Healthcare Reform: Businesses Ask, "What Now?"
Businesses of all sizes must take note of new healthcare requirements that will change coverage and payment policies.
Monique Wassenaar Silverio (September 2010)
The trillion-dollar Patient Protection and Affordable Care Act (PPACA) was signed into law this year on March 23, leaving many business owners wondering, "What does this mean for me?"

Interpreting this complex legislation has been difficult. However, one thing is clear: businesses must be prepared to deal with a slew of new tax and regulatory requirements, many of which become effective beginning on or after September 23, 2010.

Timeline for Businesses
According to the Association for Manufacturing Technology, businesses need to be aware of these key provisions of the PPACA. Within a year of enactment (2010-2011):
• A tax credit will become available for small businesses (those with up to 25 workers who earn an average $50,000 or less) to help provide employee coverage.
• Health insurers will be barred from excluding children from coverage due to pre-existing conditions, and from dropping coverage due to illness.
• Lifetime benefit limits will be eliminated and annual caps restricted.
• Uninsured adults with pre-existing conditions will be able to obtain health coverage through a new, national high-risk pool that will expire once new insurance exchanges begin operating in 2014.
• A temporary reinsurance program will be created until 2014 to help companies maintain health coverage for early retirees between the ages of 55 and 64.
• New health plans will be required to cover preventive services with little or no cost to patients. Grants may be available to help small companies with 100 or fewer workers to offer wellness programs.

In 2011:
• Employers will be required to disclose the value of health benefits on employees' W-2 tax forms.
• A $2.5 billion annual fee (which increases over time) will be imposed according to market share on pharmaceutical companies with yearly sales of more than $5 million.
• Payments to insurers offering Medicare Advantage services will be frozen at 2010 levels. These payments will gradually reduce to bring them in line with traditional Medicare.

In 2013:
• The employee portion of the Medicare payroll tax will rise to 2.35 percent from 1.45 percent for individuals earning more than $200,000, and for married couples with incomes of more than $250,000.
• A new 3.8 percent Medicare tax will be levied on non-payroll investment income for these same taxpayers (singles who earn more than $200,000 and married couples earning more than $250,000.)
• Tax deductions for federal subsidies that companies receive as incentives to provide retiree prescription drug coverage will be eliminated.
• Annual contributions to health flexible spending accounts (FSA) will be limited to $2,500.
• A 2.3 percent excise tax will be imposed on the sale of medical devices, excluding retail devices for the public.
• The threshold for claiming medical expenses on itemized tax returns will increase to 10 percent from 7.5 percent of income for all but the elderly, whose threshold will remain at 7.5 percent until 2017.
• A national long-term care program will be created. Employers can elect to enroll employees automatically and deduct premiums from their payroll, but employees may opt out of the program.

In 2014:
• Most people will be required to obtain health insurance coverage or face a penalty (the greater of $695 or 2.5 percent of household income) if they don't.
• State health insurance exchanges will open for individuals and small businesses with fewer than 100 employees.
• Employers with 50 or more workers who do not offer qualifying health insurance will face a $2,000 fine per employee if any workers receive government subsidized insurance on an exchange. The first 30 employees will not be counted for the fine.
• Employers with 50 or more workers who offer health insurance will face fines of up to $3,000 per subsidized employee if any workers opt to receive subsidized insurance on an exchange.
• Employers with 200 or more employees must automatically enroll new full-time workers into the group health plan. Employees can opt out.
• Health insurance companies will begin paying a fee based on their market share.
• Medicaid coverage will be expanded to individuals with incomes up to 133 percent of the federal poverty level. That may extend Medicaid coverage, in conjunction with the Children's Health Insurance Program, to about 16 million more enrollees.
• Healthcare tax credits will become available to help people with incomes up to 400 percent of the poverty level purchase coverage on a state exchange.
• Health plans may no longer exclude anyone based on pre-existing conditions.

In 2015:
• Medicare will create a physician payment program to reward quality of care rather than volume of services.

In 2017:
• States may allow employers with 100 or more workers to buy health insurance through an exchange.

In 2018:
• A 40 percent excise tax on high-cost, employer-provided plans (so-called Cadillac plans) will be imposed. The first $27,500 of a family plan and $10,200 for individual coverage is exempt from the tax. Higher levels will be set for plans covering retirees and people in high-risk professions.

The Legal Battle
The gloves are off, and the first state to legally challenge healthcare reform has been given the green light to continue its case in federal court.

On August 2, U.S. District Judge Henry Hudson ruled that Virginia may proceed with its case against the Obama Administration's healthcare law. The ruling responds to a motion filed by the U.S. Department of Justice to dismiss the state's lawsuit.

The state argues that the requirement for its residents to have health insurance violates the Constitution's Commerce Clause and Tax Clause, which allow the federal government to regulate commerce between the states.

The ruling is the first in what may be years of litigation over the question of whether or not Congress has the power to regulate - and tax - a citizen's decision not to buy health insurance.

According to Hudson, "The congressional enactment under review, the Minimum Essential Coverage Provision, literally forges new ground and extends [the Constitution's] Commerce Clause powers beyond its current high water mark."

Earlier this year, the Virginia General Assembly passed legislation exempting state residents from the federal coverage mandate. In his decision, Hudson wrote that Virginia's attorney general has the right to defend that state law.

The case is scheduled to begin on October 18, only two weeks before the November 2 congressional elections. The healthcare battle is expected to be a major issue in those campaigns.

Virginia's lawsuit, filed soon after President Obama signed health reform into law, is one of several arguing that the federal government is seizing power in an unprecedented way. Some 19 other states are part of a similar lawsuit in Florida, but Virginia's is the first to go before a federal judge.

Legal analysts say there is a good possibility that the matter will reach the Supreme Court, but most say there is only a slim chance that the states will prevail.

Grandfathering Health Plans
Early on in the debate over healthcare reform, the Obama Administration claimed that those who wished could keep their current healthcare coverage, and businesses sighed with relief. But in June, the Department of Health and Human Services, the Labor Department, and the Treasury proposed new regulations that would limit how much plans can modify their coverage and still be grandfathered. The grandfather rule would let employers and insurers make routine changes to plans. However, if companies significantly cut benefits or increase out-of-pocket spending for consumers, they can lose their exemption.

For example, businesses would not be able to change carriers, increase co-pays and deductibles, or raise employees' percentage of cost-sharing by more than a set amount without losing grandfathered status. Once they lose this status, their plans are considered new, and they will have to offer more stringent patient protections. The result? More expensive plans for employers and employees alike. According to the National Federation of Independent Business (NFIB), small companies will be especially hard hit if faced with expected sharp increases in insurance premiums.

"These rules limit flexibility and severely restrict the last line of defense for an employer before making the difficult decision of having to employ the nuclear option: dropping coverage all together," said Susan Eckerly, NFIB Senior Vice President of Federal Public Policy. "This is another heartbreaking and discouraging outcome from this new healthcare law."

The government estimates that while 70 percent of small-business plans will remain grandfathered in 2011, that number will drop to 34 percent in 2013.

About 176 million Americans have employer-sponsored insurance. Currently, the grandfathering limits are at the proposal stage, and the government is seeking public comments through mid-August. However, experts say they are unlikely to change substantially before a final decision is rendered.

Bottom Line
The new health care reform law will be phased in over the next decade. From 2010 to 2013, the changes mostly involve new taxes, fees, and mandates on individuals and businesses. Most changes to the healthcare system, on the other hand, will begin in 2014 and later.

The bottom line is that the new healthcare law will have an impact on everyone - individuals, business owners, and employees. And from what we're beginning to see, that impact may not necessarily be positive.