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

The health care reform legislation, which costs $938 billion and is estimated to extend health insurance coverage to an additional 32 million people, contains a number of important new insurance market reforms. Some of these new requirements will become effective for group health plans within the next year. For example, mandated coverage of dependents up to age 26, restrictions on annual limits, and prohibitions on lifetime benefit, rescissions, and pre-existing condition exclusions for dependents under 19 become effective for plan years beginning on or after six month after the date of enactment of the law, which was March 23, 2010. Other insurance market reforms will not take effect until later. These include prohibitions on excessive waiting periods for coverage, annual benefit caps, and any preexisting condition exclusions, which become effective in 2014. Among the many questions about this complex legislation are if and when these insurance market reform requirements apply to health plans provided for in collective bargaining agreements.

The analysis includes an important provision of the newly-enacted Patient Protection and Affordable Care Act (PPACA) regarding the applicability of the insurance market reform requirements to “grandfathered” plans in existence on the date of enactment. Under the heading “Effect on Collective Bargaining Agreements,” Section 1251(d) of the PPACA states that in the case of health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before the date of enactment of this Act, the insurance market reforms referenced above shall not apply until the date on which the last of the collective bargaining agreements relating to the coverage terminates. The PPACA further provides that any coverage amendment made pursuant to a collective bargaining agreement relating to the coverage which amends the coverage solely to conform to the new requirements will not be treated as a termination of the collective bargaining agreement.

It is important to note that this “grandfathering” provision for health insurance coverage maintained pursuant to collectively bargained plans only applies to agreements ratified before the PPACA was signed into law and only applies through the end of the existing contract. Therefore, employers need to be aware of and prepare for new obligations that could apply as the existing contracts providing health insurance coverage come up for renewal. “Reopeners” in current contracts should also be reviewed.

Beyond insurance market reforms, other key provisions of the health care law could have longer term implications for collective bargaining. Notably, beginning in 2014, when state health insurance exchanges become operational, employers with more than 50 employees will become subject to an assessment if they do not offer health insurance and any full-time employee receives a tax credit to purchase insurance in an exchange. The assessment would be $2,000 for each full-time employee. The employer would also be subject to an assessment if they do offer coverage, but it is deemed unaffordable or does not cover 60 percent of the costs. In that case, if any full-time employee receives a tax credit, the employer must pay the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 for all full-time employees.

Another provision of the health care law – the excise tax on high cost insurance plans – has generated a great deal of controversy. The PPACA included a 40 percent excise tax on the cost of coverage in excess of a threshold amount beginning in 2013. Labor unions raised strong opposition to this provision because of its impact on generous collectively bargained plans likely to exceed the trigger amount for the excise tax. A reported agreement to carve out collectively bargained insurance plans from the excise tax, thus making them more attractive, was scuttled. Instead, the Health Care and Education Affordability Reconciliation Act, which includes a number of changes to the PPACA, delayed the effective date of excise tax for all high-cost plans to 2018. The reconciliation bill also increases the tax thresholds to $10,200 for single coverage and $27,500 for family coverage. The amounts are higher for multiemployer plans, as well as for retirees and those in high-risk provisions, $11,850 and $30,950 respectively. The reconciliation bill also provides that coverage under a multiemployer plan will be treated as other than self-only coverage, meaning it will be subject to the higher threshold. Although this provision does not take effect until 2018, it could have important implications for collectively bargained plans. Even with the higher thresholds, generously negotiated benefits could exceed the trigger or grow in cost over the life of the agreement so that the trigger is eventually exceeded. The Congressional Budget Office has opined that most employers would respond to the tax by offering plans below the threshold. Although the cost threshold is indexed for inflation, more plans could become subject to the tax over time.

To prepare for implementation of the health care reform law, employers should first review their existing collective bargaining agreements in relation to the law’s new requirements. Even if an insurance market reform does not apply until after expiration of the current contract or thereafter, employers should begin to evaluate those changes now. As the exchanges become operational, the employer assessments become effective, and the excise tax applies, existing collectively bargained health care plans are likely to be very different both in content and context. The combination of these factors, as well as the trajectory that health care costs take over time, will make negotiations ever more complex.

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Before the Patient Protection and Affordable Care Act was even signed, lawmakers had introduced legislation to repeal it. In addition, a number of states have announced that they plan to file a federal lawsuit challenging the constitutionality of the health care bill’s requirement that most individuals purchase health insurance or pay a fine.

With respect to the reconciliation bill, although a simple majority is needed to approve the legislation, Senate Republicans intend to raise a series of objections and points of order against the bill, and offer a number of amendments in order to delay the process and force the bill to be returned to the House for another round of votes. Critics of the bill will likely scour the legislation for provisions that could violate the Byrd rule – created by Sen. Robert Byrd (D-WV) – which prevents the inclusion of provisions in a budget reconciliation bill that lack a budgetary impact. If the Senate parliamentarian rules in favor of any such challenge, the Democrats would need at least 60 votes to overrule the point of order, which would not likely be feasible.

The first of such challenges failed on Monday, when Republicans claimed that the 40% “Cadillac” excise tax would impact Social Security and thus violate the Budget Act. Many more such challenges are expected, although Sen. Majority Leader Harry Reid (D-NV) has expressed hope that a final vote could come this weekend.
 

The House of Representatives narrowly approved their own healthcare reform bill, the
Affordable Health Care for America Act (H.R. 3962), last month.  Both bills exceed 2,000 pages, and contain some important differences. For example, the House bill contains a public insurance option, while the Senate bill does not. Under the House bill, most large employers would be required to either offer their employees health insurance or contribute funds (in the form of an 8 percent payroll tax) on their behalf to help subsidize the coverage they would instead obtain through a national health insurance exchange. Under the Senate bill, employers would not be required to provide health insurance to their employees, but those with more than 50 employees would have to pay a $750 fee for every employee if at least one qualifies for federal subsidies to obtain insurance through state-based insurance exchanges. The Senate bill, unlike the House bill, would impose a 40 percent excise tax on high premium health insurance plans. Both bills, however, would prohibit insurers from denying coverage or charging higher premiums based on pre-existing conditions or gender, and instating lifetime or annual coverage limits. The two bills will need to be reconciled to produce a final, unified healthcare bill that will need to once again be approved by both chambers.

According to a report (pdf) issued by the Congressional Budget Office (CBO) on Saturday, the manager’s amendment would change the Senate bill from the version unveiled in November by, among other things, expanding employer eligibility for a small business tax credit; replacing the public insurance option that would be run by the Department of Health and Human Services (HHS) with “multi-state” plans that would be offered under contract with the Office of Personnel Management (OPM); and increasing the payroll tax on higher-income individuals and families. The bill would still require most legal U.S. residents to obtain health insurance or pay a penalty; establish insurance exchanges through which certain individuals would be eligible to receive federal subsidies to reduce the cost of purchasing health coverage; impose an excise tax on insurance plans with relatively high premiums (often referred to as “Cadillac” plans); and make various other changes to the federal tax code, Medicare, Medicaid, and other programs.

With respect to employer-provided health coverage, firms with more than 50 workers that do not offer coverage would have to pay a penalty of $750 (an amount that would be indexed) for each full-time worker if any of their workers obtained subsidized coverage through the insurance exchanges. Generally, full-time workers that are offered coverage from their employer would not be eligible to obtain subsidies via the exchanges. However, employers would be required to allow certain employees to opt-out of employer sponsored coverage based on income and premium costs. These employees would receive “free choice vouchers” equal to the value of the benefits of the employer-sponsored plan that could be used to join an exchange plan. Furthermore, employers would be penalized if employees were required to pay more than a specified percentage of their annual income (9.8 percent in 2014, then indexed over time). Smaller employers that opt to offer coverage would be eligible for certain tax credits to offset premiums beginning in 2010 for firms with 25 or fewer workers and average wages of less than $50,000.

As for the “Cadillac” plans, beginning in 2013, insurance policies with relatively high total premiums would be subject to a 40 percent excise tax on the amount the premiums exceed a specified threshold ($8,500 for single policies and $23,000 for family policies, with certain exceptions).

The CBO estimates that as a result of the bill, by 2019, the number of people obtaining health coverage through their employers would be about 4 million fewer than would have been covered absent the legislation.

Regarding the coverage itself, insurers would not be allowed to deny coverage to children on the basis of a preexisting condition. By 2014, insurers would be completely banned from implementing preexisting condition exclusions, as well as annual and lifetime coverage limits.

If the Senate passes this measure, it will then need to be reconciled with the healthcare legislation approved by the House last month to produce a final, unified bill. This process could extend well into January.

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The report found that the average premium per person for new individual, or nongroup, policies would be about 10 to 13 percent higher in 2016 than under current law, without taking into account the subsidies that some of those individuals would receive. The report also concluded that, while the Senate healthcare bill would have a much smaller impact on insurance premiums for employment-based coverage relative to individually-purchased plans, an estimated 19 percent of workers with employment-based coverage would be effected by the bill’s 40 percent excise tax on high-premium insurance plans, known as “Cadillac” policies. Under the terms of the bill, beginning in 2013, the excise tax would apply to premiums exceeding $8,500 per year for individuals and $23,000 for families. After 2013, those amounts would be indexed to inflation plus 1 percent. The CBO estimates that employees who keep their high-premium plans would pay a higher premium – roughly the amount of the excise tax – than they would under current law. The CBO surmises, however, that many of these people would simply opt for a lower-premium plan. According to the report, insurance plans could achieve lower premiums “through some combination of greater cost sharing (which would lower premiums directly and also lower them indirectly by leading to less use of medical services), more stringent benefit management, or coverage of fewer services.” In addition, the CBO estimates that many employers would respond to the excise tax by offering policies with premiums at or below the threshold.

Excluding consideration of high-premium plans, the report found that participants in health plans sponsored by small employers (those with 50 or fewer workers) could see anywhere from a 1 percent rise to a 2 percent reduction in premium cost in 2016 relative to current law. Those enrolling in plans offered by large employers (those more than 50 workers) could see an average zero to 3 percent reduction in premium costs in 2016. As a caveat, the report stressed that there remains a great deal of uncertainty surrounding these estimates.

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Unlike the House healthcare bill, the Senate measure would not require employers to provide health insurance benefits to their employees or pay a fee, known as the “pay or play” system. The Senate bill does, however, mandate that firms with more than 50 workers that do not offer health insurance pay a $750 penalty for each full-time worker if any of their workers obtain subsidized coverage through the insurance exchanges. According to a report (pdf) issued by the Congressional Budget Office (CBO), by the year 2019, these employer penalties would equal $28 billion.

Generally, full-time employees who are offered employer-provided health coverage would not be eligible to obtain subsidies from the insurance exchanges, unless these workers had to pay more than a specified percentage of their income to obtain this coverage. Certain small employers that provide health coverage would be eligible for tax credits up to 50 percent of the insurance premiums.

As for insurance policies, starting in 2013, those plans with high premiums (often referred to as “Cadillac” plans) would be subject to a 40 percent excise tax. This tax would apply to premiums exceeding $8,500 per year for individuals and $23,000 for families. In addition, for issuers of health insurance, the bill imposes new standards governing health information, nutrition labeling requirements, and policy requirements. According to a summary of the bill, (pdf) the Patient Protection and Affordable Care Act includes immediate changes to the way health insurance companies do business. For example, the legislation bans preexisting condition exclusions, as well as discrimination based on health status and gender. A list of reforms (pdf) published by Senate Democrats further explains that the bill would prohibit insurers from imposing lifetime limits on benefits and would restrict the use of annual limits. The legislation would also require insurance companies to make some administrative changes, such as outlining coverage options using a simple and standard format to facilitate comparison shopping among plans, and adopting uniform descriptions of plan benefits and appeals procedures, as well as uniform forms and claims processing procedures.

The CBO projects that the Senate healthcare reform bill would cost about $848 billion over ten years. In addition, the CBO estimates that under this bill, 5 million fewer individuals would obtain coverage through their employers.

Sen. Reid has said that he hopes to move forward with consideration of this bill by Saturday. To do so, the Senate would need 60 votes to thwart a filibuster on Reid’s planned motion to proceed.

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