On March 23, 2010, President Barack Obama signed the comprehensive health care reform law (Reform) to expand health care coverage in the United States.
Impact of Comprehensive Health Care Reform Law on Employers
It is an understatement to say that the Reform bombards employers with information – and fair to say that the Reform’s many new obligations present a potential compliance nightmare for them.
The Reform is an ever moving target. Employers are faced with the challenge of effectively managing their business in light of the “bigger picture” financial and tax implications of the Reform. This situation is further complicated because different aspects of the Reform become effective at different times over the next several years. Even more confusing, interpretations of the Reform’s provisions keep changing.
Recent Amendments to the Comprehensive Health Care Reform Law
Initially, the Reform required employers to report group health care plan costs on all 2011 W-2 forms. On October 12, 2010, the Internal Revenue Service (IRS) announced that this requirement would not go into effect until the 2012 tax year.
Given its purpose to expand health care coverage, the Reform subjects employer-sponsored health care plans to non-discrimination rules under IRS Code Section 105(h). In a nutshell, plans cannot “discriminate” in favor of highly compensated employees (HCEs) by giving HCEs extra or excessive benefits. Under the grandfathering rules – a critical aspect of the Reform – certain existing employer-sponsored health care plans could enjoy either a delayed effective date for compliance with, or a total exception from, certain (but not all) of the insurance reforms and new coverage mandates. Grandfathered plans do not have to comply with the non-discrimination rules.
Changes in the Grandfathering Rules
Originally, grandfathered status could be lost if an employer significantly changed the deductibles, co-payments or benefits offered or changed carriers. Specifically, the limitation on the ability of an employer to keep its grandfathered status if it shopped around for, and selected, a new insurance policy, was heavily criticized. On November 15, 2010, the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the IRS announced an amendment to the grandfathering rules in response to the criticism. This revision lifted the restriction against entering a new insurance policy.
Whether or not a health care plan is grandfathered will determine an employer’s compliance obligations. It is critical that employers fully understand that changes in their health benefit plans could result in the loss of grandfathered status. The loss of grandfathered status triggers the obligation to comply with coverage mandates and non-discrimination rules that would otherwise be inapplicable.
Comprehension of the grandfathering and non-discrimination rules is essential for employers to be able to work with their benefits plans and avoid potentially costly missteps. HHS continues to field many questions, and to revise and clarify the rules governing the Reform. The Labor & Employment Group at Cohen Seglias will continue to monitor any developments regarding the evolving comprehensive health care reform law, and provide updates regarding any significant changes. Should you have any questions or concerns about how the latest changes may affect your business, please do not hesitate to contact Marc Furman or Jonathan Landesman.