What school district employers should know about health reform
With the passage of the Patient Protection and Affordable Care Act (PPACA) in March, employers everywhere, school districts included, have been doing their best to sort out the impact the new law will have on them.
According to data available on the Web site of the Teachers Retirement System of Texas (TRS), more than 900 (88 percent) of Texas school districts got their health insurance through TRS in 2009–10. Like other insurers, TRS is analyzing the potential impact of the law and will have more to go on as the anticipated flood of regulatory guidance from the Department of Health and Human Services 
(HHS), the Internal Revenue Service , and the Department of Labor begins to flow. Districts with self-funded insurance plans will have to work with their third-party administrator to ensure that any necessary changes are incorporated into their plans. The time to start is now, since some of the law’s provisions have already gone into effect.
TRS anticipates some plan changes for TRS Care insureds (its health care plan for retirees) and TRS ActiveCare insureds (health care for current employees). The most significant potential impact for TRS Care is the law’s early retiree reinsurance provision, which allows employer-sponsored retiree health plans to be reimbursed for a portion of the costs of health coverage for early retirees, potentially allowing TRS to recoup some of its costs. The provision requiring insurers to pay an annual plan fee for each covered life and the requirement to extend coverage to dependents through age 26 will impact both TRS plans.
For plan years beginning on or after Sept. 23, 2010
- Employees can insure children up to 26 years old—This provision seems to be generating the most questions for employee benefit managers. Adult children up to age 26 can remain on their parents’ insurance plan if they don’t have access to health care through their employer. For TRS Care and TRS ActiveCare participants, this requirement will go into effect on Sept. 1, 2011. For calendar-year plans, coverage must be effective no later than Jan. 1, 2011. Children who age out of coverage are covered by the Consolidated Omnibus Budget Reconciliation Act (COBRA).
TRS health care plans currently cover unmarried adult children up to age 25. Officials anticipate that this provision will increase the number of insureds in TRS ActiveCare.
- No exclusions for children with preexisting conditions—Group plans can no longer exclude children 19 or younger because of preexisting conditions.
- No lifetime coverage limits/restricted annual limits—Plans will no longer be able to limit the amount of coverage they will provide over an insured’s lifetime. Limits on annual benefits will be restricted (regulations explaining the restrictions are expected this summer). This provision will have some impact on TRS ActiveCare since some plan options currently have lifetime benefit limits.
- No recissions—Insurers may not rescind a person’s coverage other than for cases of fraud or intentional misrepresentation.
Other important early changes
- Breaks for nursing mothers—A low-profile provision put in place through a change to the Fair Labor Standards Act allows “reasonable” unpaid breaks for nonexempt, nursing mothers who need to express breast milk. The provision also requires employers provide a private place other than a bathroom for the activity. It went into effect immediately.
- Early retiree reinsurance—This program went into effect on June 1, 2010. It allows employer-sponsored retiree health plans to be reimbursed for a portion of the costs of early retiree health coverage. The program offers insurers an 80 percent subsidy of claims between $15,000 and $90,000 for retirees ages 55 to 64. TRS intends to apply for its share of funds as soon as the application becomes available, but funds are limited ($5 billion), as is the program’s duration (through 2013). HHS will stop accepting applications when funds run out.
- Temporary high-risk pool—A temporary high-risk insurance pool for people with preexisting conditions begins June 24, 2010. The pool will provide coverage for adults who are currently uninsured due to preexisting conditions until 2014, when preexisting condition exclusions will no longer be allowed.
Effective Jan. 1, 2011
- Preventive care fully covered—Health care plans must cover most preventive care visits and procedures fully. Participants will not be responsible for co-pays for services such as annual check-ups, healthy child visits, breast cancer screenings for women, and immunizations.
- W-2 reporting—Employers must disclose the value of employer-provided health coverage on employee W-2 forms. The aggregate value is calculated using COBRA rules. If an employee enrolls in separate plans for medical, dental, and vision coverage, the aggregate value must be reported.
- Over-the-counter drugs not eligible for reimbursement—Over-the-counter (OTC) drugs are no longer eligible for flexible spending account (FSA) or health savings account (HSA) reimbursement with a couple of exceptions:
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OTC drugs for which a health care provider writes a prescription
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Insulin, which is specifically mentioned as a reimbursable item
- Higher penalty for HSA withdrawals—The penalty for making withdrawals from HSAs for non-health reasons before the age of 65 rises from 10 to 20 percent.
Beginning Jan. 1, 2012
- Plans pay a fee—TRS and other employer-sponsored plans will pay a $1 fee per plan participant to fund the Patient-Centered Outcomes Research Institute which will research ways to control health care costs. For TRS, the fee will be significant due to the large number of participants in its health plans.
- Another W-2 reporting change—Employers should not include FSA contributions on employee W-2s when they provide information on the cost of health care.
By March 23, 2012
- Plan administrators must provide summary—Plan administrators must provide a uniform benefits summary to all plan participants.
Beginning Jan. 1, 2013
- FSA contributions limited—Employees and employers can contribute an annual maximum of $2,500 (indexed by the Consumer Price Index (CPI) in subsequent years) to flexible spending accounts.
- Higher taxes for high income earners—For individuals making more than $200,000 and joint filers that make more than $250,000 annually:
- The Medicare payroll tax will increase
- They will pay an additional 3.8 percent tax on certain unearned income (interest, dividends, royalties, rents, and passive income)
- Plan fee doubles—TRS and other employer-sponsored plans will pay a $2 fee to fund the Patient-Centered Outcomes Research Institute from 2013 to 2019.
Effective Jan. 1, 2014
- Wellness programs get a boost—Employers can offer increased incentives to employees for their participation in wellness programs. PPACA permits rewards (such as premium discounts) or penalties of up to 30 percent of the cost of coverage. Current Health Insurance Portability and Accountability Act (HIPAA) regulations permit wellness incentives of up to 20 percent.
- Enroll new employees automatically—Employers must provide written notice to current and new employees about the insurance exchange (including contact information).
- No exclusions for preexisting conditions—Group plans can no longer exclude anyone with preexisting conditions. TRS ActiveCare currently includes an exception that allows preexisting condition exclusions in some circumstances. That exception will no longer be allowed. TRS Care has no preexisting condition exclusions.
Effective Jan. 1, 2018
- Tax on “Cadillac” health plans—Employer-sponsored plans deemed “too rich” will be subject to an excise tax equal to 40 percent of the excess benefit per covered employee. Excess benefit is the aggregate cost of the benefit in excess of:
o $10,200 for single-only coverage
o $27,500 for family coverage
The excise tax will be indexed to the CPI.
Watch for more information
HR Exchange will provide updates as new information (including regulatory language) on health reform becomes available.
