardless of size) has to provide health insurance for their part time employees (those who work less than an average of 30/hours week).  There are also no penalties for employers if their part time employees obtain insurance through a health insurance exchange.

Will employers be penalized if they hire Medicaid beneficiaries?

No, employing a Medicaid beneficiary will not trigger penalties for non coverage or non affordability.  However when an employer calculates the FTEs they must include all employees receiving Medicaid.   

Are there penalty exceptions for vouchers?

Yes.  Large employers that provider vouchers are not subject to penalties for employees who receive premium tax credits or cost-sharing reductions for coverage in an exchange. It is also important to note that employees may keep difference between a voucher and the cost of coverage. (Vouchers are discussed in more detail later in this issue)

See diagram below to help determine if you might be subject to a penalty.

If I employ more than 200 full time employees are there any special requirements?

For employers with 200 plus employees who over health insurance coverage, they must auto enroll new employees and give notice that they can opt out.  This requirement could go into effect as soon as the Secretary of the Department of Health and Human Services (HHS) issues regulations.

2) Grandfathered Plans

Can employers keep their current health plan?

Yes. The ACA is intended to build upon our current system of employer based health insurance coverage.  It does try to provide incentives and penalties to encourage more employers to provide coverage and to keep employers from dropping coverage.

Plans in existence on March 23, 2010 are “grandfathered,” meaning that employers can continue to provide their current health care coverage.  To be considered grandfathered, a plan must continuously cover at least one person since March 23, 2010.  Grandfathered plans will NOT need to meet all of the consumer protections in the law, such as:

• covering prevention services with no cost sharing
• ensuring that an employee can see a pediatrician or OBGYN. 
• having guaranteed availability of coverage – This means that each health insurance issuer must accept every employer and individual in the State that applies for coverage, permitting annual and special open enrollment periods for those with qualifying lifetime events (i.e. birth, death, job changes of spouse etc.)   
• having guaranteed renewability of coverage – This means that insurers cannot use health status, utilization of health services or any other related factor when deciding about renewals.

What are the requirements for grandfathered plans?

There are a few requirements that all plans must meet.  All plans (grandfathered or not) must adhere to the following consumer protection requirements of the new law: no lifetime cap on benefits; no rescissions of coverage; extension of parents coverage to young adults (age 26); no coverage exclusion for children with pre-existing conditions and; no “restricted” annual limits.

What changes will be allowed for grandfathered plans?

Many employers may want to keep their grandfathered status in order to avoid some of the other requirements of the law. For that reason it is believed that most health insurance through large employers will not see major changes to their coverage.  The following routine changes will be allowed.

• Keeping pace with medical inflation;
• Adding new benefits;
• Modest adjustments to existing benefits; and
• Voluntarily providing new consumer protections

What changes would cause an employer to lose its plan’s grandfathered status? 

If employers changes health insurance companies they will lose their grandfathered status.  Employers will need to document the specifics of their health insurance coverage on March 23, 2010.  This will be the standard to make sure that any proposed changes do not significantly:

• raise co-insurance, co-payments or deductibles; 
• cut benefits; or
• reduce employers’ contributions.

Are employers required to tell employees if the plan is a grandfathered plan?

Yes.  Employers must include a statement in any plan materials describing the health coverage and stating the belief that the plan is a grandfathered plan and provide contact information for questions and complaints.  The regulations on grandfathered plans issued on June 17 included sample language: 

The following model language can be used to satisfy this disclosure requirement:

This [group health plan or health insurance issuer] believes this [plan or coverage] is a ‘‘grandfathered health plan’’ under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits. Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1–866–444–3272 or www.dol.gov/ebsa/healthreform. This Web site has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]

Are there protections for the employers from significant premium increases from insurance issuers? 

In general, regulating the private insurance market is a function of each state. The ACA provides $250 million in funding to states from 2010-2014 to assist states in reviewing and if appropriate under state law, approving premium increases for health insurance coverage.  As the various insurance reforms are phased in over the next few years, coverage is expanded and the health exchanges are introduced, we will have a very different health insurance landscape. Health insurers will have to be more transparent about justifying their premiums increases. To ensure premium dollars are spent primarily on health care, the new law generally requires that at least 85% of all premium dollars collected by insurance companies for large employer plans are spent on health care services and health care quality improvement.   For plans sold to individuals and small employers, at least 80% of the premium must be spent on benefits and quality improvement.  If insurance companies do not meet these goals because their administrative costs or profits are too high, they must provide rebates to consumers.  

3) Small Business Tax Credits

 Who is eligible for the Small Business Tax Credit?

Employers are eligible if they have 25 or fewer full-time equivalent employees (or fewer than 50 half time employees) AND average wages are less than $50,000 AND premium sharing meets certain standards (generally 50% of the health plan cost for employees).

Are non-profits eligible?

Yes, non profits may receive a small business tax credit against payroll taxes of up to 25% of the tax-exempt employer’s payment for employee health care for 2010-2013, and up to 35% for 2014-2015.  The credit will be applied against payroll taxes but special rules do apply.  For nonprofits the amount of credit cannot exceed the total amount of income and Medicare (i.e., hospital insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages.  The IRS has not yet determined how the non-profits will claim the credit. 

What should I do if I think I may be eligible for the credit?

The credit is available for tax year 2010.  The IRS has developed specific guidance on calculating the credit, determining full time equivalents and average wages, qualifying arrangements and other specifics.  If an affiliate or chapter thinks it may be eligible, it should carefully review the IRS guidance on the issues:
Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance

4) Free Choice Vouchers

What are free choice vouchers?

An employer that offers health coverage to its employees must provide free choice vouchers to each “qualified employee”.

What is a qualified employee?

Qualified employees for this program are employees:

• who do not participate in a health plan offered by their employer;
• whose share of the premium costs required under employer plan exceeds 8% but is less than 9.8% of their household income; and
• whose household income is less than 400% of the federal poverty level.

How large are the vouchers?

The amount of a voucher is equal to the largest portion of what an employer would have paid for the individual’s coverage in the employer sponsored plan.

Do employers have to pay penalties for lack of affordable coverage in addition to offering the free choice voucher?

Employers that provide vouchers are not subject to penalties for employees who receive premium tax credits or cost-sharing reductions for coverage in an exchange.

5) Fraud and Abuse Requirements

How does the law address fraud and abuse by Medicaid and Medicare providers?

Section 6402(a) of P.L. 111-148 requires any provider, supplier, Medicaid managed care organization, Medicare Advantage organization or prescription drug plan sponsor to report and return an overpayment from the Medicare or Medicaid program to the appropriate authority such as the Secretary of HHS, the state, a contractor or fiscal intermediary and provide written notification of the reason for the overpayment.

How is an overpayment defined?

An overpayment is defined as “any funds received or retained after appropriate reconciliation to which the entity or person is not entitled.” The overpayment must be paid within 60 days after it was identified or the date on which the corresponding cost report is due. The withholding of an overpayment past the 60-day deadline is classified as an “obligation” under the False Claims Act (FCA) and subjects the provider to potential FCA liability.  The new law also gives the Office of the inspector General authority to impose civil monetary penalties against a person who withholds repayment beyond 60 days.

There will likely be clarification as to when an overpayment should be considered to have been “identified.” Therefore, providers will have to develop new compliance strategies to ensure that they are not in possession of overpayments beyond the 60-day window. These will include policies for deciding when the 60-day clock should begin to run on an overpayment issue, and responding to situations where the audit work required to identify the specific claims that have been overpaid and the overpayment amounts cannot be completed within the 60-day window. 

When did this requirement go into effect?

This requirement went into effect on March 23, 2010

6) Other Employer Provisions

Are there any new administrative requirements related to vendors?

Beginning in 2012, the law will require all businesses and tax-exempt organizations to issue an IRS form called a 1099 to vendors from whom they buy goods totaling $600 or more annually. That will require thorough record-keeping. 

Do employers have other short term IRS requirements?

Beginning in 2011, employers must report the value of health coverage on the W-2 form.  The IRS has not yet issued guidance on this. In 2012 contributions to a health flexible spending account will be limited to $2500 per year, indexed in accordance with changes in the Consumer Price Index, starting in 2014.

Helpful Resources

IRS:  Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance

HealthCare.gov: http://www.healthcare.gov/foryou/employers/index.html

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*The Patient Protection and Affordable Care Act (P.L 111-148) as amended by the Health Care and Education Reconciliation Act (P.L. 111-152).