What to Know about the Health Care Reform and Human Resources
The Health Care Reform has passed and the Patient Protection and Affordable Care Act is the law of the land. For HR folks, the debate has been the talk of 2010; is it going to happen, what will the changes bring, how will it affect our jobs?
While it’s not completely clear how things will end up, it’s probably useful to review what we do know and to make some guesses about what will happen. While I know that attempting to predict the future is an exercise that can only end in someone telling me, "I told you so," it’s still fun to try to figure out what we will have to deal with.
The law will phase in over the next five years and there are five things we know for sure:
1. Employers with 50 or more employees will now be required to provide affordable health insurance or pay a penalty.
2. Employees who have health care offered to them by their employer must choose to take the health care or pay a penalty.
3. Children will be allowed to stay on their parents’ policies until they turn 26.
4. Insurance companies will no longer be able to deny coverage to individuals with preexisting health conditions.
5. Lifetime limits on health coverage will be eliminated.
In addition, there are some other major impacts:
Currently, about 82 percent of Americans have some sort of health insurance, primarily through their employer or through the government (Medicare and Medicaid). The law extends this coverage to about 32 million people more people over the next decade.
It’s going to cost a lot; $940 billion over the next 10 years and it’s not clear where that money is going to come from. Congress must work on more legislation that will deal with the costs.
For HR people, the information only serves as a starting point. How will the law affect our businesses and our employees? The answers to these questions are not so clear but I think that there are some questions we should be asking:
1. Will we continue to offer employer health care?
The law clearly maintains employer health plans as a major source for employees and I don’t think that there will be any reason to believe that that will change. There are several key plan coverage changes you’ll want to communicate to your employees though:
• Effective September 23 of this year, plans that offer dependent coverage must extend that coverage to children up to 26 years old—even if they’re married. Most health plans dropped young adults at 19. Students could retain eligibility until 25.
• Insurers will be prohibited from denying children (defined as dependents under 19) because of pre-existing conditions. A similar prohibition will cover adults when the final reform measures wind up in 2014.
• Health plans can’t impose lifetime limits on the dollar value of coverage. On January 1, 2014, insurers will be prohibited from imposing annual limits on coverage.
While there is a requirement for firms with more than 50 employees to offer health care and a similar requirement for employees to take the plan that is offered, one question I have heard is, "can we continue to pass along premium increases to our employees?" I think that answer is yes, although who knows what will happen in the future.
2. Will the law affect recruiting and retention?
A primary reason for offering health care is to attract and retain the right people.
It doesn’t look like any form of portability made it through Congress, yet. That means, to me, that we can still use health options as a recruiting tool. As more of the law kicks in, there may actually be ways for employers to give employees more choices and, in a world where talent management is essential, may give us more options to attract and retain the ones we want.
3. Does the law have tax implications?
The past few years employers put together consumer directed health care options to encourage employees to act like consumers. These options often have tax implications that make them attractive to both employees and employers. There are changes coming, though:
• January 1, 2011, tax free reimbursements from FSA’s, HSA’s and HRA’s for OTC drugs are prohibited.
• January 1, 2013, the Medicare tax will increase to 2.35 percent (from 1.45 percent) for earnings over $200,000.
• January 1, 2013, the law places a cap on FSA’s of $2500.
There is one important issue has yet to be determined, though. Beginning in 2011, employers must start reporting the value of the employee’s portion of the employer provided health care coverage. For most employees, that is somewhere between 20-30 percent of the actual cost of the health care coverage.
Currently, that is not taxable income but that that is bound to change. Just as we have with excess life insurance payments, I think that Congress will decide to tax the portion of the health coverage provided by the employer to the employee. Imputed income on the 70 percent paid by the employer would go a long way to help offset the new costs of health care reform.
In conclusion, while we don’t know many of the specifics and we don’t know how things will turn out, I am preparing myself for a long, wild ride. I think that it will take years to figure out what health care reform really means and what the affects of the legislation will have on employers. In the meantime, I am really afraid that this will create another difficult to manage, expensive as hell, government program that does not do what it is intended to do. Buckle up!