Employers and the Health Reform Law

Laura Gerdes Long

By Laura Gerdes Long

On June 28, 2012, the Supreme Court, in a 5-4 decision, upheld the Patient Protection and Affordable Care Act (the “Act”), more commonly known as the health reform law, including the highly controversial individual mandate. While the Court limited the Act’s planned expansion of Medicaid, the decision was overwhelmingly a “win” for President Obama.

Now that President Obama has been elected to a second term, those who resisted implementing the first set of provisions (waiting for the Court to rule) will have to begin earnestly working to comply with both provisions already in effect and forthcoming provisions, including key provisions which require compliance in 2014: the individual mandate and the employer mandate.

Provisions currently in effect include:

  • No lifetime limits on coverage.
  • Restrictions on annual limits.
  • No “rescissions,” meaning health plans cannot cancel coverage once you are sick unless you committed fraud when you applied for coverage.
  • Dependent care coverage is provided up to age 26 for adult children without employer-sponsored coverage.
  • Federal small business tax credits have also been available for employers who provide coverage, with credits differing depending on the size of the company and increasing to 50 percent in 2014.
  •  Many consumer employees have already experienced not having to pay out-of-pocket costs for certain preventative services, such as breast cancer screenings and cholesterol tests, and the disqualification of over-the-counter drugs as medical expenses for Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
  • Insurers will have to provide rebates to consumers if they spend less than 80 to 85 percent of premium dollars on medical care.

The impact of both the individual mandate and the employer mandate will not be fully known until closer to 2014; however, there has been great speculation about who will be most impacted.

The individual mandate will force those who do not have health insurance to secure such, or pay a fine. The Act, however, scales back the fines for the very poor, and provides exceptions for others, like adults under 26 who may remain on their parent’s plans. Thus, the biggest issue for individuals with employer-sponsored health insurance plans is whether their employer, just as they were able to do before the law was passed, will drop coverage, or substantially alter it, causing higher deductibles, a change in premiums, co-pays or network coverage. Many employers are weighing these options.

More than 160 million people get their health insurance directly through their employer.  Employees, like employers, are concerned how the Act will affect them.  For those employers with fewer than 50 employees, there will be no requirement that they provide insurance.  Some fear that this provision may lead to employers with just over 50 employees to cut jobs to avoid having to pay for insurance or paying the fine. Employers in the retail and hospitality industries, who have large numbers of part-time and lower-paid workers, will likely be some of the most affected.  For those employers who have 50 or more employees, who work 30 hours or more per week, they must extend coverage, or face penalties.  If they do not provide insurance, there will be a fine of $2,000 per employee, with the first 30 employees excluded from the fine.

The Mercer consulting firm conducted a survey after the Act was upheld, and found that more than 60 percent of employers anticipate some increase in their health benefit costs due to the Act. Of the 1,203 employers surveyed, six percent said they were likely to stop providing health benefits after the insurance exchanges open. In the retail and hospitality industries, that number rose to nine percent.

Overall, many employers are rethinking their strategy for addressing employee healthcare costs. The most likely outcome will be employers shifting costs to the employees in the form of higher deductibles and premiums, while continuing to provide insurance.  Others may decide to dispel with healthcare coverage all together.  According to the 2013 Walmart “Associate’s Benefit Book,” the employer plans to deny health insurance to employees hired after February 1, 2012, who do not work over 30 hours per week, as of January 2013. Therefore, in states which have elected not to participate in the Medicaid expansion, Walmart employees who work fewer than 30 hours per week will be without a means to access healthcare for themselves and their families.  In states expanding Medicaid coverage, eligibility will be determined by whether a person makes less than 133 percent of the poverty rate or $14,403 a year.

In related activities, in Missouri, the federal government will run the health insurance exchange, which is supposed to go live in 2014.  November 16, 2012, was the deadline for states to report to the federal government how they will run the exchange; instead Missouri voters approved Proposition E, limiting the governor from setting up an exchange by requiring legislative approval.  Illinois, on the other hand, plans to set up a state-based insurance exchange, which will allow small businesses and individuals to purchase private health insurance and compare prices online.  Small businesses and self-insured employers may find the insurance exchanges appealing because they will give companies a simpler method of comparison shopping.

At this point, only time will tell what all the ramifications are, but employers would be wise to review all of their options before hastily moving forward.

Posted by Attorney Laura Gerdes Long. Long practices in tort, insurance defense, legal malpractice, health care, and employment law. Well-versed in employment law policies and processes related to HIPAA, she serves as a trainer and advisor to health care providers, insurers, self-insured employers, and municipalities.


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