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Health Care Reform Summary

Employee Benefits Law Update John L. Barlament

The Patient Protection and Affordable Care Act (now referred to as the "ACA" by federal regulators ("ACA")), as amended, contains significant new requirements for employers and their health plans. This summary describes the main provisions of ACA but not every provision.

This summary is divided into five sections:

  1. Plan Changes - Describes what health benefits a plan must cover (e.g., preventive care without cost-sharing) and restrictions a plan must eliminate (e.g., lifetime limits). Also includes new enrollment rules (e.g., covering older children).

  2. Employer and Insurer Administrative Requirements - Describes the administrative actions employers must take (e.g., reporting the value of health plan coverage on Form W-2).
  3. Tax Incentives / Penalties for Employers, TPAs and Insurers - An overview of tax benefits offered by ACA (such as the early retiree reinsurance program), tax increases (e.g., additional FICA tax of 0.9%) and tax penalties that can apply (e.g., the $2,000 and $3,000 penalties that can apply under the "pay or play" rules) to employers, third-party administrators ("TPAs") and insurers.
  4. Exchanges and Co-Ops - The new rules for health plan "exchanges" are described.
  5. Requirements, Taxes and Benefits for Individuals - An overview of the requirements individuals must follow (such as obtaining "minimum essential coverage" as of 2014), along with related tax credits and penalties.

Grandfathered Plan Exceptions. Some ACA changes do not apply to a "grandfathered" health plan (a "GF" plan). Where applicable, this is noted in the "Comments" heading.

Notices and Plan Amendments: We state in the "Comments" section whether the ACA requires a specific notice relating to the change. In addition, many plan changes will require an amendment and a related summary of material modifications ("SMM").

Which Plans are Affected? The ACA's changes generally apply to "group health plans." However, the ACA does not apply to every group health plan. In general, the ACA applies to:

Major Medical Plans

"Mini Med" Plans - But, see the Comments section below for how a waiver was available for the "no annual limit" rule

Many Employee Assistance Plans ("EAPs") - EAPs are likely covered by the ACA to the extent they provide medical benefits (e.g., 3-5 visits with a trained counselor) but likely are not covered by the ACA if they are a "referral only" EAP Health Reimbursement Arrangements ("HRAs") - But, see the Comments section below for how HRAs are affected by the "no annual limit" rule
Government Medical Plans Executive Medical Expense Reimbursement Plans
Some Dental and Vision Plans - Most stand-alone dental or vision plans will be an "excepted benefit" under HIPAA and will therefore avoid the ACA's requirements. However, a minority of stand-alone dental or vision plans will not be an "excepted benefit" under HIPAA and will be subject to the ACA's requirements Some Health Flexible Spending Arrangements (a "Health FSA") - Most Health FSAs will be an "excepted benefit" under HIPAA and therefore avoid most of the ACA's requirements. A minority of Health FSAs will not be an "excepted benefit" under HIPAA and will be subject to the ACA's requirements. All Health FSAs (whether or not they are an excepted benefit) are affected by the ACA's requirement that employee elective deferrals be limited to $2,500

Which Plans are Not Affected?

Most Fixed Indemnity Policies

Most Dental Plans

Most Health FSAs Medigap Policies
Most Specified Disease Policies Most Vision Plans
Most Retiree-Only Plans

1. Plan Changes

2010

  Summary of Change Effective Date Comments
a. Coverage of Other Children

If plan covers dependents, adult child must be allowed coverage until age 26 (i.e., through age 25). No requirement to cover child of such a dependent child (i.e., the grandchild).

Coverage of adult child generally is not taxable until year in which child will attain age 27

Plan years beginning on or after September 23, 2010 (tax change effective March 30, 2010) Limited exemption for GF plans. GF plans can, prior to 2014, refuse to provide coverage to older child if child is eligible to enroll in an "eligible employer-sponsored health plan."
b. New Appeals Process / External Review A new health plan appeals process must be followed. The new appeals process must permit participants to present evidence and testimony, receive continuing coverage and receive certain new appeal rights.

An external review process must be implemented

Plan years beginning on or after September 23, 2010 Does not apply to GF plans. Some portions of rule delayed and become effective in 2011 or 2012
c. Any available Primary Care Provider / Pediatrician If plan requires or allows designation of participating primary care provider, plan must allow any who are available. Similar rules for pediatric care Plan years beginning on or after September 23, 2010 Does not apply to GF plans.

If applicable, a notice is required to be distributed in summary plan description ("SPD") or other, similar description of benefits. Sample language available here

d. Coverage of Emergency Services  Emergency services must be covered without prior authorization and as though services were in-network.  Plan years beginning on or after September 23, 2010  Does not apply to GF plans.
e. Access to Ob/Gyn Care  For female enrollees, cannot require authorization or referral for Ob/Gyn care from Ob/Gyn specialist Plan years beginning on or after September 23, 2010 Does not apply to GF plans.

If applicable, a notice is required to be distributed in SPD or other, similar description of benefits. Sample language available here

f. Limits on Pre-existing Condition Exclusions (Under Age 19) Plan cannot impose any pre-existing condition exclusion with respect to plan coverage for enrollee under age 19 Plan years beginning on or after September 23, 2010
g. No Lifetime Limits on Essential Health Benefits Lifetime limits for "essential health benefits" are eliminated. Benefits that are not "essential" may have lifetime limit. Term "essential health benefits" not yet defined  Plan years beginning on or after September 23, 2010 Notice had to be provided to individuals who reached a lifetime limit and are otherwise still eligible for benefits or coverage under the plan. Internal Revenue Service ("IRS"), Department of Labor ("DOL") and Department of Health and Human Services ("HHS") are seeking comments on how this rule applies to a stand-alone, active-employee HRA. Some guidance released on definition of "essential health benefits" but effect on self-funded plans and multistate insured plans unclear
h. Restricted Annual Limits on Essential Health Benefits Annual limits on "essential health benefits" prior to January 1, 2014 are subject to a "restricted annual limit." Limit starts at $750,000 in 2010-2011 and increases to $2,000,000 in 2012-2013. Benefits that are not "essential" may have annual limits. Term "essential health benefits" not yet defined Plan years beginning on or after September 23, 2010  Waiver previously available but application cut-off date of September 22, 2011. IRS, DOL and HHS are seeking comments on how this rule applies to a stand-alone, active-employee HRA. Some guidance released on definition of "essential health benefits" but effect on self-funded plans and multistate insured plans unclear
i. No Rescission  Plan cannot rescind coverage once individual is enrolled unless fraud or intentional misrepresentation of material fact and plan's term prohibit such fraud / misrepresentation  Plan years beginning on or after September 23, 2010  Sponsor must provide 30 days advance notice of rescission (no government model language) 
j. Preventive Health Coverage  Plan must cover, generally without cost-sharing, certain preventive services (e.g., immunizations and infant screenings)  Plan years beginning on or after September 23, 2010. Coverage required for additional services released in August 2011 by first plan year beginning on or after August 1, 2012  Does not apply to GF plans. List of additional covered services issued August 2011 (e.g., certain contraceptives). Exclusion from contraceptive coverage rule available for some religious employers; one-year delay available for others 
k. Native American Plans are Payer of Last Resort  Certain Notice American health programs are the payer of last resort, notwithstanding other laws  Apparently March 2010   

2011 

l. Simple Cafeteria Plans  A small employer (average 100 or fewer employees) can adopt a new type of cafeteria plan. If adopted, plan has a safe harbor from nondiscrimination rules if minimum employer contributions are made  January 1, 2011   
m. Over-the-Counter Medicines  Cost of over-the-counter medicine (other than doctor-prescribed and insulin) may not be reimbursed through health FSA, HRA, HSA or Archer MSA  Tax years beginning January 1, 2011   

2012 

n. No Questions on Firearms  Certain wellness plans cannot require disclosure of lawful firearm or ammunition ownership, storage, or use  Unclear (perhaps 2012)   
o. Automatic Health Plan Enrollment  Employers with 200 or more employees must automatically enroll employees into health insurance plan offered by employer. Employees may opt out of coverage  Unclear. Seems to be March 23, 2010 but guidance indicates it will be delayed, likely until 2015 or later  Opt out notice must be provided. No model notice available. Likely wait for additional guidance 
p. Additional Preventive Services See description in Section 1.j  Plan years beginning on or after August 1, 2012 (religious employers may receive extra year or complete exemption)   

2013 

q. Cap on Health FSA Salary Reductions Contributions  Health FSA salary reduction contributions limited to $2,500  Tax years beginning January 1, 2013  Unclear if non-calendar year health FSAs must take action in 2012 to limit portion of contributions which can carry into 2013 
r. Medicare Part D Subsidy Deductions  Deduction for Medicare Part D subsidy eliminated  Tax years beginning January 1, 2013   

2014 

s. Coverage for Clinical Trials; No Discrimination  Plan cannot deny participation in approved clinical trial, deny routine costs of same or otherwise discriminate based on participating in clinical trial for treatment of certain cancers or other life-threatening conditions  Plan years beginning on or after January 1, 2014  Does not apply to GF plans 
t. Limits on Waiting Periods  Plan cannot impose any waiting period that exceeds 90 days  Plan years beginning on or after January 1, 2014   
u. Pre-tax Payments for Exchange Individuals  Plan can allow pre-tax premium payments for exchange-eligible individuals only if employer is a "qualified employer"  January 1, 2014   
v. Codification of Wellness HIPAA Regulations  Codifies many existing HIPAA nondiscrimination regulations  Apparently plan years beginning on or after January 1, 2014  Appears GF plans need not comply; however, similar HIPAA regulations likely would apply 
w. Wellness "Carrot / Stick" Limits Raised Raises current 20% cap on wellness discount / surcharge to 30% of coverage cost. Allows HHS, IRS and DOL to increase amount to 50%  Apparently plan years beginning on or after January 1, 2014   
x. Limits on Pre-existing Condition Exclusions (for Enrollee of Any Age)  Plan cannot impose preexisting condition exclusion with respect to plan coverage  Plan years beginning on or after January 1, 2014   
y. No Discrimination Against Health Care Providers  Plan and insurer may not discriminate against any health care provider acting within the scope of that provider's license or certification. Does not require plans to contract with any willing provider or to refrain from establishing varying reimbursement rates based on quality or performance measures  Plan years beginning on or after January 1, 2014  Does not apply to GF plans 
z. No Annual Limit on Essential Health Benefits  Plan cannot impose annual limit on essential health benefits  Plan years beginning on or after January 1, 2014   
aa. Cost-Sharing Limitations  Cost-sharing requirements are limited to those applicable to high deductible health plans (i.e., HSA-related plans). Insured plans, and likely self-insured plans, cannot impose deductibles that are higher than $2,000 for single coverage and $4,000 for any other coverage (increased by amount of employer contributions to health FSA)  Plan years beginning on or after January 1, 2014   

2010 

a. No Retaliation  Employer cannot discharge or discriminate against an employee for objecting to, or refusing to participate in, a violation of certain provisions of the health care reform law  March 23, 2010   
b. Health Program or Activity May Not Discriminate A "health program or activity" receiving federal financial assistance cannot discriminate in violation of certain federal laws. Term "health program or activity" not yet defined March 23, 2010  Unclear if provisions will significantly impact employers and their health plans 
c. Notice of Grandfathered Plan Status  Sponsor must provide notice that plan is grandfathered in order to maintain GF status  Apparently June 14, 2010  Sample language available here
2011 
d. Insurer Report on Costs  Insurer must report various costs to federal government January 1, 2011   
e. Report Plan Cost on W-2  Aggregate cost of employer-sponsored health plan coverage must be reported on employee's W-2. Some health plans excluded (e.g., stand-alone, fully insured dental and vision plans)  Originally effective for 2011 Form W-2 (i.e., W-2 distributed in January 2012). Now delayed until 2012 (i.e., W-2 distributed in January 2013)   

2012 

f. Summary of Benefits and Coverage ("SBC")  Applicants and enrollees receive SBC and glossary of standard terms. Various content and format requirements (e.g., description of cost-sharing and coverage; 12-point font).

Sixty (60) days advance notice of plan changes if change affects contents of summary, unless change is in connection with open enrollment 

Open Enrollment. For individuals enrolling through open enrollment, provide by first open enrollment period beginning on or after September 23, 2012. For many calendar year plans this would be November 2012.

Not Open Enrollment. For individuals who begin participating at times other than open enrollment (e.g., special enrollees or newly hired employees), provide SBC starting with first day of first plan year that begins on or after September 23, 2012 (e.g., January 1, 2013 for a calendar year plan)

Sample SBC template available here
g. Quality of Care Reporting  Secretary to develop reporting requirements related to various quality of care items (e.g., effective case management, preventing hospital readmissions). Plan must then annually submit to Secretary and enrollees a report on these elements  Standards developed within 24 months after enactment. Unclear when plans must report  Does not apply to GF plans 
h. Fully Insured Plans Subject to Nondiscrimination Rules   Fully insured group health plans must satisfy nondiscrimination rules of Code Section 105(h)(2) (eligibility to participate and eligibility for benefits)  Originally, plan years beginning on or after September 23, 2010. IRS guidance from December 2010 delayed effective date until at least 2012 and possibly longer  Does not apply to GF plans 
i. Medical Loss Ratio ("MLR")  An insurer usually must provide a rebate to policyholders if not enough premium revenue is used for claims, to improve health care quality or for certain other expenses Rebates, if applicable, usually begin in 2012  Employers may want to amend plan documents to clarify how rebates are classified (e.g., whether they are ERISA plan assets) and how they can be used, in accordance with Department of Labor Technical Release 2011-04 

2013 

j. Certify Compliance with Certain HIPAA Transactions  By December 31, 2013, health plans must certify to HHS that their data and information systems comply with, and have tested, current standards and operating rules for certain Standard Transactions  Upon enactment (2013)   
k. Provide Notice of Exchange  Employers must provide to employees notice of exchange and related items (such as tax credits or cost-sharing reductions)  March 1, 2013   
l. New HIPAA Transactions  New Standard Transactions include health claim status (by 1/1/2013), electronic funds transfer (by 1/1/2014) and health claims attachments (by 1/1/2016)  Upon enactment (2013, 2014, 2016)   

2014 

m. Report to Government on Plan Coverage  Employers offering minimum essential coverage must report to IRS about health coverage (including the name of each employee and dependent covered by plan, portion of premium paid by employer, and other items)  January 1, 2014   
n. Summary Report to Employees  Summary of information provided to federal government, above, in 2.m, must be provided to each covered individual  January 1, 2014   
o. Transparency Reporting  Health plans must disclose certain plan-related information (e.g., claims payment policies, enrollment data) to federal and state governments  Apparently 2014  Rule is tied to exchange coverage. Impact on employers uncertain 
p. Fair Health Insurance Premiums  An insurer offering coverage in the individual or small group market may vary premium rates only according to certain criteria, including (i) individual or family coverage, (ii) rating area and (iii) age  Plan years beginning on or after January 1, 2014   
q. Guaranteed Availability and Guaranteed Renewability of Coverage  Insurers in the individual or group markets generally must accept every employer and individual in the state that applies for coverage, and generally must renew or continue in force such coverage at the option of the plan sponsor or the individual  Plan years beginning on or after January 1, 2014  Does not apply to GF plans 
r. Comprehensive Health Insurance Coverage  A health insurance issuer offering coverage in the individual or small group market must offer those essential benefits that are required to be offered on the state exchanges  Plan years beginning on or after January 1, 2014   

2015

s. Certify Compliance with Certain HIPAA Transactions  By December 31, 2015, health plans must certify to HHS that they comply with certain Standard Transactions  Upon enactment (2015)   
3. Tax Incentives / Penalties for Employers, TPAs and Insurers       

2010 

a. Credits to Small Employers  Limited tax credit to small employers to provide health insurance  Tax years beginning after 2009   
b. Early Retiree Reinsurance Program  Federal government to reimburse eligible plans (including multiemployer plans or VEBAs) 80% of "early retiree" (age 55+ but not eligible for Medicare) health claims between $15,000 - $90,000. Program expected to cease in 2012  June 2010  New, first-time applications no longer being accepted. As of February 2012 available funds nearly exhausted 

2011 

c. Wellness Grants  Small business (generally, with less than 100 employees who work 25 hours or more per week) that did not have a wellness program as of March 23, 2010 can apply for a federal grant to establish a comprehensive workplace wellness program  Apparently October 1, 2011   
d. Comparative Effectiveness Research Fees  Plan sponsors must pay annual fees of $1 or $2 per plan participant (amount varies based on year). Fees used to fund comparative effectiveness research  Apparently plan years beginning on or after October 1, 2011  Guidance from officials suggests delay may be possible 

2013 

e. Additional Payroll Taxes  Additional FICA and SECA payroll tax of 0.9% for individual wages over $200,000 ($250,000 for couples filing jointly)  January 1, 2013   
f. Large Employers Must Provide Minimum Essential Coverage ("Pay or Play")  Employers with at least 50 full-time employees that do not offer to full-time employees (and likely dependents) "minimum essential coverage" under an "eligible employer-sponsored plan" are assessed a $2,000 annual fee (determined on a month-to-month basis) for each full-time employee, provided at least one full-time employee receives a premium tax credit or cost-sharing reduction under a "qualified health plan" through an Exchange January 1, 2014  
g. Tax if Employer Offers Coverage but Employee Obtains Exchange Coverage ("Pay or Play")  Employer with at least 50 full-time employees that offers minimum essential coverage to full-time employees and dependents must pay a $3,000 annual fee (determined on a month-to-month basis) for each full-time employee who: (i) enrolls in a "qualified health plan" through an Exchange; and (ii) receives a premium tax credit or cost-sharing reduction January 1, 2014   

2014 

h. Fees on Certain Plans / Insurers  Annual fee on a "covered entity" that provides health insurance. Excludes self-funded employer but does not specifically exclude fully insured plan  First payment due no later than September 30, 2014   
i. Reinsurance Fees Imposed on TPAs and Insurers  Third-party administrators of group health plans and insurers contribute to a reinsurance program for individual policies administered by a non-profit for high risk cases in state  No later than January 1, 2014 (apparent sunset January 1, 2017)   

2018 

j. "Cadillac Tax" on Certain High-Cost Plans  40% excise tax on excess benefit of high-cost employer-sponsored health insurance (so-called "Cadillac tax"). Limit based on $10,200 annual limit for individual coverage and $27,500 annual limit for other than individual coverage. Numerous exceptions and adjustments based on states and job classifications  Tax years beginning January 1, 2018   
4. Exchanges and Co-Ops       
a. Co-ops Created  Nonprofit co-ops created for individual and small employer market  Awards and grants provided by July 1, 2013   
b. State Exchanges  Establishes state exchange for individual and small employer market  No later than January 1, 2014   
c. Individual Policies Across State Lines  States can form "health care choice compacts" to allow purchase of individual policies across state lines  No earlier than January 1, 2016   
d. Large Employers Eligible for Exchange  Employers with average of 101 or more employees (and at least one current employee) allowed into exchange  2017   
5. Requirements, Taxes and Benefits for Individuals       

2010 

a. High-Risk Pools  A temporary insurance pool for uninsured individuals is created. Pools are expected to begin in 2010 and end in 2014  Generally July 2010   

2011 

b. HSA / Archer MSA Excise Tax  10% excise tax on HSA distributions (15% for Archer MSA distributions) for non-medical purposes is increased to 20%  Distributions beginning January 1, 2011  

2013 

c. Code Section 213 Medical Deduction Threshold Increases  Individuals who wish to deduct unreimbursed medical expenses will need to show that such expenses exceed 10% of income (up from 7.5%). Special transitional rule until 2017 if taxpayer or spouse is age 65  Taxable years beginning January 1, 2013   
d. 3.8% Tax on Unearned Income  A 3.8% tax will be applied to net investment income to the extent such income exceeds a specified threshold amount  January 1, 2013   

2014 

e. Individuals Must Maintain Minimum Essential Coverage  All individuals in U.S. must maintain "minimum essential coverage" through individual market, employer or certain other coverage (e.g., Medicare)  January 1, 2014   
f. Individual Credits and Reduced Cost-Sharing  Individuals can receive premium assistance credits if income between 100% and 400% of federal poverty level. Also, such individuals may be eligible for reduced cost-sharing requirements  January 1, 2014   
g. Penalties on Individuals  Individual noncompliance penalties start at $95 in 2014, phase to $695 per adult in 2017 (1/2 for child); various exceptions  January 1, 2014   

For more information contact the author of this alert, John Barlament, at (414) 277-5727 / john.barlament@quarles.com. You may also contact any of the following Quarles & Brady employee benefits attorneys: Marla Anderson at (414) 277-5453 / marla.anderson@quarles.com, Amy Ciepluch at (414) 277-5585 / amy.ciepluch@quarles.com, Sarah Fowles at (414) 277-5287 / sarah.fowles@quarles.com, Angie Hubbell at (312) 715-5097 / angie.hubbell@quarles.com, Paul Jacobson at (414) 277-5631 / paul.jacobson@quarles.com, David Olson at (414) 277-5671 / david.olson@quarles.com or Robert Rothacker at (414) 277-5643 / robert.rothacker@quarles.com.