Healthcare

Yesterday, the Supreme Court of the United States ruled that the Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010 is constitutional. The decision came down in the cases entitled, National Federation of Independent Business et al. v. Sebelius, No. 11-393 (June 28, 2012), Department of Health and Human Services et al. v. Florida et al., No. 11-398, and Florida et al. v. Department of Health and Human Services et al., No. 11-400). There, the 5 to 4 majority decided that the law is constitutional as an exercise of Congress’ power to tax, despite the congressional record stating it is not a tax. In California, where statutes that say “penalty” are later determined by courts to be “wages” these types of word games come as no surprise.

The overall effect of the Court’s decision: all existing provisions of the Act, such as the coverage of adult children up to age 26 and the prohibitions on lifetime benefit limits, remain in effect. More importantly, the penalties on larger employers for failing to provide minimum essential coverage and availability of coverage through government-sponsored exchanges will become effective as scheduled, on January 1, 2014.

So Now What?: Employers’ Obligations

Employer sponsored group health plans must now ensure compliance with Act’s regulations regarding the summary of benefits and coverage. An employer’s next open enrollment (if after September 21, 2012) will require distribution of summaries of benefits and coverage during upcoming open enrollments. Employers are required to provide employees with an HHS approved “easy to understand” summary of benefits and coverage explanation (SBC) prior to enrollment, re-enrollment upon request, or upon a mid-year material modification. The SBC requirement applies to insured and self-funded group health plans, regardless of grandfathered status, and health insurance issuers offering group or individual health insurance coverage. Employers will also have to prepare to issue Form W-2s for 2012 that include the cost of group health coverage. Finally, those Employers that are negotiating collective bargaining agreements will need to consider the effects of the health care reform requirements, assuming that it will be fully implemented.

In addition to the above, below are some other key provisions of the Act that affect employers:

• “Play or Pay”: Every employer with 50 or more full-time employees will have to either (a) provide at least a specified minimum level of health coverage that its employees can afford or (b) pay a penalty beginning in 2014.
• No discrimination for highly compensated employees. Group health plans may not discriminate in favor of highly compensated individuals regarding coverage and benefits.
• Flexible Spending Account. Beginning next year, the law limits the maximum health care flexible spending account amount to $2,500.
• Benefit Limitations. Employer group health plans will be prohibited from having lifetime or annual limits on benefit amounts. The plans will also no longer permit waiting periods in excess of 90 days or any differential treatment for pre-existing condition.
• Tax Treatment. Eliminated are the Code’s tax-free reimbursements for over-the-counter medicines.
• Retiree Drug Costs. Beginning in 2013, the employer tax deduction for retiree prescription drug benefit costs for employers receiving a related subsidy is eliminated.
• Automatic Enrollment. Beginning in 2014, employers with more than 200 full-time employees will be required to automatically enroll new full-time employees in group health plans.

And last but not least, Employers must report the annual cost of health coverage on each employee’s W-2 to the government for research purposes. It is likely the government will later look at taxing individuals or employers for the benefit they were forced to receive.

The Individual Mandate (err Tax)

In addition to imposing requirements and restrictions on employers and employer-sponsored group health plans, the law requires individuals to purchase health coverage or pay a penalty (the “individual mandate”). In addition, the Act increases the Federal Income Contributions Act (“FICA”) tax on individuals with compensation in excess of $200,000 by 62 percent.

Putting the Decision in Context

Employers should keep in mind that while the Supreme Court’s decisions are the final word on the specific constitutional challenges, they may not be the last word on what part or parts of the Act gets enacted. Lawmakers in the U.S. House of Representatives have vowed to repeal and replace the health care reform law. In addition, this issue is expected to be one of the bigger issues during this year’s presidential campaign.

More immediately however, Employers can expect the cost of maintaining a health plan will likely go up. Employers will need to examine the portion of the employee cost that you are paying currently in light of employees’ pay to determine whether you will be in compliance with the play or pay mandate. Employers will also have to be prepared for the many questions Employees will have about how the Act impacts their healthcare plans. For help in addressing the impact of these new provisions, please contact any of the employment lawyers at Weintraub Genshlea Chediak Tobin & Tobin who are always available to answer questions and assist employers in all of their employment law needs.