BREAKING NEWS Health Care Reform: What Employers Need to Know Now

Last night, the House passed a health care reform bill that we expect President Obama to sign on Tuesday. Few media outlets are accurately reporting what that bill is about and there is plenty of reason for confusion. We're going to de-mystify as much of it as we can and make sure employers know what to do.

What Passed and Is It Over? In short, it's not over. There is a technical distinction to be made about what the House voted on. The House voted on not one, but two bills last night. The first bill they approved last night was the Patient Protection and Affordability Act (H.R. 3590), the health care reform bill that originally passed the Senate and included such hotly debated items as the Cadillac Tax, the Cornhusker Kickback, the Louisiana Purchase, etc. The second bill that the House passed last night was the Health Care and Education Reconciliation Act of 2010, the reconciliation bill. It is the reconciliation bill that includes all of the various amendments and additions to the original health care reform bill that were necessary to win the support of House members. That reconciliation bill, in order to become law and formally amend the health care reform bill must still pass the Senate, which could approve it (sending it to the President for signature), reject it, or further amend it (sending it back to the reconciliation process and to the House for another vote). The health care reform bill, unamended, will become the law of the land once President Obama signs it on Tuesday, regardless of what happens to the reconciliation bill.

As recently as last week, the House had hoped that they could avoid voting on the original health care reform bill altogether. House leaders proposed passing only the reconciliation bill. Constitutional experts (including anyone remotely familiar with how a bill becomes a law) cried fowl. So the House first passed the Senate version of the health care reform bill (which will go directly to President Obama for his signature) and then they passed the reconciliation bill to amend the health care reform bill they just passed.

The reconciliation bill now goes to the Senate, where it faces an uncertain future that could derail its own provisions as well as the health care reform bill itself. While there is much uncertainty about the bill's future, we think the reconciliation bill ultimately becomes law, too.

What Should Employers Do Now? When President Obama signs the health care reform bill on Tuesday, there's only one provision affecting employers immediately and that is the extension of coverage for children up to age 27. Effective upon the President's signature, all group health plans must allow the qualified child of a participant to remain eligible for coverage under the plan until the end of the tax year in which the qualified child turns 27.

Within 6 months of enactment, the health care reform bill also requires insurers and group health plans to eliminate any lifetime benefit caps. Starting in 2014, group health plans will be barred from implementing annual benefit caps or denying coverage based on pre-existing conditions.

Beginning in 2014, large employers (those with 50 or more full-time employees) will be required to provide their full-time employees with group health insurance or pay a tax penalty, currently $750 per non-covered full-time employee per year. The reconciliation bill, if passed, would increase that tax penalty to $2,000 per non-covered full-time employee per year.

What About Those Pesky Taxes? Currently, the legislation requires each individual to obtain health care insurance either from his/her employer or through a private provider by 2014 or pay a tax penalty. The health care reform bill calls for other increased taxes and penalties, beginning in 2012, with a 3.8% tax on net investment income of individuals who earn $200,000 per year or more ($250,000 for joint returns). We think these provisions are subject to significant modification as the Senate takes up the reconciliation bill and we caution against taking any long-term position in response to the tax increases currently projected.

In 2017, the bill would place a 40% nondeductible excise tax (aka "the Cadillac Tax") on insurance companies and plan administrators for any group health plan with an annual premium greater than $10,200 for single coverage and $27,500 for family coverage. For retired individuals age 55 and over, an additional threshold amount of $1,650 for single coverage and $3,450 for family coverage would apply. This tax would apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market. For tax years beginning after Dec. 31, 2010, employers would have to disclose the value of the health care benefit provided by them for each employee's health insurance coverage on the employee's annual Form W-2.

Can Small Employers Get A Tax Credit for Providing Coverage? Maybe. Although the credit is not built into the health care reform bill, the reconciliation bill, if passed, would provide an immediate tax credit of up to 35% to employers with fewer than 25 employees and average annual wages of less than $50,000 who offer health insurance coverage to their employees. The reconciliation bill would further increase this tax credit to up to 50% in 2014.

We encourage employers to keep a watchful eye on the progress of the reconciliation bill in the Senate. If health care reform is subject to further change--or even derailment--in the near term, it will happen when the Senate considers the reconciliation bill later this week.

Please continue to follow our Employment Law Advisories and keep in touch with your LMV attorney as this legislation progresses. If you have questions, please contact your LMV attorney at (205) 326-3002.