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Brace yourself: Health care reform passage will affect HR

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in Employee Benefits Program,HR Management,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

March 23, 2010 — When President Obama signed the Patient Protection and Affordable Care Act at 11:56 this morning, it may have marked the beginning of the end of a year’s worth of partisan politicking on health care reform.

It certainly signaled the start of massive changes in the way HR professionals handle employer-provided health insurance benefits.

Although a companion “reconciliation” package of amendments tweaking the law must still pass the Senate—and Capitol Hill watchers say it will—the president’s signature on the health care reform bill means new obligations for insurance companies and new responsibilities for employers.

Some of the new law’s provisions take effect in a matter of weeks. (See “Get ready now for these health insurance changes” below.) Most other features of the health care overhaul won’t take effect until 2014.

The new law has requirements for both employers and individual employees.

Individual mandate

The entire health care reform law rests on the idea that when more people have health insurance—young, healthy people in addition to older, sicker people—risk will be more manageable and costs will come down.

The law is expected to bring insurance to more than 32 million Americans who currently aren’t covered. Within a decade, health reform advocates say, more than 95% of Americans will have health insurance, up from the current 83%.

The law requires all individuals to have health insurance coverage by 2014. Those who choose not to have insurance would pay a $95 penalty in the first year. But the price tag will go up thereafter to $750 or 2% of income (whichever is higher) in 2016.

Effects on employers

Technically speaking, the law doesn’t require employers to provide health insurance benefits. However, it does establish strong incentives to do so.
  • Large employers that don’t offer insurance will have to pay an annual tax of $2,000 per full-time worker. This applies to organizations with 50 or more employees. The first 30 uncovered workers would not count toward the tax penalty. Small employers (those with fewer than 50 employees) will be exempt from the tax.

    Businesses with more than 200 employees must automatically enroll workers into their health insurance plans. Employees would then be able to opt out if they choose.

    These provisions go into effect in 2014.
  • Small-business tax credits of up to 35% will take effect this year to help organizations with 25 or fewer employees pay for affordable employer-provided insurance. The Internal Revenue Service will implement these new rules.

    Advice:
    Stay in contact with your insurance broker or carrier. They’ll have this information as soon as it’s available.
  • Qualified small businesses will be able to purchase insurance for employees through state-based exchanges known as Small Business Health Options Programs (SHOPs). They will be designed to allow small employers to pool risk together, ideally lowering coverage costs. SHOPs must be in place by 2014.

    Note:
    If you’re a small business and even one of your employees opts out of employer-provided coverage in favor of insurance available through the state-based exchanges, you could be required to provide a voucher worth the value of the per-employee premiums you pay under your plan. This generally applies to lower-income workers who would pay more than 8% of their income for employer-provided coverage.
The law also caps employee contributions to health-related flexible spending accounts (FSAs) at $2,500 per year in 2011 and beyond. Employees will no longer be able to use FSA funds to pay for over-the-counter medications.

Tip: Ask your FSA provider about plans to implement this change. Employees will want to know details before they commit to FSA contributions next year.

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