Answers to frequently asked questions about health care reform.
What immediate changes should I expect as an employer?
For plan years beginning on or after Sept. 23, 2010, non-grandfathered health plans
must pay the full cost of certain preventive services, including immunizations,
breast cancer screening, and recommendations by the U.S. Preventive Services Task
Force, the Centers for Disease Control and Prevention, and other federal government agencies.
Also, for plan years beginning on or after Sept. 23, 2010, dependents up to age 26
will be allowed to remain on their parents’ policies.
What other major provisions of the new law will apply to grandfathered or non-grandfathered
existing group coverage and when?
There are a number of near-term reforms included in the new law beginning for plan
years on or after Sept. 23, 2010. They include:
- Elimination of coverage rescissions. Health plans can only cancel a member’s coverage
due to fraud, intentional misrepresentation, or failure to pay member dues.
- No lifetime or annual limits on dollar value of benefits. Group health plans may
not establish lifetime limits or annual limits on the dollar value of "essential"
benefits, which will be defined in future regulations. (Restricted annual limits
are allowed through 2013, and will later be defined by the Department of Health
and Human Services.)
- Health plan requirements related to internal and external appeals, access to emergency
services, and choosing a pediatrician and ob-gyn.
Some plans, however, may not be subject to these requirements because of their status
as grandfathered plans.
Can I keep the group health plan I currently offer my employees?
Yes. Plans in existence on March 23, 2010, are grandfathered and do not have to
comply with certain provisions of the new law if existing group coverage is maintained.
Grandfathered plans must still comply when certain rules go into effect at the first
plan year after Sept. 23, 2010, such as eliminating lifetime limits and unreasonable
annual dollar limits, and allowing dependents up to age 26 to remain on their parent’s
policy. Enrolling new employees or adding family members will not affect grandfathered
Does the new law require that all employers offer health care coverage to their
No. However, beginning in 2014, employers who do not offer coverage must pay a $2,000
per-employee penalty if they have:
- 50 or more full-time employees; and
- At least one full-time employee who receives a federal tax credit to purchase health
coverage through an exchange.
In calculating the penalty, the employer excludes the first 30 employees from the
payment calculation. For example, an employer with 51 employees would pay the penalty
for only 21 employees.
Employers with 50 or more full-time employees that provide coverage, but have at
least one full-time employee who receives a federal tax credit to purchase an individual
health plan through an exchange, will also be penalized. The penalty would be the
lesser of $3,000 per employee receiving a tax credit or $2,000 for each full-time
employee, excluding the first 30 employees.
Does the new law require that part-time and seasonal employees be eligible for
Employers with 50 or more employees may be penalized if they do not provide coverage
- Employees who work an average of 30 hours per week or more in a month.
- Seasonal employees who work more than 120 days in a year.
Will my employees have to pay extra because of the Cadillac tax if they have
high-cost health plans?
Starting Jan. 1, 2018, a 40 percent excise tax will be imposed on group health plan
dues exceeding $10,200 per year for single coverage and $27,500 per year for family
coverage. The cost thresholds triggering the tax will be slightly higher for plans
covering retirees or employees in certain high-risk industries ($11,850 per year
for an individual retiree or $30,950 per year for a family).
In 2019, the thresholds would rise to match the increase in the consumer price index
(CPI), plus 1 percent. In 2020 and succeeding years, the thresholds will increase
to match rises in the CPI rounded to the nearest $50.
Although this tax is on self-funded group plans, it may be passed on to employers
and employees in the form of higher dues. To avoid the tax, some employers may make
changes to their plans.
Are employers required to report anything new to the federal government?
Yes. New reporting requirements for employers include the following:
- Employers who do not offer health care coverage must file a return stating that
they do not offer coverage and the number of their full-time employees.
- Employers must report the value of the benefits on each employee’s annual W-2 form
beginning with W-2s issued in January 2012 (for tax year 2011). Current rules for
COBRA continuation of coverage should be used in calculating the value of benefits
(minus the 2 percent COBRA administrative fee, if charged).
- Beginning in March 2013, employers must provide information to employees about the
- Beginning in 2014, employers providing minimum essential coverage must report annually
to the IRS the:
- Length of any waiting period.
- Months that coverage was made to employees.
- Monthly dues for the lowest cost option.
- Employer’s share of the total allowed costs of benefits provided under the plan.
- Option for which the employer pays the largest share of the plan and the portion
paid by the employer in each enrollment category.
- Name, address, and tax identification number of each full-time employee.
The Treasury department may require additional information to administer the small
business tax credit if the employer is eligible for the credit and coverage is a
qualified health plan offered through the exchange.
Also beginning in 2014, employers providing minimum essential coverage must provide
each covered individual with the information bulleted above and the name, address,
and contact information of the employer’s health plan. Statements are to be given
to individuals on or before Jan. 31 for the previous calendar year.
What are the new provisions for emergency services?
Non-grandfathered health plans must cover emergency care without prior authorization.
Copayments and coinsurance for nonparticipating providers generally cannot exceed
those for participating providers. However, members may be required to pay the difference
between what the out-of-network provider charges and what HMSA is required to pay
under federal regulations. HMSA had already allowed emergency services without prior
What is an exchange and who can use it?
A state-based exchange will help consumers shop for, compare, and enroll in health
care coverage. U.S. citizens and legal residents may purchase coverage through an
exchange beginning in 2014. Small businesses with 100 employees or less can participate
when the exchange opens in 2014. States have the option to limit it to employers
with 50 employees or less and may choose to expand it to businesses larger than
100 employees beginning in 2017.
If eligible, does my company have to buy coverage through the exchange starting
No. Employers of all sizes may continue to purchase coverage outside the exchange.
How does the new law change the requirements of health coverage for dependents?
Beginning on or after Sept. 23, 2010, health plans that provide dependent coverage
for children must continue to make coverage available for adult children up
to age 26.
In addition, as of March 30, 2010, health coverage provided for an employee’s children
up to age 26 is now tax-free to the employee and employer. Employers with cafeteria
plans (plans that allow employees to choose from a variety of benefits) may allow
employees to make pre-tax salary reduction contributions to provide coverage for
children under age 26, even if the cafeteria plan has yet to be amended to cover
adult children. Plan sponsors have until the end of 2010 to change their cafeteria
plan to incorporate this change.
What is the definition of an "adult dependent" under the new reform law?
In referring to adult dependents, the law intends to address adult children of individuals
covered by a group or individual health plan. The law stipulates that coverage shall
be made to dependents up to age 26 regardless of their tax filing status, marital
status or financial dependency on the parent. However, coverage does not have to
be granted to a spouse or child of a covered adult dependent.
Do the adult dependents need to be dependents as defined by the IRS?
No. This is not a requirement for dependents.
Is the requirement up to age 26 or through age 26 (and to age 27)?
Dependent coverage is offered to dependents up to age 26 and terminates at 12:01
a.m. on the dependent’s 26th birthday.
Do the adult dependents need to be full-time students?
No. The law does not require adult dependents under age 26 to be a student.
Does the law require my company to offer dependent coverage?
No. The law does not require a company’s health plan to cover dependents. The law
requires a plan that provides coverage to dependents to provide coverage to dependents
up to age 26.
Does my company have to provide coverage for dependents up to age 26 even if
they are married?
Yes. As long as the group policy allows for dependent coverage, an employer’s health
plan must continue to offer married dependents coverage up to age 26. However, the
policy does not require coverage for a spouse or child of the married dependent.
Is coverage required for children of dependent children, such as grandchildren?
No. The law does not require employers to offer coverage to children of an adult
dependent receiving dependent coverage.
What are exceptions to the provision requiring plans to offer dependent coverage
up to age 26?
Plans are not required to offer coverage to dependents up to age 26 in the following
- When group health plans do not extend coverage to dependents.
- For grandfathered plans with plan years before Jan. 1, 2014, where dependents are
eligible to enroll in other employer-sponsored coverage.
Beginning with plan years on or after Jan. 1, 2014, health plans must cover dependents
up to age 26 regardless of their eligibility for coverage under other health plans.
How should my company determine the rates for the new adult dependents of employees?
The regulation requires the same member dues structure and rates for currently covered
Can my company create a separate plan to cover adult dependents of employees?
No. Company health plans are required to offer adult dependents coverage similar
to other dependents. Plan options should be the same as those offered to employees.
Actual coverage should be determined by employee elections, similar to other dependents.
Can my company apply a rate surcharge for new adult dependents?
No. The regulation prohibits health plans from varying the terms of coverage based
on age, so they would not be able to impose a premium surcharge for children older
than age 18.
Does my company have to offer COBRA when adult dependents reach age 26?
Yes. The new law does not change COBRA requirements for eligible adult dependents.
Do adult dependent under age 26 on COBRA have the right to re-enroll?
Yes. An eligible dependent on COBRA is allowed to enroll as a dependent of an active
employee. If the child loses eligibility for coverage due to a qualifying event,
such as aging out of coverage at age 26, the dependent has another opportunity to
elect COBRA continuation coverage.
Will my company have to purchase a new health plan if our health plan was established
before the law?
Your group has grandfathered status and can maintain its existing health care coverage
if it was effective on or before March 23, 2010. Grandfathered plans are exempt
from certain requirements of the new law.
Changes to the following will not cause the loss of grandfathered status:
- Member dues.
- Third-party administrators.
- Compliance with state and federal laws. (As long as it doesn’t trigger a loss of
The following changes would cause the loss of grandfathered status:
- Eliminating benefits to diagnose or treat a condition.
- Increasing coinsurances above March 23, 2010, levels.
- Increasing fixed cost-sharing amounts (such as deductibles and out-of-pocket maximums)
by more than the sum of medical inflation plus 15 percent from March 23, 2010, levels.
- Increasing copayments that are greater than:
- A total percentage (measured from March 23, 2010) that is more than the total of
medical inflation plus 15 percent; or
- $5, increased annually by medical inflation.
- Reducing employer contributions based on the cost of coverage or a formula by more
than 5 percent below the contribution rate on March 23, 2010.
- Reducing an overall annual dollar limit or adding a new overall annual dollar limit,
compared to what was in effect on March 23, 2010.
Regulations governing grandfathered plans are complex and companies may not be able
to maintain such plans if they make certain changes. Please consult a professional
tax adviser or lawyer for details and further explanation of the regulations.
Can employees add family members to existing coverage without losing grandfathered
Yes. The group can continue to renew its policy and employees may add family members.
Can employers add new employees to the existing plan without impacting its grandfathered
What is early retiree reinsurance?
The early retiree reinsurance program dedicates $5 billion to help employers who
offer group health coverage to early retirees (ages 55 through 64) who are not eligible
for Medicare. The program began on June 1, 2010, and runs until Jan. 1, 2014, or
until funds run out. The goal of the program is to help employers maintain their
early retiree coverage until the Exchange becomes operational in 2014.
How does the early retiree reinsurance program work?
The program will reimburse employers, state and local governments, and employer-sponsored
health plans for 80 percent of the costs incurred by retirees (ages 55-64) between
$15,000 and $90,000 annually, with a maximum of $60,000 a year per early retiree.
Costs are determined before copayments, coinsurance, and deductibles and will cover
payment for medical, surgical, hospital, prescription drugs, and other benefits
determined by the Department of Health and Human Services (HHS).
Can claims for covered family members of early retirees be reimbursed with program
Yes. Companies paying claims for early retirees’ spouses, surviving spouses, or
dependents covered under the early retirees’ health plan are eligible for the reinsurance
When will the program begin?
The program began accepting applicants on June 29, 2010. Application forms are available
When will the program end?
The program will end on Jan. 1, 2014, or when the $5 billion funding runs out.
What determines a company’s eligibility for the early retiree reinsurance program?
To be eligible for the early retiree reinsurance program, companies must:
- Offer health care coverage to early retirees ages 55 to 64.
- Have cost-saving programs for members with chronic health conditions.
- Provide documentation of the retirees’ medical claims costs.
- Have a Protected Health Information (PHI) agreement with a health plan or plan administrator.
How can companies use the program’s proceeds?
Employers must use early retiree reinsurance proceeds to reduce their health care
benefits costs and/or their employees’ out-of-pocket costs, such as copayments,
deductibles, and coinsurances. Employers cannot use these proceeds as general revenue.
How can my company participate in the early retirement reinsurance program?
Your company must apply to HHS and be certified by the HHS secretary. HHS began
accepting applications on June 29, 2010. Applications will be processed in the order
they are received. You should file your application as soon as possible.
Are amounts that my company paid prior to June 1, 2010, reimbursable?
No. To be eligible for reimbursement, claims must be incurred and paid during the
program’s life. If a plan year begins prior to June 1 and an eligible member incurs
$15,000 or more in expenses before June 1 of the plan year, it is recognized as
having met the $15,000 threshold for the plan year and is eligible for reimbursement
for costs incurred after June 1, 2010.
When can my company first submit claims?
Claims can be submitted after your company’s health plan is certified by HHS for
the plan year that the claims occur and after the $15,000 threshold has been met
based on your actual plan payments. If a plan year begins prior to June 1 and an
eligible member incurs $15,000 or more in expenses before June 1 of the plan year,
it is recognized as having met the $15,000 threshold for the plan year and is eligible
for reimbursement for costs incurred after June 1, 2010.
Does my company need to reapply each year?
What happens after the program ends?
The program will end by Jan. 1, 2014, or when the funds are depleted. In 2014, if
the employer no longer provides coverage for early retirees, those individuals can
choose coverage through the exchange.
This information is based on HMSA’s review of the national health care reform legislation.
This overview is intended for educational purposes and should not be used as tax,
legal, or compliance advice. Interpretations of the legislation vary and some reform
regulations differ for particular members enrolled in certain groups. HMSA will
continue to present and update information related to national health care reform
as additional guidance becomes available.