June 29, 2012
The United States Supreme Court has upheld the federal health care reform law, known as the Patient Protection and Affordable Care Act (ACA). While some of the changes have already gone into effect, the most sweeping changes will occur in 2014 and 2018. These changes will have significant effects upon how employers, including school districts and other public agencies, provide health insurance to their employees. Because the implementation of these changes must be negotiated with employee unions, it is important to begin planning right away. Below, we will summarize the biggest upcoming changes to the provision of health care.
The ACA has three fundamental pillars:
- Health care exchanges,
- The employer mandate, and
- The individual mandate.
The employer mandate subjects employers to penalties for not providing access to affordable insurance to employees. The individual mandate provides penalties against individuals who choose not to have health insurance. The health care exchanges are a new insurance market in which people who do not receive affordable health insurance from their employers can buy government-subsidized health insurance. The health care exchanges, employer mandate, and individual mandate all become effective on January 1, 2014.
Additionally, a significant tax on high-value health care plans will become effective on January 1, 2018.
Health Care Exchanges
The health care exchanges will be state-wide marketplaces for individuals to purchase health insurance. California has been aggressively developing its exchange since the passage of the ACA, and it is anticipated that the exchange will be ready by the January 1, 2014 deadline. More information regarding California’s exchange can be found at its website.
Individuals who purchase insurance through an exchange may be eligible for a federal subsidy for the insurance. Such subsidies are available for
- Earn less than four times the federal poverty level. (The poverty level varies by family size and is annually adjusted, but for 2012, the poverty level for a family of one is $11,170, and for a family of four is $23,050),
- Are either not offered insurance by their employer or the offered insurance either costs more than 9.5% of the employee’s household income or pays less than 60% of covered costs, and
- The employee purchases insurance through the exchange rather than through the employer.
Initially, the exchanges will only be open to individuals and small employers with fewer than 50 employees. However, it is possible that at some point in the future the exchanges will be opened to larger employers.
The ACA generally requires employers–including public agencies–to offer health care insurance to employees, or to be subject to penalties. Additionally, employers of 200 or more employees are required to automatically enroll employees in an employer-sponsored health insurance plan.
Penalties under the employer mandate will generally be assessed against:
- Large employers (50 full-time equivalent or more employees) who
- Do not offer insurance to at least one full time employee, or offer insurance, but at least one full time employee’s contribution to the self-only premium exceeds 9.5% of the employee’s household income, and
- At least one such employee obtains federally-subsidized insurance through a health care exchange.
The plans offered by employers must meet minimum standards of coverage that will be established by the state. These minimum standards are still under development.
Some school districts have bargained health coverage arrangements in which the district makes group health plans available, but the employees pay the full cost of their insurance. This appears to fulfill the requirement of “offering” insurance. The insurance plan offered must meet certain requirements regarding the variety of health services covered, and the plan must pay for at least 60% of covered health care expenses.
However, if just one full time (30 hours/week or more) employee’s contribution to his or her own insurance exceeds 9.5% of the employee’s household income, and that employee purchases subsidized insurance through an exchange, then the employer would be subject to a penalty.
The employer penalty for failing to provide sufficient insurance coverage is the lower of the following, on an annualized basis:
- $2,000 for each full time employee, except that 30 employees are deducted from the calculation.
- $3,000 for each full time employee who receives subsidized insurance through an exchange.
Individuals who choose not to maintain minimum levels of health insurance will be subject to tax penalties. Those penalties are phased in gradually, and are the greater of:
- For 2014, $95 per uninsured person or 1% of household income.
- For 2015, $325 per uninsured person, or 2% of household income.
- For 2016 and later, $695 per uninsured person or 2.5% of household income.
There are a number of exemptions to the mandate, such as an exemption for individuals whose religion forbids health care.
Effective January 1, 2018, there will be a new 40% tax on health plans with premiums that exceed $10,200 for individuals or $27,500 for families. Separate vision and dental benefits are not included in the calculation of this cap.
In sum, the ACA will change who employers must provide insurance to, what that insurance must include, and how the insurance is provided. All of these changes must be negotiated with the relevant unions, and must be implemented by January 1, 2014, except for the “Cadillac tax” which is not negotiable and does not become effective until January 1, 2018.
Daniel A. Osher
Shareholder and Special Education Practice Group Co-Chair
©2012 Lozano Smith
As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.