Sasser Sefton Tipton & Davis

Sasser, Sefton, Tipton & Davis, P.C.
Montgomery, Alabama

In late March, the President finally signed into law the health care reform legislation that had been under consideration in Congress since last year. The final health care reform legislation actually consists of two laws: the Patient Protection and Affordable Health Care Act of 2010 (Pub. L. No. 111-148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. No. 111-152). Together, these laws make major changes to the health care system (affecting insurers, employers, and individuals) that will be phased-in over the better part of the decade. This article provides a timeline of the more significant provisions of the health care reform legislation arranged by effective date.

2010

Small employer tax credits: Certain small employers that pay at least 50% of the premiums for employee health care are eligible for tax credits of up to 35% of the employer’s health care premium costs. (Please see the previous article for more details.)

Medicare "doughnut hole" rebate: Under the new law, Medicare Part D participants that are caught in the prescription drug coverage gap ("doughnut hole") will receive a $250.00 rebate.

Early retiree reinsurance plan: The health care reform legislation establishes a temporary reinsurance program until 2014 for employers that provide health care coverage to early retirees who are over age 55 but not eligible for Medicare. The program will reimburse 80% of claims over $15,000.00 and under $90,000.00.

Tanning tax: A 10% federal tax on indoor tanning services, to be used to pay for part of the costs of health care reform, is effective as of July 1, 2010.

Adult child coverage: If a group health plan offers dependent coverage, adult children up to age 26 must be offered coverage under their parents’ plan, but exceptions may apply for grandfathered plans. This provision is effective for plan years starting September 23, 2010, or later, but many insurers have agreed to begin offering this coverage earlier.

Pre-existing condition limits for children: The health care reform legislation eliminates pre-existing condition coverage exclusions for individuals under age 19 for plan years starting September 23, 2010, or later.

Lifetime limits: For plan years starting September 23, 2010, or later, group and individual plans may not impose lifetime dollar limits on coverage for essential health benefits.

Annual limits: For plan years starting September 23, 2010, or later, individual and group health plans may not impose unreasonable annual dollar limits on coverage.

Rescission: Insurers may not rescind health insurance coverage except in cases of fraud or intentional misrepresentation; this rule is effective for plan years starting on or after September 23, 2010.

Preventive health coverage: The health care reform legislation requires coverage for recommended preventive services for plan years starting on or after September 23, 2010; this requirement does not apply to grandfathered plans.

Internal appeals: The health care reform legislation requires non-grandfathered plans to develop and implement an effective internal appeals process beginning with plan years starting on or after September 23, 2010.

2011

Nonprescription drugs: Except for insulin, nonprescription drugs may not be reimbursed as qualified medical expenses under FSAs, HSAs, and HRAs.

Market sector fees: A phase-in of new health care industry annual market sector fees, to be used to pay the costs of the health care reform legislation, begins in 2011. The initial market sector fees will be imposed on drug manufacturers and importers, but health insurance providers will be subject to market sector fees starting in 2014. The phase-in of market sector fees will continue through 2019.

W-2 reporting: Employers must begin reporting the value of employer-provided health care benefits on employees’ W-2 forms, regardless of whether those benefits are taxable.

2012

Coverage explanations and plan changes: Starting March 23, 2012, plans must use government-designed uniform explanations of coverage. In addition, notices of material changes must be given 60 days in advance of such changes.

2013

Retiree drug coverage subsidy: The deduction for the prescription drug coverage subsidy to employers that provide prescription drug coverage for retirees eligible for Medicare Part D is eliminated.

Additional Medicare Hospital Insurance tax: An additional 0.9% Medicare Hospital Insurance tax will be imposed on earned incomes greater than $200,000.00 for individuals and greater than $250,000.00 for married couples.

Medicare unearned income tax: A 3.8% tax will be imposed on the lesser of (i) net investment income or, (ii) adjusted gross income in excess of $200,000.00 for individuals and $250,000.00 for married couples.

FSA contributions limited: Contributions to health FSAs will be capped at $2,500.00 per year (adjusted for inflation).

Itemized medical expense deduction: The floor for the federal income tax itemized deduction for medical expenses increases from 7.5% of adjusted gross income to 10% of adjusted gross income except for individuals aged 65 or older and their spouses.

2014

Individual mandate: The requirement that individuals maintain minimum essential coverage (unless otherwise exempt) or pay a tax penalty is effective in 2014. The penalty applies for each month that minimum essential coverage is not maintained. The monthly penalty will be the greater of (i) 1/12 of a fixed penalty, or (ii) 1/12 of a percentage of income. The fixed penalty will be $95.00 for 2014, $325.00 for 2015, and $695.00 (adjusted for inflation) for 2016 and later. The percentage of income penalty will be 1% in 2014, 2% in 2014, and 2.5% in 2016 and later years. The penalty is calculated on an individual basis. However, in general, the total penalties assessed against a family are limited to three times the flat dollar penalty.

Subsidies and cost-sharing: Starting in 2014, premium assistance tax credits and cost-sharing will be available for qualified individuals and families with incomes up to 400% of the federal poverty level.

Employer mandate: Large employers (generally those with at least 50 full-time employees) that (i) do not offer minimum essential coverage under an employer-sponsored plan and have at least one employee receiving a premium tax credit or cost sharing subsidy, or (ii) do offer minimum essential coverage but have an employee receiving a tax credit or cost-sharing subsidy, will be subject to monthly penalties. Under scenario (i), the penalty is the product of 1/12 of $2,000.00 multiplied by the number of full-time employees (excluding the first 30 employees). Under scenario (ii), the penalty is 1/12 of $3,000.00 multiplied by the number of employees receiving the tax credit or cost-sharing assistance.

Exchanges: States must establish insurance exchanges by January 1, 2014.

2018

High-cost insurance tax: A 40% excise tax on premiums for high-cost insurance plans ("Cadillac plans") will be levied against insurers or plan administrators. In general, a high-cost plan is one with premiums greater than $10,200.00 (adjusted for inflation) for individual coverage or $27,500.00 (adjusted for inflation) for family coverage.

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