KelloggSmith | Healthcare Reform

Healthcare Reform

Summary of Key Provisions of the Patient Protection and Affordable Care Act (PPACA)
On March 23, 2010, the President signed into law H.R. 3590, the Patient Protection and Affordable Care Act. The Act, as amended by as amended by H.R. 4872, the Health Care and Education Reconciliation Act of 2010 on March 30, 2010, implements sweeping health care changes that will affect individual and employer-sponsored health plans. While many of the provisions will not take effect until 2014, several reforms will take place this year.

The following are a number of the highlights of the legislation:

For Individuals

Employer Coverage
Generally, individuals will not be required to give up their employer-provided health coverage.

Risk Pool: 2010
Starting July 1, 2010, certain individuals without employer coverage may be able to purchase coverage through a temporary national high-risk pool, called the Pre-Existing Condition Insurance Plan (PCIP). The temporary high-risk pool offers coverage to U.S. citizens and legal immigrants who have not been insured for at least 6 months, at reduced premiums.  

Annual and Lifetime Caps: 2010
For plan years starting on or after September 23, 2010, plans will not be permitted to impose lifetime limits on coverage. The law also restricts the use of annual limits. Beginning in 2014, plans may not impose annual limits on coverage.  Plans issued or renewed beginning September 23, 2010, will be allowed to set annual limits no lower than $750,000.  This minimum limit will be raised to $1.25 million beginning September 23, 2011, and to $2 million beginning on September 23, 2012. Beginning in 2014, plans may not impose annual limits on coverage.  Waivers for the annual limit rules are available to limited benefit plans.  

Extended Child Coverage: 2010
For plan years starting on or after September 23, 2010, certain dependent adult children will be eligible for coverage under their parents' health plan up to age 26.  For plan years beginning before Jan. 1, 2014, grandfathered group health plans offering dependent coverage will not need to make this coverage available if the adult child is eligible to enroll in an another employer-sponsored health plan. Grandfathered plans are those plans that were in place on March 23, 2010.  In addition, effective March 30, 2010, the law extends the income tax exclusion of employer-provided health benefits to employees’ covered children who do not turn 27 by the end of the tax year. 

Rescission of Coverage: 2010
For plan years starting on or after September 23, 2010, insurers will not be permitted to rescind coverage except in cases of fraud.

Grandfathering may relate to individual and group plans existing on March 23, 2010 with respect to new benefit standards. However, these grandfathered plans must extend dependent coverage to certain adult children up to age 26 and prohibit rescission of coverage. In addition, grandfathered group plans are required to eliminate lifetime limits on coverage, and beginning in 2014, eliminate annual limits on coverage. Grandfathered group plans must eliminate pre-existing condition exclusions for children within six months and by 2014 for adults.  See Grandfathered Plans Interim Final Regulations for details and Fact Sheet:  Keeping the Health Plan You Have

Medicare Tax Increase for High Earners: 2013
Beginning in 2013, individuals making $200,000 and joint filers making $250,000 must pay an increase of 0.9% in the Medicare tax. A 3.8% tax on unearned income for high-income individuals will also take effect.

Individual Mandate: 2014
Starting in 2014, the law will require most U.S. citizens and legal residents to obtain health insurance. Increasing levels of penalties will be assessed on certain individuals who do not obtain coverage.

Pre-existing Conditions: 2014
Starting in 2014, plans will not be permitted to exclude individuals from coverage on the basis of pre-existing medical conditions. The prohibition on exclusions of children on the basis of pre-existing conditions would begin 6 months from the date the law was enacted.

Establishment of State Exchanges to Obtain Health Insurance: 2014
Starting in 2014, people without employer-sponsored coverage will be able to buy insurance on state-administered "exchanges." State-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges will be administered by a government agency or non-profit organization, and allow individuals and small businesses with up to 100 employees to buy certain coverage.

Premium Subsidies: 2014
In 2014, the law will provide tax credits to individuals and families with incomes above Medicaid eligibility and below 400% of the Federal Poverty Level to buy coverage through state-based Exchanges. These individuals and families would be entitled to the credits if they are not eligible for or offered other "acceptable coverage".

Age Differences: 2014
Starting in 2014, the law would prohibit premiums of older individuals from being more than 3 times the cost of younger peoples' premiums.
For Businesses

Tax Credits for Some Small Businesses: 2010-2013
For tax years 2010-2013, employers of 25 or fewer employees with average annual wages of less than $50,000 may be able to receive a tax credit if they contribute at least 50% of total premium costs.  Employers of 10 or fewer employees with average annual wages of less than $25,000 may be able to receive a full tax credit for their contributions.  

Temporary Reinsurance Program: 2010-2013
Starting June 1, 2010, a temporary reinsurance program ("EERP") provides coverage for retirees who are over age 55 but not eligible for Medicare. The reinsurance program reimburses employer plans 80% of retirees' claims that are between $15,000 and $90,000.

Preventive Coverage: 2010
For plan years starting on or after September 23, 2010, group health plans and issuers that offer health insurance coverage will be required to provide preventive coverage. Plans and insurance providers will also be prohibited from imposing any cost sharing requirements for preventive coverage. Some of the preventive coverage includes certain immunizations and preventive care for children, adolescents and women.   

Break Time Requirement for Nursing Mothers: 2010
Effective March 23, 2010, employers are required to provide reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk.  Employers are also required to provide a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.  

Salary Nondiscrimination for Eligibility: 2010-2011
For plan years starting on or after September 23, 2010, plan sponsors of group health plans, except self-insured plans, will not be permitted to establish rules relating to coverage eligibility for full-time employees that are based on the total hourly or annual salary of the employee, or otherwise have the effect of discriminating in favor of higher wage employees.

Prohibition on Discrimination in Favor of Highly Compensated Individuals: 2010-2011
For plan years starting on or after September 23, 2010, group health plans (other than self-insured plans) must satisfy the Internal Revenue Code's requirements relating to the prohibition on discrimination in favor of highly compensated individuals.

Notification of Material Modifications
The Act requires group health plans and issuers to provide notice to enrollees at least 60 days before implementation of any material change that is not reflected in the most recently provided summary of benefits.  Effective date TBD.

Appeals Process: 2010-2011
For plan years starting on or after September 23, 2010, group health plans and health insurance issuers will be required to have effective appeals processes for challenges to coverage and claims determinations.  

Tax Increase on Nonqualified Medical Expense Distributions from HSAs: 2011
Starting in 2011, the law would increase the excise tax on distributions from a Health Savings Account or Archer MSA if the distributions are not for a qualified medical expense. The tax on these distributions would increase to 20%, from 10% for HSAs and 15% for Archer MSAs. The threshold to itemize unreimbursed medical expenses as a deduction on tax returns would increase from 7.5% to 10% of adjusted gross income. The law also prohibits reimbursement of costs for over-the-counter drugs if they are not prescribed by a doctor, in relation to HSAs, Archer MSAs, FSAs and HRAs.

New Requirement on Form W-2 to Report Cost of Employer-Provided Health Coverage: 2011
Starting for the 2011 tax year, employers must report on Form W-2 the aggregate cost of employer-sponsored health coverage.  This reporting requirement will not apply to salary reduction contributions to FSAs, or the amount contributed to any HSA or Archer MSA of an employee or employee’s spouse.

Simple Cafeteria Plans: 2011
For plan years starting on or after Jan 1. 2011, eligible small businesses may establish "simple cafeteria plans" which can automatically satisfy the Internal Revenue Code’s nondiscrimination rules for cafeteria plans. 

FSA Contribution Limits: 2013
Starting in 2013, the law also limits the amount of contributions to a flexible spending account (FSA) to $2,500 annually.

Small Business Tax Credit: 2014
For 2 years starting in 2014, eligible small businesses that buy health coverage on new state insurance exchanges may receive a tax credit of up to 50% of the contribution if the employer contributes at least 50% of the total premium cost.

State Exchanges to Obtain Health Coverage: 2014
Starting in 2014, small businesses with up to 100 employees will be able to buy insurance on state-administered "exchanges." State-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges will be administered by a government agency or non-profit organization. A qualified health plan, to be offered through the new American Health Benefit Exchange, must provide essential health benefits which include cost sharing limits. No out-of-pocket requirements can exceed those in Health Savings Accounts, and deductibles in the small group market cannot exceed $2,000 for an individual and $4,000 for a family. Plans participating in the Exchanges will be accredited for quality, will present their benefit options in a standardized manner for comparison, and will use one enrollment form. Individuals qualified to receive tax credits for Exchange coverage must be ineligible for affordable, employer-sponsored insurance or any form of public insurance coverage.

Vouchers: 2014
Starting in 2014, employers who offer coverage to their employees will be required to provide a voucher for purchasing health care to employees with incomes less than 400% of Federal Poverty Level whose share of the premium exceeds 8% but is less than 9.8% of the employee's income.  This 9.8% figure may be adjusted to 9.5% in the future.  Any technical changes will be reported.   These vouchers are for enrolling in a plan in the Exchange. The voucher amount is equal to the premium amount for coverage of the employee under the employer's plan and will be used to offset the premium costs for the plan in which the employee is enrolled.

Penalties for Businesses with 50+ Employees: 2014
Starting in 2014, employers of at least 50 full-time employees that have employees receiving premium subsidies created by the legislation will be assessed fees. Such employers could face fines of $2,000 per full-time employee, with some exceptions.  Employees may be eligible for premium assistance if they do not receive "minimum essential coverage" from their employer. 

  • An employee shall not be treated as eligible for "minimum essential coverage" if the employee’s required contribution to the plan exceeds 9.5% of the applicable taxpayer’s household income. 
  • In addition, the actuarial value of the plan must be at least 60% (the plan’s share of the total allowed costs of benefits provided under the plan) for an employee to be considered eligible for “minimum essential coverage.”  
  • Employers will be required to pay the lesser of $3,000 for each of those employees receiving a tax credit or cost-sharing reduction, or $2,000 for each of their full-time employees total.  However, the legislation exempts the first 30 full-time employees for purposes of calculating the amount of the payment. 

Automatic Enrollment by Large Businesses Offering Health Coverage
Employers with more than 200 full-time employees that offer health coverage must automatically enroll employees in a plan.  Employees will be able to opt out of enrollment.  Effective date to be determined.

Excise Tax on High Cost Employer-Provided Health Coverage: 2018
In 2018, insurers and plan administrators will pay a 40% tax for any health insurance plan that is above the threshold of $10,200 for singles and $27,500 for families. This excise tax would apply to the amount of the premium that is above these thresholds.

Medical Loss Ratio: 2010-2011
Effective for plan year 2010, health plans are required to report the percentage of premium dollars spent on health care services. As of Jan. 1, 2011, enrollees will receive rebates for the amount of the premium spent on health care services that is less than 85% for large group plans, and 80% for individual and small group plans.

Medicare Part D: 2010
In 2010, the law closes the Medicare prescription drug coverage gap by $500, and provides a 50% discount on brand name drugs for beneficiaries who fall into the coverage gap. There is a current gap in coverage for total drug costs between $2,700 and $6,154. After being amended, the law authorizes a $250 rebate to all Medicare Part D enrollees who enter the "donut hole" in 2010.

Expanded Medicaid and CHIP: 2014
By 2014, states would be required to extend Medicaid coverage to all individuals under 65 who have incomes up to 133% of the federal poverty level. The law would also fund the Children's Health Insurance Program through 2015, and require states to maintain the current eligibility levels for children in the Medicaid and CHIP programs.

Community Living Assistance Services and Supports
The law creates a voluntary long-term care insurance program called the CLASS Independence Benefit Plan. The program will permit individuals to purchase community living assistance services and supports. The coverage would have a 5-year vesting period for eligibility of benefits and provide an average cash benefit of at least $50 per day.

Federal Loan Program
The Health Care and Education Reconciliation Act of 2010 also overhauls the federal student loan program and expands access to Pell Grants.

Interim Final Rules Cover Market Reforms Taking Effect As Early as 2010
The U.S. Departments of Treasury, Labor and Health and Human Services have issued interim final rules under the Affordable Care Act.  These rules relate to:

  • Preexisting condition exclusions from coverage under group or individual health plans,
  • Lifetime and annual limits,
  • Rescissions of coverage, and
  • Certain other provisions. 

The rules contain an overview of how the Affordable Care Act impacts a number of other related laws, including the Public Health Service Act, ERISA, HIPAA and the Internal Revenue Code.  For example, the rules clarify that the Affordable Care Act’s annual limit rules do not apply to health flexible spending arrangements (health FSAs) medical savings accounts (MSAs) or health savings accounts (HSAs).  The Departments request comments regarding the application of annual limits to stand-alone Health Reimbursement Arrangements (HRAs) that are not retiree-only plans.  The new rules also include model language for a new disclosure requirement for plans that require the selection of primary care physicians, and rights to obtain obstetrical or gynecological care without prior authorization.  For group coverage, the notice must be provided whenever the plan or issuer provides a participant with a summary plan description (SPD), or other similar description of benefits under the plan or health coverage.

There is also data on insurance market trends, an accounting table of benefits and costs, and a variety of examples of these covered provisions. 

The rules issued are now available for public comment at

To view a Fact Sheet on the rules, please click here.