Looking into the crystal ball of health care reform
Roughly 18 months ago, Congress passed historic health care reform legislation. Since then, many major pieces of the law (referred to as "PPACA") have been implemented. Some of the changes impacting employer-sponsored health plans that are already in effect include:
• The small business health care tax credit;
• Ban on lifetime benefit limits, and restriction on annual benefit limits;
• Extension of coverage to dependents under age 27; and
• Mandated coverage for preventive health services.
These new rules are just the start of the health care reform journey. Employers are heading into open enrollment season for 2012 plan operations, so now is a good time to look at what changes are coming in the next year or two. And many employers may be wondering what the long-term prognosis is for health care reform. Are the legal challenges to PPACA likely to be successful? Will Congress act to repeal the statute?
Health Care Reform in 2012
There are three provisions of PPACA affecting employer plans slated to come into effect in 2012. The first is the requirement that employers report the value of group health coverage on employees' W-2 forms. The amounts must be reported on the W-2s for 2012 (distributed to employees by January 31, 2013). Reporting was voluntary for 2011. The 2011 version of the Form W-2 provided for the reporting in Box 12, under new code "DD." The value of the coverage is calculated on a calendar-year basis, regardless of whether the health plan uses a fiscal year for coverage purposes.
There are a few notable exemptions from the Form W-2 reporting requirements. If the employer is not otherwise required to issue a Form W-2 for the participant (such as for a retiree), reporting is not required. Neither is reporting required for an individual who requests a W-2 mid-year. In addition, employers issuing fewer than 250 Forms W-2 for the preceding calendar year are exempt. Grandfathered plans are not exempt from the W-2 reporting requirement.
The second provision of PPACA scheduled to begin in 2012 is the required four-page summary of benefits and coverage. Accompanying the so-called "SBC" is a uniform glossary of terms commonly used in health insurance coverage. Insurance companies and employer group health plans (including grandfathered plans) must begin providing these documents beginning on March 23, 2012.
In August, the federal agencies issued proposed rules that include standardized forms of the SBC and glossary. One feature of the SBC is that it will include a standardized plan comparison tool with "Coverage Examples" illustrating common benefits scenarios: having a baby, treating breast cancer and managing diabetes. The SBC and glossary must be provided prior to initial enrollment, prior to renewal, 60 days prior to coverage changes and at any time on request. These disclosures are in addition to the various notices and documents already required of employer health plans, such as the summary plan description (SPD), WHCRA notice, COBRA notices and notice of grandfathered status.
The third provision of PPACA affecting employer plans in 2012 is the fee, payable by health insurers and self-funded employer health plans, to fund research on patient-centered outcomes. The statute calls for the fees to begin for plan years ending after September 30, 2012, and are $1 times the average number of covered lives ($2 after September 30, 2013, and thereafter indexed for inflation). The fee does not apply to certain limited-scope dental and vision plans and most medical flexible spending arrangements, but does appear to apply to grandfathered plans. The IRS has requested comment on the fee so it is likely that additional guidance will be forthcoming in 2012.
Legal Challenges to Health Care Reform
The popular press has widely covered the various legal challenges to PPACA. Currently, there have been 24 lawsuits brought. Most of them take aim at the requirement that individuals purchase health insurance starting in 2014. Proponents of the individual mandate argue that the mandate is within Congress's power to regulate interstate commerce. They also argue that the provision isn't a mandate at all, but instead is simply a tax. Opponents argue that it is beyond the commerce clause and the power to tax, and that it is also an unlawful violation of states' rights reflected in the Tenth Amendment.
As the cases currently stand, one case finds that PPACA violates the Constitution, three find that it does not, six are no longer active (case either withdrawn or dismissed on procedural grounds), and 14 have not reached a decision. Regardless of the tally, the ultimate decision on PPACA's legality will be decided by the U.S. Supreme Court. In late September, the Obama administration unexpectedly took an action that will accelerate the process of bringing the matter to the Supreme Court. The administration decided not to prolong appeals of the case that found the law unconstitutional, and asked the Supreme Court to hear the case. Most likely arguments will be presented in the spring, with a decision expected by June 2012 -- just in time to add spice to the 2012 presidential campaign and election!
Will PPACA Be Repealed?
The popular press also provides much exposure to political speeches and demands from various private interests calling for the repeal of various aspects of PPACA. Earlier this year, the House of Representatives voted for repeal, in what was generally agreed to be a symbolic measure. Most pundits say that despite public pressure from some interests, there is little chance of further congressional action to repeal the law at least until after the 2012 presidential election.
The Crystal Ball
There is much that is currently unknown about the future of health care reform. What is certain is that 2012 is shaping up to be an eventful year for the historic legislation. Employers should be prepared to implement the three provisions coming into effect, and to be alert for any decision from the Supreme Court on the law's constitutionality. And of course, it is always possible that the 2012 presidential election will bring winds of change as well.
Elizabeth Nedrow is a partner in Holland & Hart's Benefits Law Group. In addition to her deep experience with health care reform, she also advises employers on all other aspects of employee benefits including executive and equity compensation, mergers and acquisitions, and pension plans. She is currently a member of the firm's Management Committee,