Health care reform: key health insurance changes in 2010

The Patient Protection and Affordable Care Act (PPACA) was passed on March 23, 2010.  At about 2700 pages long, it is one of the most far-reaching laws passed in the United States in many decades.  It will take many years to be implemented.  While many of the entities and processes called for by PPACA are yet to be defined and executed, we do know about the key changes taking place in late 2010 and on the horizon in 2011 and 2012.  Our focus in this post is on what business owners, CFOs, Controllers, and Human Resource Managers need to know to navigate the new landscape created by the early years of health care reform.

The US Department of Health and Human Services has launched a site for health care reform information.  While it has been criticized by some for its overtly political tone, it does contain a great amount of information on the new law, including a nice timeline on healthcare reform.

IRS Tax Credit for Small Businesses

Starting in tax year 2010, certain small businesses that offer employer sponsored health insurance will be eligible for a tax credit from the IRS.  Businesses must have less than 25 employees and an average salary under $50,000.  Owners, partners, sole proprietors, and their family members are not considered employees for the purpose of the credit.  Their income doesn’t count towards the average salary when determining eligibility.  Nonprofits can also qualify for the credit.

The tax credit will be administered on a sliding scale, with the largest credit going to the smallest employers with the lowest salaries.  In 2010, the maximum credit will be 35% of the employer’s annual health insurance premium expense for employees.  By 2014, that maximum will be raised to 50% of the employer’s annual health insurance premium expense for employees.  For more information and examples, visit the IRS Tax Credit FAQ site.

Small business owners and executives should be sure to consult their tax professionals to determine if their business is eligible for the tax credit and, if so, to file for it with the IRS.

Tanning Tax

No, we couldn’t make this up.  For anyone paying to use a tanning bed, starting July 1, 2010, a 10% excise tax went into effect on such tanning services.  While this won’t impact most administrators of corporate health plans, it can certainly provide entertainment.  The health care reform took a surreal turn this summer when “Snooki,” a character on MTV’s hit reality series “Jersey Shore,” found her way into the debate.    The IRS, working to keep up with new media, launched a YouTube video of their own on the tanning tax.

Major Provisions Taking Effect September 23, 2010

September 23 is the six-month mark since the signing of PPACA into law.  This is the date for which many important provisions take affect.  Most of these provisions impact new as well as existing plans.  Some only impact new plans, leaving grandfathered plans out of certain requirements.

Provisions Impacting ALL Plans:

• Elimination of lifetime maximums (annual maximums are also being phased out)
• No rescissions of coverage when people get sick and have made unintentional mistakes on applications
• Allowing dependent children to remain on health plans through age 26 (many carriers have already implemented this provision)
• Removal pre-existing conditions exclusions for children under 19

Provisions Impacting New (Non-Grandfathered) Plans:

• Coverage for preventive services with no cost sharing for the insured.  See http://www.healthcare.gov/law/about/provisions/services/lists.html for more information.
• Establishes an appeals process for consumers with an external review process
• Handling all emergency services as in-network regardless of the provider

The bill also earmarks funding for risk pools to insure people that cannot find health insurance due to pre-existing conditions.  These risk pools go into effect in 2010.

What is a Grandfathered Plan?

Grandfathered plans are not subject to some of the regulation described above, and therefore might not face rate hikes as steep as newer plans.  For a plan to be considered grandfathered it must not:

• Significantly cut or reduce benefits (for certain conditions)
• Increase cost-sharing requirement (coinsurance)
• Increase copayments by more than $5 or medical inflation plus 15%
• Increase deductibles by more than medical inflation plus 15%
• Decrease employer premium contribution by more than 5%
• Add or tighten annual limits on coverage
• Change carriers

The Department of Health and Human Services estimates that by 2013 49% to 80% of small employer plans and 34% to 64% of large employer plans will lose grandfathered status.  Moreover, many carriers intend to phase out grandfathered plans due to the administrative burden they will face carrying both grandfathered and non-grandfathered plans.