Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

In general, this bill would require most large employers to provide health insurance to their employees, or contribute funds (in the form of an 8 percent payroll tax) on their behalf to help subsidize coverage in a newly-created Health Insurance Exchange (“Exchange”). A summary of the bill describes the Exchange as:

a transparent and functional marketplace for individuals and small employers to comparison shop among private and public insurers. It works with state insurance departments to set and enforce insurance reforms and consumer protections, facilitates enrollment, and administers affordability credits to help low- and middle-income individuals and families purchase insurance. Over time, the Exchange will be opened to additional employers as another choice for covering their employees. States may opt to operate the Exchange in lieu of the national Exchange provided they follow the federal rules.

As part of the employer “pay-or-play” option as described in a summary of the shared responsibility portion of the bill:

• Employers would contribute 72.5 percent of the cost of premiums for all full-time employees’ health coverage and 65 percent for a family policy.
• Employers have the option of providing part-time employees with health coverage by contributing a share of the expense, or contributing to the Exchange in order for part-time employees to seek coverage there.
• In the fifth year after the Exchange begins, companies that offer health insurance would have to meet minimum coverage standards like those required of plans in the Exchange.
• If an employer chooses not to offer health coverage to its employees, a penalty will be assessed based on the size of company’s payroll, which will fund the Exchange.

Small businesses with payrolls under $250,000 are exempt from the pay-or-play mandate. For businesses with payrolls over $250,000, the payroll penalty would start at 2% and rise to the full 8% for businesses with annual payrolls over $400,000. A small business tax credit would be available for small firms that chose to provide health insurance.

Portions of this bill regulating insurance coverage and market reforms have also raised concerns in the insurance industry. This bill would prohibit preexisting condition exclusions in health insurance plans, in addition to lifetime and annual limitations on benefits. The bill likewise bans the practice of charging higher health insurance rates based on factors such as gender or health status. Premiums would be allowed to vary based on age (to a limited extent), geography and family size only. Insurers would also be prohibited from refusing to sell or renew policies based on an individual’s health status.

Markup of this legislation is expected to begin later this week, with the goal of holding a vote before the August recess. Given the controversy surrounding healthcare reform plus the estimated $1 trillion price tag, it is questionable whether this deadline will be met. 

In related news, the Senate Health, Education, Labor and Pensions Committee voted 13-10 today along party lines to approve the Senate’s healthcare overhaul bill. This bill will need to be cleared from four other Senate committees before it can be put up for a final vote. 
 

Of great significance for employers, the bill mandates that employers either provide health coverage to their workers, or share in the cost of employees obtaining their own insurance. Various options outlined in the bill include such a “pay or play” scenario, whereby employers (excluding small employers) that do not offer specified coverage pay a per-worker fee. Another option known as the “free rider penalty” would not require employers to offer health coverage, but would insist that any large employer whose employees are on Medicaid must repay the government some fraction of the cost for that employee’s Medicaid coverage. Similarly, if an employee chooses a public health insurance option that is deemed more affordable, a third option would require employers to pay the government the amount the employer would have paid for the employee’s coverage had the employee chosen the employer-sponsored insurance plan. Yet another option provides employers with tax incentives for encouraging healthy behavior. Small businesses would be exempt from many of these provisions, and would be eligible to receive tax credits based on the number of full-time employees, the proportion of employees provided health insurance, and employee wages.

Markup of the bill is scheduled to begin on Wednesday, June 17.

Meanwhile, the House has issued a document outlining its own healthcare plan. (pdf)  Drafted by the House Committees on Ways and Means, Energy and Commerce, and Education and Labor, the plan would create a national health “exchange” that would allow individuals and small employers to “comparison shop” among private insurers and a proposed public health insurance option. The proposal would allow states the option of developing a state or regional exchange in place of the national one. According to the House’s proposal, the public health insurance option would compete on a “level field” with private insurers.

Additionally, under the House proposal, individuals, employers, and the government would share the responsibility for providing and paying for healthcare. According to the outline of the plan:

• Once market reforms and affordability credits are in effect to ensure access and affordability, individuals would be responsible for having health insurance with an exception in cases of hardship;
• Employers would choose between providing coverage for their workers or contributing funds on behalf of their uncovered workers (the “pay-or-play” option);
• Government would be responsible for ensuring affordability of insurance through new affordability credits, insurance market and delivery system reforms and oversight of insurance companies; and
• Small, low-wage businesses would be exempt from these requirements. In addition, the plan would provide a new small business tax credit for those firms that provide health coverage.

The House has stated that its goal is to pass such a healthcare bill by the August recess. Since both the House and Senate proposals continue to face criticism from both Republicans as well as Democrats, these bills will likely be significantly amended before they are put up for a vote.

Much of the criticism surrounding these healthcare reform proposals has focused on the public plan option. In place of a government-run plan, some have come out in favor of creating a non-profit insurance cooperative (“co-op”) that would be owned and operated for the benefit of its members, which includes individuals and businesses with fewer than 10 employees. Sen. Kent Conrad (D-ND) suggested such a plan last week.  According to an article by The New York Times, some Republicans have been receptive to this idea, so long as it is not run by the government. Additionally, Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, has also indicated that he is “inclined toward” such a cooperative approach. Whether such an option will work its way into the final legislation remains to be seen.