HRA and Health Care Reform

"Finally we have a health care plan written by a committee whose chairman says he doesn't understand it, passed by Congress that hasn't read it and exempted themselves from it, signed by a president who smokes and hasn't read it, administered by a treasury chief who didn't pay his taxes, overseen by a surgeon general who is obese, and financed by a country that's broke. What could go wrong? "......Robert Larsen

Some changes will go into effect this year. Did I mention taxes? However until the new state and federal laws/regulations are created we will not know all that we have received nor will we know exactly how this legislation will affect anyone's specific health plan.

How the Health Care Reform Law affects employers and employees alike can be seen albeit not clearly! Let’s take a look at it based upon employers. There are three groups; (1) Changes affecting all Employers and their Employees, (2) Changes Affecting only Employers with Less than 26 Full-time Employees, and (3) Changes Affecting only Employers with More than 50 Full-time Employees

(1) Changes Affecting all Employers and their Employees

New Temporary High-Risk Pool -In 90 days a temporary national high-risk pool must be established to provide health coverage to individuals with pre-existing medical conditions in 90 days. To be eligible they must have been uninsured for 6 months.

No Lifetime Maximums Allowed - In 6 months, insurance companies can no longer place lifetime limits regardless of whether a group policy or individual policy.

Increased Dependent Coverage - In 6 months, insurance companies must provide dependent coverage for children up to age 26 for individual and group health plans.

No Exclusions for Dependent Coverage Allowed - In 6 months, insurance companies can no longer place pre-existing condition exclusions on children of a policy holder.

Over the Counter Drugs Excluded from HRA/HSA/FSA - Beginning in 2011, non-prescribed over-the-counter drugs can not be reimbursed.

Health FSA Contribution Limit - Beginning in 2013, the amount of contributions to health FSAs is limited to $2,500 per year.

Health Insurance Exchanges - By 2014, each state must create an American Health Benefit Exchange and a Small Business Health Options Program Exchange. The exchanges provide a place where individuals and small businesses can purchase coverage that meets certain requirements.

Insurance Carrier Rating Rules - Beginning in 2014, age rating replaces medical underwriting and pre-existing condition exclusions for individual and small group health insurance plans will be prohibited in all states. Insurers will be prohibited from denying coverage or setting rates based on gender, health status, medical condition, claims or other health-related factors.

Employee Subsidies - Beginning in 2014, the federal government will give tax credits to individuals with incomes between 100 and 400% of the federal poverty line (FPL). Employees offered coverage by their employer will not be eligible for premium credits unless the company's plan does not meet "minimum coverage requirement".

Employee Free Choice Voucher - Beginning in 2014, employers that offer coverage to their employees will be required to provide a "free choice voucher" to employees with incomes less than 400% FPL if they choose to enroll in an exchange plan.

Employee Requirement to Purchase Insurance - Phasing in from 2014-2016, individuals will have to purchase coverage or pay a penalty of the greater of $650 per year up to a maximum of three times that amount per family or 2.5% of household income. Beginning in 2017, the penalty will be increased annually by the cost-of-living adjustment.

(2) Changes Affecting Employers with Less than 26 Full-time Employees

Employer Subsidies - Provide small employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees with a tax credit.
Phase I : Beginning in the 2010 tax year Phase 1 of this subsidy provides a tax credit of up to 35% of the employer’s contribution toward the employee’s health insurance premium if the employer contributes 50% or more of the total premium cost (or 50% of a to-be-established benchmark premium). For employers of less than 10 employees the full credit will be available.

Phase II : Beginning in 2014 and available for 2 years, small companies that purchase coverage through the state exchanges will be eligible for a tax credit of up to 50% of the company's contribution toward an employee’s health insurance premium if the company contributes at least 50% of the total premium cost. Tax-exempt businesses are eligible for tax credits of up to 35% of the company's contribution toward the employee’s health insurance premium.

(3) Changes Affecting Employers with More than 50 Full-time Employees

Employer Penalties for Not Offering Any Coverage - Beginning in 2014, a company with more than 50 full-time employees that does not offer coverage must pay an annual penalty of $2,000 per full-time employee, excluding 30 employees from the assessment. For example, an employer with 51 full-time employees that does not offer health coverage will pay an annual penalty of $42,000 ($2,000 per employee for 21 employees).

[Blogger Note: If the average monthly health benefit cost per employee is $600 that equals $7200 per year. Let’s see! Which is the better economic decision for the employer? Paying $7200 per year for health insurance or paying a $2000 per year penalty per employee. Can you see that this will reduce group benefit plans, reducing revenue to insurance companies, which in turn will put them out of business. This will then become the basis for single payer which is the Obama goal anyway.]

Employer Penalties for Offering "Unaffordable" or "Unqualified" Coverage - Beginning in 2014, a company with more than 50 employees that offers coverage that is "unaffordable" or does not meet the "minimum coverage requirement" (i.e. the coverage is "unqualified") will pay the lesser of $3,000 per year for each employee receiving a credit or $2,000 per year for each full-time employee, excluding 30 employees from the assessment. The "minimum coverage requirement" requires a qualified plan cover 60% of the benefit costs of the plan, with an out-of-pocket limit equal to the Health Savings Account (HSA) current law limit ($5,950 for individuals and $11,900 for families in 2010.

Thank you Rick Lindquist for the analysis which I have abridged.

So What is the Bottom Line?
What I write next is self-serving however employers must research and then act on implementing an HRA, a POP, an HRA with the HSA. This week I’ll post brief discussions of each of these plans with pros and cons on my blog and website. However, please know that each employer situation is different which leads to one solution over another. My partner and I are available for consultations.

IRS Audit Alert.
If you have a Section 125 Cafeteria Plan and you have been allowing reimbursement for some health related expenses, you could be receiving a greetings and salutation letter from the IRS.