The Patient Protection and Affordable Care Act (ACA) includes numerous reform measures aimed at improving the U.S. health care delivery system, controlling health care costs and expanding health coverage. The ACA’s reforms have staggered effective dates; some provisions have already been put into effect, while others will become effective in 2014 and later. The ACA is a federal law, which means that federal agencies, namely the Departments of Labor, Treasury, and Health and Human Services are primarily responsible for the law’s overall enforcement. However, the ACA also creates significant responsibilities for state governments. A number of the ACA’s key health care reforms will be carried out at the state level.
Beginning six months after the law’s enactment on March 23, 2010, existing health insurance plans must:
- Prohibit lifetime limits.
- Prohibit rescissions.
- Restrict annual limits.
- Include limitations on excessive waiting periods.
- Include a requirement to provide coverage for non-dependent children up to age 26; before 2014, this requirement is limited to non-dependent children who do not have an employer offer of coverage.
Beginning in 2014, group health plans must prohibit pre-existing condition exclusions and annual limits.
EMPLOYER PENALTIES FOR NOT OFFERING COVERAGE
The law will not require employers to offer health insurance; however, beginning in 2014, employers with more than 50 full-time employees that do not offer coverage will have to pay a penalty of $2,000 per full-time equivalent employee for all full-time employees in excess of 30 if even one employee receives a federal government subsidy (tax credit) and purchases coverage in an exchange Employer Penalty for Unaffordable Coverage: If an employee opts out of an employer plan because coverage is “unaffordable”—that is, if the premium exceeds 9.5 percent of family income—the employer must pay a $3,000 penalty for each full-time employee who receives a government subsidy and purchases coverage through an exchange.
Employer health care coverage must have an actuarial value of at least 60 percent. If it does not, penalties will be given at the end of each year the employer is not in compliance.
NO PENALTY FOR WAITING PERIODS
Employers will not be required to pay a penalty for employees during a waiting period that is required before an employee can enroll in an employer-provided health insurance plan. However, beginning in 2014, a waiting period cannot exceed 90 days.
AUTOMATIC ENROLLMENT PROCEDURE
The law will require employers with more than 200 employees to enroll employees automatically into health insurance plans offered by the employer, allowing for an employee opt-out. The effective date of this requirement is not yet known.
RESTRICTIONS ON CAFETERIA PLANS
The law caps flexible spending account (FSA) contributions at $2,500 and excludes over-the-counter medications without a doctor’s prescription as reimbursable expenses under FSAs, health reimbursement accounts, medical spending accounts (MSA) and health savings accounts (HSA). Penalties on nonmedical HSA and MSA distributions are increased to 20 percent.
Incentives for Wellness: The law allows employers to offer premium discounts and other financial incentives for up to 30 percent of the total premium to individuals who satisfy a health standard. It includes provisions designed to ensure that discriminatory practices do not occur. The secretary of Health and Human Services has the authority to issue regulations to allow financial incentives up to 50 percent. The law provides for grants for up to five years to small employers that establish wellness programs.
TAX ON HIGH VALUE PLANS
Beginning in 2018, there will be a 40 percent excise tax on insurance companies and plan administrators for group health coverage that exceeds a threshold of $10,200 for single coverage and $27,500 for families, not counting stand-alone dental and vision plans. For retirees above 55 years of age and for plans that cover employees in high-risk professions, the thresholds are $11,850 for single coverage and $30,950 for families. The tax will apply to the amount of the premium that is in excess of the threshold. Beginning in 2019, the thresholds will be indexed to the rate of general inflation plus 1 percentage point.
REQUIRED W-2 REPORTING
Since 2011, employers are now required to report the value of employees’ health benefits on W-2 forms.
DEPENDENT COVERAGE REQUIREMENTS
Although ACA creates federal standards, the health insurance market is primarily regulated at the state level. Some states may have laws that go beyond the federal minimums established by ACA. For example, some states extend dependent coverage beyond age 26.
California law does not generally require insured health plans to maintain dependent coverage beyond age 26, though it does require that coverage for disabled children continue past the policy’s limiting age.
EXTERNAL REVIEW PROCESS
In addition, the ACA requires insured plans to comply with their state’s external review process if it includes certain minimum consumer protections. If a state’s external review process does not include the required minimum consumer protections, health insurers in the state must comply with a federal process for conducting external reviews, which was made effective January 1, 2012.
HHS has concluded that the California external review process does include the minimum consumer protections. Thus, insured health plans in California must conduct external appeals in accordance with the state’s external review process.
The ACA requires each state to have a health insurance exchange (Exchange) to provide a competitive marketplace where individuals and small businesses will be able to purchase affordable private health insurance coverage, effective January 1, 2014. According to HHS, the Exchanges will make it easier for individuals and small businesses to compare health plan options, receive answers to health coverage questions, determine eligibility for tax credits for private insurance or public health programs and enroll in suitable health coverage.
Individuals and small employers with up to 100 employees will be eligible to participate in the Exchanges. However, states may limit employers’ participation in the Exchanges to businesses with up to 50 employees until 2016. Beginning in 2017, states may allow businesses with more than 100 employees to participate in the Exchanges.
The ACA provides that a state’s plan to operate an Exchange must be approved by HHS no later than January 1, 2013. However, conditional approval may be provided if the state is advanced in its preparation but cannot demonstrate complete readiness by January 1, 2013. If a state does not receive federal approval for an Exchange, the federal government will step in and establish the Exchange in that state.
California has established its Exchange. It was the first state to pass Exchange legislation after the ACA was signed into law. The California Health Benefit Exchange is an independent public entity within state government with a five-member board appointed by the California governor and the legislature