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Thursday, 11 November 2010 15:40

Healthcare Reform and the Implications for Employers

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Are you tired of hearing about Health Care Reform changes? Well, don’t turn the page yet. Listen up!

HR practitioners need to make sure they have their “compliance hats” on. If you haven’t done so already, pay attention to the following:

Make sure 401(k) plan administrators are verifying and approving employee requests for hardship withdrawals and/or loans.

Employees are becoming creative in tough economic times and are trying all sorts of tactics to take out 401(k) withdrawals. Do not put your company’s 401(k) plan in jeopardy— make sure the information provided by the employee shows sufficient proof to justify the request. If you are not sure what is allowed under your plan (and also falling under IRS regulations), ask! Ask your 401(k) company’s “go-to” person/department, such as the Relationship Manager or 401(k) broker. Since most 401(k) plans require annual audits, you will want to make sure that the proper paperwork supports such requests, as well as make sure to keep the documentation in the benefits file for record-keeping. Otherwise, you will likely put the company’s plan at risk for failure to comply with IRS Regulations.

Employers should audit their current processes when sending compliance documents, as well as when sending time-sensitive employee communication.

With the changes as a result of the health care reform enacted in March 2010, employers need to make sure they are auditing their processes in sending compliance documents, updating summary plan documents and sending out employee communication with time-sensitive deadlines. Employers should become familiar with mandated benefits, plan documents should be amended to include any applicable changes, and communication should be sent to employees notifying them of the changes within specified time-periods. Because there are penalties tied to some of these changes, make sure you are preventing your company from having to pay up. As HR practitioners continually trying to hold a seat at the executive table, you don’t want to be responsible for additional expenses! Employers cannot afford to brush off the inevitable—health care reform changes.

The Patient Protection and Affordable Care Act (PPACA). What is this about? The PPACA is a product of the health care reform agenda signed into law on March 23, 2010. Whether you like it or not, over the next four years the bill will bring into effect numerous healthrelated provisions, such as subsidizing insurance premiums, providing incentives for business to provide health care benefits, prohibiting denial of coverage/claims based on preexisting conditions, etc.

The bill contains certain provisions that will go into immediate effect on specific dates (make note):

  • June 21, 2010: In order to qualify for coverage, applicants must have a pre-existing health condition and have been uninsured for at least the past six months. There is no age requirement. Also, it limits out-ofpocket spending to $5,950 for individuals and $11,900 for families, excluding premiums.
  • September 23, 2010: Dependents (children) will be permitted to remain on their parents’ insurance plan until their 26th birthday, and regulations implemented under the act include dependents who no longer live with their parents, are not a dependent on a parent’s tax return, are no longer a student or are married. Insurers are prohibited from excluding pre-existing medical conditions for children under the age of 19 and from charging co-payments or deductibles for preventive care and medical screenings on all new insurance plans. Insurers’ abilities to enforce annual spending caps will be restricted and completely prohibited by 2014.
  • January 1, 2011: Employers must disclose the value of the benefits they provided beginning in 2011 for each employee’s health insurance coverage on the employee’s annual Form W-2’s, and insurers will be required to spend between 80 and 85 percent of individual plan premiums (with certain adjustments) on health care, or to improve health-care quality or return the difference to the customer as a rebate.
  • January 1, 2014: Insurers are prohibited from discriminating against or charging higher rates for any individuals based on pre-existing medical conditions and from establishing annual spending caps. A $2,000 per employee tax penalty has been imposed for employers with more than 50 employees who do not offer health insurance to their full-time workers. A maximum of $2,000 annual deductible for a plan covering a single individual or $4,000 annual deductible for any other plan been established. There will be a new $2,500 limit on tax-free contributions to FSAs, which allow for payment of health costs.

Employers need to be cognizant of how the healthcare reform changes impact their benefit plans.

Human Resource practitioners should become experts on how the healthcare reform affects the companies they work for. Is your benefit plan keeping its “grandfathered status”? Are you aware that the maximum an employee will be able to contribute to the Flexible Spending Account (FSA) is changing to be no more than $2,500? Are you aware the over the counter drugs will no longer be eligible FSA expenses in 2011 unless employees have a prescription? Are you aware of the coverage requirement of non-dependent children up to age 26 and when this takes effect? If you still do not know the answers to some of these questions, it is time to do some more research on the health care reform.

The Affordable Care Act, effective January 1, 2011, applies to FSAs and health reimbursement arrangements (HRAs). According to the IRS website, “under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The new standard applies only to purchases made on or after January 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.”

Employers should take these changes into account, especially if the plan has a grace period provision and if the plan allows FSA debit cards to be used, when making health plan decisions and updating plan documents for 2011. Become experts in the health care reform. Your employer and employees will turn to HR practitioners for advice and guidance on how they are affected. Feeling overwhelmed? Don’t worry—there are many resources available to assist you. Reach out to your benefit brokers to help with the legwork, search the SHRM website and network with other HR professionals for advice and guidance.

Updates on the aforementioned and other health care reform provisions can be found on the Affordable Care Act page on Notice 2010-59 and Revenue Ruling 2010-23 further explain health care reform changes.