Senate Bill Summary 11/23

NOVEMBER 23, 2009

Conner Strong's Overview of Proposed U.S. Senate Healthcare Reform Bill

This past weekend, Senate majority leader Harry Reid (D-NV) secured the 60 votes necessary to avoid a Republican filibuster. Earlier in the week, Reid unveiled a consolidated healthcare bill having merged provisions of the Senate's Finance and Health, Education, Labor & Pension (HELP) Committee bills. While securing the 60 votes was a major victory for Reid, several moderate members of his caucus signaled that their votes were designed to allow debate to take place and not an indication of guaranteed support of the bill.

According to the Congressional Budget Office (CBO), the new Senate bill will cost taxpayers an estimated $849 billion. According to Reid, if passed the measure would cover an additional 31 million people currently without health insurance. The CBO also reports that the Senate bill could reduce the deficit by $127 billion over a decade. The bill would establish a government-run health insurance plan, often referred to as the public option. It would also create an insurance exchange and allow for the sale of coverage across state lines. Pre-existing conditions would be eliminated as would most lifetime maximums. The Senate bill also would set up insurance co-ops which are not-for-profit plans that would compete with both private plans and the new government option. The bill includes requirements that all Americans have insurance, expands Medicaid to 133 percent of the poverty level and provides tax credits for low-income people without employer-sponsored coverage.

Additionally, the bill imposes a series of new requirements and obligations for employers. Most significantly is the creation of a federal panel that will decide which employer plans qualify as meeting a new federal qualification standard. Plans that do not meet the standard shall be taxed or required to alter their coverages to meet the standard; in essence creating a new federal standard for employer-based plans.

The Senate bill is more than 2,400 pages in length and so a complete analysis has not yet been performed by any major organization. Below are additional significant highlights:

New Taxes on "Cadillac" Health Plans

• The bill would impose a 40 percent tax on the gross value of employer-sponsored health coverage (regardless of if employers or employees pay for the coverage) for plans valued above the federal imposed threshold amounts, effective January 2013;
• The tax would be levied on the cost of the insurance, but would ultimately be passed along to the consumer;
• The threshold amounts on these high-cost plans will be $8,500 for single coverage and $23,000 for family coverage;
• Beginning in 2013, thresholds would be indexed for general consumer price inflation, plus 1 percent.
• The thresholds would be adjusted in the 17 Highest Cost States by 20 percent, 10 percent, and 5 percent in the first three years, using 2012 data.

Requirements and New Taxes for Employers

• Employers would not be required to offer coverage to employees. However, if employers with 50 or more full-time employees (30 hours and above) do not offer coverage where they (the employer) cover at least 60 percent of the costs of coverage or their coverage exceeds 9.8 percent of the employees' household incomes (indexed for inflation in 2014), then employees may apply for a waiver from the state to receive tax credits for exchange coverage in 2014. The bill would not count employees hired for fewer than 120 days, retail works hired exclusively during the holiday season or seasonal employees (defined by the Department of Labor) toward the 50 or more full-time employee trigger for the assessment. New employers' assessments would be based on the average number of employees these employers are "reasonably expected" to hire during the calendar year;
• If employees receive waivers from the state exchanges or employers with 50 or more full-time employees do not offer coverage and have at least one full-time employee receiving the tax credit then employers would be assessed the lesser of $3,000 for each of those employees receiving a tax credit or $750 per each employee in 2014;
• Employers with extended waiting periods of 30 to 60 days would be assessed $400 tax per the total number of full-time employees. Employers with enrollment periods over 60 days would pay an additional $600 tax per total number of full-time employees;
• The new taxes will not tax deductible;
• The Department of Labor would be required to conduct a study to determine if the new taxes lead to a reduction in employees' wages.

Minimum Benefit Requirements

• Employers must provide first dollar coverage for preventative care;
• All employer plans will be required to offer coverage of dependent children until age 26 regardless of student status;
• Employers shall be obligated to eliminate any waiting periods that are greater than 90 days;
• Unreasonable annual or lifetime limits and maximum shall be banned;
• All out-of-pocket maximums shall be no more than the current Health Savings Account amounts;
• Beginning in 2013, employers with at least 200 employees who offer coverage must automatically enroll new employees in one of their group plans with the opportunity for employees to opt-out.

New Employer Notification Requirements

• Employers will have to provide notice to their employees informing them of the insurance exchange and if they are eligible for a tax credit because the employers' share of the total benefit costs is not 60 percent or more;
• Employers would also notify employees that if they purchase exchange plans, they lose the employers' contribution (if any) to their health benefits plans;
• Employers will be required to report aggregate value of health benefits on employees' W-2s beginning in 2011. Amounts would include the aggregate value of medical benefits, vision, dental and supplemental insurance coverage, but not the amount of any salary reduction contributions to a flexible spending account (FSA).

Health Savings Account (HSA) and Flexible Spending Account (FSA) Changes (effective 2011)

• The penalty on HSA distributions that are not for qualified medical expenses shall increase to 20 percent for people younger than age 65;
• Annual FSA contribution will be maxed at $2,500 per family;
• Over-the-counter (OTC) medicines without a prescription shall no longer be eligible under FSA plans.

Wellness Incentives

• The bill shall allow employer based plans to offer employees up to a 30 percent discount for participation in wellness programs if approved by the Departments of HHS, Labor and Treasury;
• The government may increase the amount to 50 percent in future years. The bill would require the federal CDC to study and evaluate best employer-based wellness practices and provide an educational campaign and technical assistance to promote the benefits of worksite health promotion to employers.

Medicare Advantage Changes

• The bill would reduce Medicare Advantage (MA) payments by 3 percent in 2011, base Medicare Advantage payments on a blend of current benchmarks and plans' bids in 2012 and 2013 and move to a full competitive bidding process to base payments on the average of plan bids, beginning in 2014.
• MA plans could grandfather their extra benefits in areas where average plan bids are less than 75 percent of local fee-for-service costs, in 2012.
• The federal government would provide transitional benefits in 2012 to seniors who enroll in MA plans and experience a "significant reduction" in extra benefits from competitive bidding in certain areas: the two largest metropolitan areas if benefits are less than $100/month; and in other areas of the country where MA penetration is less than 30%; and MA plans bid below local fee-for-service costs.

Voluntary Disability Program

• Employers would automatically enroll employees in a new national voluntary disability benefit program (employees could opt-out) and the federal government would deduct premiums ($65 per month, at most, but as little as $5 for low-incomes) from employees' paycheck that would pay $50 per day, after year five to purchase nonmedical services and supports people who need to maintain independence at home or in a community residential setting of their choice. HHS would periodically adjust premium rates to assure solvency of the program for 75 years.

Individual Coverage Requirement Maximum Penalty

• People who do not purchase coverage in the first year of the exchanges would be exempt from penalties in 2013 and would pay $95 in 2014; $350 in 2015; $750 in 2016 that would be annually indexed for inflation thereafter. For those under the age of 18, the applicable penalty would be one-half of the amounts listed above. Exceptions would be made for "unaffordable" coverage and people with religious objections.

Impact

The Senate is expected to start debate almost immediately and last for several weeks. Several Senators from both parties are expected to propose amendments that may materially alter the current complexion of the bill. Objectively, many pieces of the bill will result in increased costs for employers and the government will have greater say over the make up and set up of group plans. Many of the changes erode the protections of ERISA and the full impact of the bill shall not be known until a final bill emerges after the amendment and debate process.

Conner Strong continues to monitor developments related to national healthcare reform. Please visit www.connerstrong.com/healthcare_reform for more information. 

(Sources: NBGH, US Senate, Kaiser News)