<nobr>Mar 23, 2010</nobr>

President Obama Signs Senate Health Reform Bill Into Law

Earlier today (March 23) President Obama signed into law the "Patient Protection and Affordable Care Act," HR 3590. This bill is the legislation that the Senate passed on December 24, 2009, and that the House passed on Sunday.

Note that the sidecar reconciliation bill (HR 4872) approved by the House Sunday night must still be voted on by the Senate, so the bill that became law today is ONLY the final Senate bill, just as it was approved by the Senate in December.

The sidecar measure, HR 4872, is the one that would amend the Senate bill, HR 3590, to conform it to the changes agreed to by the President and Congressional Democratic leadership. The sidecar changes were described in a March 20th update, which can be accessed by clicking the following link:

http://www.eric.org/forms/documents/DocumentFormPublic/view?id=1FAF300000001

The Senate will take up the sidecar bill very soon, possibly starting as early as today. The bill will be considered under the reconciliation process, which means that it needs only a simple majority vote to pass, and not the 60 votes that are needed to fend off a filibuster. The problem for the Congressional Democratic leadership, however, is that to turn the sidecar bill into law, the Senate must pass the measure unchanged from the version approved by the House on Sunday. If the Senate makes any changes at all, it must go back to the House for another vote.

Because of the uncertainty surrounding passage of the sidecar fixes to the Senate bill, we decided to provide you with a description of the Senate bill, HR 3590, as approved by the Senate on December 24. This is the bill that became law today and that the sidecar bill, if enacted, will change. In the description below, we refer to the "Senate bill" for purposes of emphasizing that we are referring only to the Senate bill as enacted today and not to the Senate bill as fixed by the sidecar.

Overview of the final Senate bill (HR 3590) as enacted today but as yet unchanged by the sidecar bill (HR 4872): The Senate healthcare reform bill sets up an exchange framework to act as a clearinghouse for the purchase of health insurance by individuals and small businesses. The ceiling for Medicaid eligibility is raised (in this case, to 133% of the federal poverty level), and a new category of "childless adults" will become eligible for benefits. (133% of the FPL is $14,436 for one person and $29,393 for a family of four for 2009.) Almost all individuals will be required to have health insurance, and those who do not will be penalized; subsidies will be given to those with income up to 400% of the FPL for whom insurance is not affordable.

Free rider penalty: Employers with more than 50 full-time employees (defined as working at least 30 hours per week) will be subject to a "free rider" penalty, whether or not they offer health plans, if at least one employee enrolls in subsidized coverage through the exchange. The penalties will be different, though, depending on whether or not the employer offers coverage to employees.

Penalty where no coverage offered: If the employer does not offer coverage to fulltime employees and dependents, the monthly penalty will be the "applicable payment amount" (APA) times the number of fulltime employees in that month. The APA initially will be set at 1/12 of $750, and the $750 amount will be indexed.

Penalty where coverage is offered: In this case, the penalty will be 400% of the APA (thus initially 1/12 of $3000) times the number of employees receiving a public subsidy during the month. This amount will be capped, however, at an employer's total number of full-time employees for a month times the APA.

Effective date: Months beginning after 2013.

Waiting period penalty: Employers that set waiting periods for plan entry that exceed 60 days will be subject to a penalty of $600. The penalty will apply for each full-time employee subject to the waiting period.

Effective date: Months beginning after 2013.

Excise tax on "Cadillac" plans: The Senate bill will be paid for, in considerable part, by an excise tax on "high-cost" insurance. A 40% excise tax will be imposed on insured and self-funded plans with premiums exceeding $8,500 (for singles) and $23,000 (families) in the group market. The tax will be imposed on the value of coverage exceeding these thresholds, which will be indexed for inflation (CPI U + 1%). Higher threshold amounts will apply for retirees, workers in high-risk professions or who repair or install electrical or telecommunications lines, and longshore workers; these thresholds will rise to $9,850 for singles and $26,000 for families.

Amounts potentially subject to the tax include the value of health coverage, health flexible spending accounts (FSAs), Health Reimbursement Accounts (HRAs), employer contributions to Health Savings Accounts (HSAs), and dental and vision plans. A three-year transition rules will apply to 17 high-cost states.

Effective date: Taxable years beginning after 2012.

Medicare Part D Retiree Drug Subsidy: The Senate bill will eliminate the deductibility of an amount equal to the Part D subsidy for employers who maintain prescription drug plans for Part D eligible retirees.

Effective date: Taxable years beginning after 2010.

Auto enrollment: Employers with more than 200 full-time employees will be required to provide for the automatic enrollment of their new full-time employees into their health plans (subject to any waiting period authorized by law).

Effective date: In accordance with regulations promulgated by the Secretary of HHS.

Class Act: A provision in the Senate bill will create a voluntary federal program for long-term care insurance that will be self-funded. Workers will be able to purchase coverage via employer-administered payroll deduction.

Effective date: In general, the program will take effect on January 1, 2011.

Consumer protections applicable to group health plans, regardless of grandfathered status: Provisions applicable to large group health plans (outside of the exchanges) include the following:

Effective for plan years beginning on or after the date of enactment:

• Uniform summary of benefits: Group health plans, including grandfathered plans, must provide plan participants with a uniform summary of benefits and explanation of the benefits provided by the plan, using standardized definitions. Applies to grandfathered health plans for plan years beginning on or after the date of enactment; and


• Reporting and rebates: Group health plans, including grandfathered plans, must annually report specified medical expenditures to the Secretary of HHS and also provide rebates to enrollees if a specified medical loss ratio is exceeded.

Grandfathered plans: A number of restrictions will apply to individual insurance policies and to group health plans, although some "grandfathered" plans (apparently those that provide coverage on the date of enactment) will be exempt from these limits. These provisions are divided by effective date below:

Effective for plan years beginning on or after the date that is six months after the date of enactment: Provisions applicable to large group health plans (outside of the exchanges) include the following:

• Lifetime limits: Plans may not impose lifetime limits on the dollar value of benefits for any participant or beneficiary for those benefits that are deemed to be "essential health benefits" under the Senate bill;


• Annual limits prior to 2014: Plans may set only a "restricted annual limit" on benefits deemed to be "essential health benefits" under the Senate bill; the Secretary of HHS will define what these limits may be;


• Annual limits for plan years beginning in 2014 and thereafter: Plans may not impose annual limits on the dollar value of benefits for any participant or beneficiary for those benefits that are deemed to be "essential health benefits" under the Senate bill;


• Prohibition on rescissions: Plans may not generally rescind health coverage for a plan participant once covered under the plan;


• Coverage of preventive services: Plans must provide certain preventive services and may not impose cost-sharing on these benefits;


• Coverage of adult dependents up to age 26: Plans that offers family coverage must make dependent coverage available for an unmarried adult child until the child turns age 26;


• No discrimination based on salary: Plans other than self-insured plans are prohibited from discriminating on the basis of salary with respect to health coverage; and


• Appeals and review: Group health plans will need to implement an appeals process for appeals of coverage determination and claims that will, among other things, include a binding external review process. Employees who appeal a decision must receive continued coverage pending the outcome of the appeal.

Effective for plan years beginning on or after January 1, 2014: Provisions applicable to large group health plans (outside of the exchanges) include the following:

• Group health plans may not impose any preexisting condition exclusion with respect to the plan (this provision is effective for plan years beginning on or after the date that is six months after the date of enactment for enrollees under age 19);
  
• A health insurance issuer that offers health insurance coverage in the group market must renew or continue in force such coverage at the option of the plan sponsor;


• A group health plan may not establish rules for eligibility or continued eligibility for enrollment based on specified health status-related factors (such as medical history or genetic information) of the individual or a dependent of the individual;


• A group health plan may not impose annual limits on cost-sharing that exceed the dollar amounts in effect under section Internal Revenue Code 223(c)(2)(A)(ii) (pertaining to out-of-pocket expenses for high deductible health plans) for self-only and family coverage; and


• A group health plan may not impose a waiting period that exceeds 90 days.

The Wyden "choice" provision: This will create a voucher system for employees whose required contribution to an employer plan exceeds 8% of their household income but is below 9.8%; employees in this category may take the amount their employer otherwise would spend for an employee in the plan in which the employer paid the largest share of the employees premium and use it instead to purchase a plan in the exchange.

• To be eligible for the voucher, an employee's household income may not exceed 400% of the federal poverty level ($43,320 for one person in 2009; $58,280 for 2; $73,240 for 3; $88,200 for 4);


• If the exchange plan is less expensive than the employer's plan, the employee may pocket the difference; the voucher will be tax free to the employee, except that any amounts that exceed the premium cost will be taxable;


• The amount of the voucher will reduce the free rider penalty that the employer otherwise would pay for an employee receiving subsidized premiums through the exchange.

Effective date: Vouchers provided after 2013 and periods beginning after 2013.

Other important elements of the final Senate bill include:

• An additional 0.9% hospital insurance tax will be imposed on wages over $200,000 for individuals and $250,000 for couples (effective for taxable years beginning after 2012);


• Subject to some restrictions, employers will be permitted to give higher rewards to employees who participate in wellness and prevention programs; although the basic reward will be limited to 30% of the cost of employee-only coverage, the law permits HHS, Labor, and Treasury to increase this amount to 50% (effective for plan years beginning after 2013);


• Employers will be required to annually report the value of an employee's employer-provided health benefits on the W-2 (effective for taxable years beginning after 12/31/10);


• Contributions to a health FSA will be limited to $2,500/year, adjusted for inflation after 2011 (effective for taxable years beginning after 12/31/10);


• $5 billion will be devoted to the creation of a temporary reinsurance program for employer-sponsored retiree coverage that will reimburse 80% of claims between $15,000 and $90,000;


• Eligible claims will be those for individuals 55 to 64 years old who are not active workers (or their dependents) or eligible for Medicare;


• Effective 90 days after date of enactment; will sunset 1/1/14;


• The threshold for taking an itemized deduction for medical expenses on an individual's federal tax return will be increased from 7.5% of adjusted gross income to 10% of AGI for taxable years beginning after 12/31/12; will remain at 7.5% for those 65 and older through 2016;


• Medicare Advantage payment rates will be based on the average of bids by MA plans submitted in each market;


• A pathway at the FDA to license biogeneric drugs will be created; brand-name drugs will be given a 12-year period of exclusivity;


• The penalty for non-medical withdrawals from health savings accounts will be increased from 10% to 20% (effective for distributions made after 12/31/10); and


• The nontaxable reimbursement of OTC drugs from health savings accounts, flexible spending accounts, and health reimbursement accounts will be eliminated (effective for taxable years beginning after 2010).

What was not included: Very importantly, it does not appear that the Senate bill weakens ERISA preemption. Further, the Senate bill does not contain the provision in the House bill (the so-called "Tierney" provision) under which employers would be prohibited from reducing retirees' health benefits after those retirees had retired unless the reduction were also made to benefits for active participants. The Senate bill also does not contain a provision that would have permitted individuals to remain on COBRA until the exchanges were up and running.

Questions or comments on health reform should be addressed to either Gretchen Young, gyoung@eric.org, or Adam Solander, asolander@eric.org.

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March 20 Congressional Budget Office Report
Websites:

Enrolled Version of H.R. 3590

H.R. 4872, as Approved by House

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