Health Insurance Reform Bills
President Obama signed into law the Patient Protection and Affordable Care Act (PPACA; Pub. L. No. 111-148), on March 23, as passed by the Senate.
Health Care and Education Reconciliation Act of 2010 (HCERA; Pub. L. No. 111-XXX) – was signed into law on March 30.
The Act expands health care coverage to 31 million currently uninsured Americans through a combination of cost controls, subsidies and mandates. It is estimated to cost $848 billion over a 10 year period, but would be offset by new taxes and revenues.
All individuals not covered by Medicaid or Medicare would be required to obtain health care coverage or pay penalties. Lower-income individuals and some middle-class families, would receive a credit or voucher to help pay for health insurance. Employer provided coverage would generally satisfy the coverage requirement although employers electing not to offer qualifying coverage could be subject to an additional tax to help finance the health care coverage for their employees.
Employer provided health – W2 reporting
Employers would need to begin reporting the total value of employer-provided health insurance coverage on employees’ Forms W-2, effective for tax years beginning in 2011, filed in 2012.
Expanded information reporting on Form 1099-MISC
The general information reporting requirements regarding services provided to a trade or business are modified. The exception for payments to corporations is eliminated. In addition, the class of payments for which information reporting is required is expanded to include gross proceeds for both property and services. The current regulatory exception for payments to tax-exempt organizations is not affected. The changes will take effect for payments made after December 31, 2011.
Flexible FSA deferral limits
The health care package limits health FSA contributions at $2,500 per year effective for tax years beginning after December 31, 2012 (annually indexed for inflation after 2013).
Non-medical HSA reimbursements penalty
Tax on distributions from an HSA that are not used for medical expenses is increased from 10% to 20% effective for distributions made during tax years starting after December 31, 2010.
Definition of ‘medical expenses’
The definition of “medical expense” for FSAs, HSAs and HRAs with respect to medicines is conformed to the definition used for medical expense itemized deduction (excluding over-the-counter medicines prescribed by a healthcare professional). This changes the current rule allowing such reimbursements for nonprescription drugs if the plan provides for it. Restrictions that prohibit the use of FSA funds to buy nonprescription medicines go into effect January 1, 2011.
Medicare tax increase on high earners
The Medicare tax rate increases from 1.45% to 2.35% on wages earned over $200,000 for single filers and $250,000 for joint filers ($125,000 for a married individual filing separately). Employers will be directed to withhold the increased amount from all workers with wages exceeding $200,000, regardless of the marital status claimed on their Form W-4. This provision is effective for taxable years after December 31, 2012.
Medicare tax on investment
The HCERA further imposes a 3.8% Medicare tax on the net investment income of individuals with a modified adjusted gross income over $200,000 ($250,000 for joint filers).
Adoption assistance programs
The maximum amount of the income exclusion for employer-provided adoption assistance is increased to $13,170 (currently $12,170) in 2010. The income exclusion is adjusted for inflation after 2010, in addition to the extension through December 31, 2011.
Amendments to Fair Labor Standards Act
- Section 18A – requires employers with 200 or more full-time employees to automatically enroll new full-time employees in one of the health plans offered and continue the enrollment of current employees..
- Section 18B – requires employers to provide detailed notice to employees of certain provisions of the PPACA. For example, covered employers must inform each employee at the time of hire of the existence of the Exchange. The “Exchange” is intended to be a newly created statutory option to expand private health insurance coverage for employees.
- Section 18C – prohibits employers from taking adverse action against employees because they received a tax credit or subsidy for a health plan, or “provided” information relating to any violation of the PPACA.
- Section 7(r)(1) is added to the FLSA which requires employers to allow a place “other than a bathroom, that is shielded from view and free from intrusion” for unpaid break times for nursing mothers to express breast milk, as “such employee has need to express the milk”, for one year after the child’s birth. This break time may be unpaid. Employers with fewer than 50 employees do not have to comply with this requirement if it would impose an undue hardship by causing the employer “significant difficulty or expense” in relation to the employer’s “size, financial resources, nature, or structure.”
Adult children coverage
A provision of the bill, which would take effect six months after adoption and apply only to the new plan year, extends the employer-provided health coverage gross income exclusion for medical expense reimbursements under an employer provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the taxable year.
“Free-rider” penalty
Effective for months beginning after December 31, 2013, the new law also assesses a “free-rider” penalty of $2,000 per employee for employers with more than 50 full-time employees during the preceding calendar year that fail to offer minimum essential health coverage. The penalty would be assessed if a full-time employee receives a federal subsidy to purchase insurance in the exchange based on employer does not offer health coverage, the coverage offered is considered “unaffordable” or the plan has an actuarial value of less than 60%. The first 30 employees are subtracted from the penalty calculation to minimize disincentives for hiring new workers.
New reporting rules – IRC §6055
Insurers that provide minimum essential coverage to any individual during a calendar year must report the following to both the covered individual and to the IRS under new IRC §6055 for calendar years beginning after 2013:
- The name, address, and taxpayer identification number (TIN) of the primary insured, and the name and TIN of each other individual obtaining coverage under the policy.
- The dates during which the individual was covered under the policy during the calendar year.
- Whether the coverage is a qualified health plan offered through an exchange.
- The amount of any premium tax credit or cost-sharing reduction received by the individual with respect to such coverage.
To the extent coverage is through an employer-provided group health plan, the insurer is also required to report the name, address, and employer identification number.
Resources:
Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148): http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3590enr.txt.pdf
Health Care and Education Reconciliation Act of 2010 (H.R. 2847): http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4872eh.txt.pdf
Implementation timeline prepared by the Committees on Ways and Means, Energy and Commerce, and Education and Labor is available at: http://docs.house.gov/energycommerce/TIMELINE.pdf
