Health Care Reform – What this Means for Hawaii Employers
Last Updated: March 31, 2010
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act into law. Congress approved changes to the brand new law under a separate piece of legislation entitled the Health Care and Education Reconciliation Act of 2010, which was itself signed by the President on March 30, 2010. Both new laws together represent the vehicle that President Obama’s administration will use to reform health care in the United States. After almost a full year of debate, there was still a great deal of discord over the exact provisions in the reform package. In fact, even though both pieces of legislation passed, the votes were close. The Patient Protection and Affordable Care Act was passed by a vote in Congress of 219 to 212; its counterpart by a vote of 220 to 207.
The problem now lies in figuring out what this all means. The Patient Protection and Affordable Care Act is 2,409 pages long; its counterpart is 2,310 pages. The laws overlap and intersect with each other. The provisions of both are complex and are phased in over time, with timelines that differ between the two pieces of legislation. Some aspects of the reform are not due to go into effect until 2018. At the current time, 13 state attorneys general have filed lawsuits claiming the reform package to be unconstitutional. This is going to be a long process that will probably change a great deal over time.
The problem is even more complicated for Hawaii. In 1974, Hawaii became the first and only state in the U.S. to implement an employer-mandated health insurance program. With few exceptions, most Hawaii employers are required to provide health insurance benefits to employees who work at least 20 hours a week on a continuing basis. The amount that employees can be asked to contribute to these plans is strictly enforced by the Hawaii Prepaid Health Care Act. The plan designs, the levels of coverage, and important provisions such as pre-existing conditions and total available benefits are also regulated by the statute.
After much debate, the new federal legislation does not exempt Hawaii, however, Hawaii’s Prepaid Health Care Act is specifically preserved by a provision within the reform package. The idea seems to be that since Hawaii is already on the forefront in the field of employer-provided health care, its plans would not be rolled back to align with the new national standards. However, as the national standards increase over time, Hawaii would move forward with any new standards.
Although not all will be applicable in Hawaii immediately, the following are key provisions of the federal reform package that we feel will be most meaningful for employers. For more details, please see these links on the U.S. Senate’s website: (The Patient Protection and Affordable Care Act-Immediate Benefits) and (The Patient Protection and Affordable Care Act-Implementation Timeline).
Due to take effect immediately:
- Small-Business Tax Credits of up to 35% of premiums for health insurance paid by small employers who elect to offer coverage to their employees, provided that the average annual wages paid to their employees is below the established threshold.
- No Pre-Existing Coverage Exclusions for Children will be allowed in employer and new individual plans beginning 6 months after enactment of the law.
- Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition
- Extension of Coverage for Young Adults who must be allowed to stay on family policies until reaching the age of 26. This provision will apply to all individual plans, new employer plans, and existing employer plans if the young adult is not eligible for employer coverage. This goes into effect 6 months after enactment of the law.
- Coverage for Preventive Health Benefits must be provided in all new plans and exempts these benefits from deductibles starting 6 months after enactment of the law.
- No Lifetime Limits on Coverage will be allowed 6 months after enactment of the law.
- Protection from Plan Cancellation will be provided 6 months after enactment of the law and will stop insurers from rescinding insurance when valid claims are filed.
- Prohibits Discrimination based on Salary for all new group health plans who will not be allowed to establish eligibility rules for health care coverage that favor higher-wage employees.
Due to take effect in 2011:
- Standardized Definitions for Qualified Medical Expenses will be implemented such that qualified expenses under HSAs, FSAs, and HRAs will be the standardized.
- Taxes for Non-Qualified Medical Expenses Withdrawals from HSA and MSA Accounts will increase from 10 to 20%.
- Cafeteria Plan Changes will include the creation of a Simple Cafeteria Plan to ease administration for small employers.
- Health Coverage Costs on W-2s must be reported for each employee starting with tax years beginning after December 31, 2010.
Due to take effect in 2013:
- Limits Health FSA Account Contributions to $2,500 per year, indexed thereafter.
- Medicaid Payroll Tax for “High Wage” Workers will be increased by 0.9% on wages over $200,000 for an individual and $250,000 for married couples, and an additional 3.8% tax on net investment income for the same group of taxpayers.
Due to take effect in 2014:
- Elimination of Annual Limits in all health plans.
- Establishment of Health Insurance Exchanges in each state to allow individuals and small groups to comparison shop plans and administer tax credits.
- Individual Coverage Mandate will require most individuals in the U.S. to obtain “acceptable” health insurance coverage or pay a penalty. Lower-income individuals will receive a credit or voucher to help pay for their coverage.
- Employer Penalties will be assessed in the amount of $2,000 per employee on companies with 50 or more employees who do not offer coverage to their employees.
Due to take effect in 2018:
- Excise Tax on High-Cost Plans in the amount of 40% will be imposed on plans that are above the threshold of $10,200 for self-only coverage and $27,500 for family plans.
What should employers do?
Our best advice at the current time is for employers to avoid panicking. As mentioned above, it will be a long time before anyone truly understands all of the implications of these new laws, especially for Hawaii employers. However, we do recommend some immediate action items:
- Make sure you have a competent broker – While historically not a common practice in Hawaii, we recommend that your company consider using the services of a professional benefits consulting and brokerage firm. As the complexity of the health care industry increases, employers who try to deal directly with their insurance carriers are increasingly at a disadvantage. Keep in mind that typically, there is no cost to your company to use the services of a broker, who is compensated through commissions from the carriers. In fact, a good broker can possibly save you money in helping find just the right coverage for your company, in managing your relationship with your carriers, and in easing your administrative burden. Call us for a recommendation if you do not have a broker, or are looking to make a change.
- Audit your current plans – Many employers get “lazy” about their plan administration, allowing plans to be administered by their benefits department and rolling over from one year to the next. Either immediately, or at your next open enrollment period, have your broker assist you with a detailed review and analysis of your entire employee benefits package – medical, dental, life, disability, flex plans, 401(k), pension, etc. It is important to know exactly what you’re offering and what it’s costing.
- Communicate with your employees – Recognize that this topic is being broadcast extensively in the media. Some people are scared, others are upset. Let your employees know that you’re staying on top of the developments, and ensure them that Hawaii’s Prepaid Health Care Act has been preserved. If you take any of the above steps with regards to analysis and planning, let your staff know that you’re doing so.
- Talk to your Accountant – If you’re a small employer who could take advantage of the immediate tax credits, you’ll want to have your CPA confirm this for you. The timing and amount of these credits can help with the financial planning surrounding your current and future benefits packages.
As always, Vantaggio is here to help you not only with benefits, but any of your HR needs. Please call us if you require help with finding or changing brokers, handling your COBRA administration (Vantaggio HR’s COBRA Notice Kit), or in analyzing or administering any of your current benefit plans.