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March 23, 2011
Healthcare Reform in 2011

One year ago, President Obama signed the Patient Protection and Affordable Care Act (PPACA), collectively referred to as the Affordable Care Act (ACA). Here is an overview of the healthcare reform provisions in 2010 and 2011.

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In 2010, employers saw several changes to health care, including dependent coverage to age 26, ban on lifetime limits and restrictions on annual limits, coverage recissions, and several more. For more information on these changes, visit Healthcare Reform: A Resource Center for Employers.

In 2011, the following provisions are effective:

Wellness Grants for Small Employers
Employers with fewer than 100 employees will be eligible for grants to provide comprehensive workplace wellness programs. ACA authorizes $200 million to fund the grants for fiscal years 2011 through 2015.

Exclusion of the Costs for Over-the-Counter Drugs for Reimbursement from HRAs, HSAs, FSAs, and MSAs
Effective for taxable years beginning after December 31, 2010, the costs of over-the-counter (OTC) drugs not prescribed by a doctor (except insulin) may no longer be reimbursed through a health reimbursement account (HRA) or health flexible spending account (FSA) and may no longer be reimbursed on a tax-free basis through a health savings account (HSA) or Archer medical savings account (MSA).

Tax on HSA and MSA Distributions Not Used for Qualified Expenses
Effective for taxable years beginning after December 31, 2010, the tax on distributions from an HSA or an Archer MSA that are not used for qualified medical expenses increase from 10 percent to 20 percent of the disbursed amount.

Requirement to Provide Value for Premium Payments
Beginning not later than January 1, 2011, plans and insurers in the individual and small group market must maintain a medical loss ratio (MLR) of 80 percent, and plans and insurers in the large group market must maintain an MLR of 85 percent. For each plan year, plans and insurers must provide a rebate to each enrollee on a pro rata basis equal to the amount that premium revenue spent on nonmedical costs that exceed the percentage limits.

Informing Employees of the Cost of Their Health Coverage on W-2 Forms
Effective for tax years beginning after December 31, 2010, employers are required to report on Form W-2 the total cost of group health coverage, including the portion paid by the employer and the portion paid by the employee.
Note: The IRS has stated that reporting the cost of such coverage will not be mandatory for Forms W-2 issued for 2011 (IRS Notice 2010-69).

The Community Living Assistance Services and Supports Act (CLASS Act) creates a national voluntary insurance program for purchasing community living assistance services and supports to provide individuals with functional limitations the tools that will allow them to maintain their personal and financial independence and live in the community.

Benefit Summary Requirement
By March 23, 2011, national standards must be issued for use in compiling and providing a summary of benefits and coverage explanation that accurately describes the benefits and coverage under group health plans and group or individual health insurance coverage.

Simple Cafeteria Plans for Small Employers
Effective for years beginning after December 31, 2010, Internal Revenue Code Sec. 125 provides for simple cafeteria plans for small businesses that include a safe harbor from nondiscrimination requirements. Small businesses are defined as those that employed an average of 100 or fewer employees during either of the 2 preceding years. If an employer qualifies as a small employer, it retains the status until it employs an average of 200 or more employees during the preceding year.

Upcoming Provisions
Healthcare reform provisions are scheduled to take effect over several years. Employers should pay special attention to two of the biggest pieces of the reform process, the individual mandate and employer “play or pay,” which are scheduled to take effect in 2014.

This article was excerpted from HR Focus Report: Healthcare Reform—After 1 Year & Beyond, which provides detailed information covering healthcare reform from 2010 to 2018. For detailed analysis, the HR Focus Report is available to purchase on BLR online catalog.

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