The first wave of health care reform hit employer health plans in 2011. Employers generally have digested that set of rules, but questions persist and controversies continue to erupt.
The second wave will hit in 2014, and many employers have not even begun to grapple with those rules. On top of these areas of perplexity lays the biggest question – whether health care reform is constitutional.
Despite all of the uncertainty, employers should continue planning and compliance efforts, rather than assume the law will be thrown out.
2011 rules
Health care reform’s coverage rules, such as preventive care mandates and restrictions on dollar limits on covered expenses, generally have been in place for over a year. However, ambiguity remains in many areas. One example is the recent controversy regarding the extent to which the preventive care mandate requires religiously affiliated employers to provide coverage for contraception.
Further, it remains uncertain which types of medical services and treatments may be excluded from the restrictions on annual and lifetime dollar limits.
Finally, certain insured plans will become subject to tests designed to prevent eligibility and coverage discrimination in favor of highly-paid employees. We do not yet know what types of arrangements will violate these tests. For example, a plan that provides more robust coverage to salaried employees as compared to hourly employees may be problematic. Additionally, it is unclear whether an employer with an insured plan may pay a larger portion of the required premium for higher-paid employees as compared to others.
The IRS is expected to flesh out these rules in 2012, but it is uncertain whether existing arrangements will be grandfathered. Consequently, employers with insured plans should discuss these rules with legal counsel to determine their potential impact.
2014 rules
The second wave of health care reform will hit employer plans in 2014. Most importantly, the “pay or play rules” will go into effect. Under those rules, employers with 50 or more full-time employee equivalents during the preceding calendar year will pay a penalty if (1) they do not provide satisfactory health plan coverage; and (2) at least one full-time employee receives federal premium assistance under new insurance exchanges.
Some speculate that many employers will drop health insurance for employees and pay the penalty instead. However, the relevant considerations are complex. Many employers view health insurance as a recruiting tool, which is difficult to value. Additionally, an employer may deduct health insurance costs, but not the penalty. Finally, employees will view the loss of insurance as a takeaway, so they will expect something in exchange. The most likely substitute is increased pay, but those amounts will be subject to income tax for the employee and payroll taxes from both the employer and the employee. Consequently, employers may conclude that a dollar spent on health insurance provides more bang for the buck than other alternatives.
Constitutionality?
On top of these items of uncertainty, the constitutionality of the “individual mandate” will be decided by the U.S. Supreme Court. The individual mandate is the primary lynch pin of health care reform. It will require most Americans to have health insurance starting in 2014 or pay penalties. If the Supreme Court finds the individual mandate to be unconstitutional, it may throw out health care reform in its entirety or just the individual mandate.
If the Supreme Court concludes the individual mandate is unconstitutional but upholds the remainder of health care reform, it is unclear which, if any, of the remaining pieces could survive. The individual mandate will force healthy people into the insurance pool. These individuals’ health insurance premiums are expected to reduce the impact of coverage mandates with respect to unhealthy individuals. Without the individual mandate, health care reform’s other coverage rules may not be workable.
Politically, it is unlikely health care reform will be repealed unless Republicans maintain their control over the House of Representatives, capture control of the Senate and defeat President Obama. Even if all three occur, Republicans likely would need to hold at least 60 seats in the Senate to defeat a Democratic filibuster that otherwise could prevent repeal.
Despite all this uncertainty, employers should not assume that health care reform is unconstitutional or that any of its provisions will be thrown out. Instead, employers should work with their advisors to mitigate risks and evaluate opportunities. The stakes are too high for poor planning.
