Health Care Reform: What Employers Need to Know Now

Employment Practices Special Alert

April 26, 2010
Employment Practices Special Alert


On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). Six days later, the Health Care and Education Reconciliation Act of 2010 was enacted. When fully implemented, these Acts will significantly affect nearly every aspect of health care in the United States, including employer-provided group health plan coverage. 
This Alert is the first in a series that will discuss how health care reform legislation will impact employers and employer-provided group health plans. This Alert focuses on those changes under the legislation that are most imminent for employers and their plans. Nearly all of the changes described here will become effective sometime in the next year. Topics covered below include:

Many significant aspects of the new legislation do not take effect until future years; we will cover those topics, listed at the end of this Alert, in the coming days and weeks. 

Managing Reform: Focus on Effective Dates 

The health care reform legislation is structured so that the new provisions become effective in stages. Employers must therefore focus on the various effective dates in the legislation in deciding which actions need to be taken — and when — with respect to their current group health plans. The legislation’s effective dates range from the date of enactment to 2018. We are advising employers to focus on the more immediate changes and wait for guidance and regulations before attempting to restructure group health plans to comply with requirements becoming effective in subsequent years. 

Grandfathered Plans

The legislation contains special carve-outs for “grandfathered plans,” which require employers to carefully examine the new law to determine which provisions apply to their plans. For this purpose, a grandfathered plan is any group health plan, with respect to an individual, in which such individual was enrolled on March 23, 2010, the date PPACA was signed into law. That is, a group health plan that existed at the time of PPACA’s enactment is considered a grandfathered plan. Future renewals of coverage under such plans will also retain grandfathered plan status, and this status will apply both to current employees and to new enrollees (and their families). Additional guidance on grandfathered plans rules, such as what changes a plan may implement without losing its grandfathered status, was not provided in the legislation and will likely be addressed in future regulations. 

Upcoming Changes to Design and Operation of Employer Group Health Plans 

The first set of changes affecting the design of employer group health plans will be effective for plan years beginning on or after September 23, 2010. For calendar year plans, these provisions are effective January 1, 2011. Group health plans that do not currently meet these requirements (including grandfathered plans where applicable) should change plan administration practices to comply with new law and amend plan documents, as necessary, to reflect the new rules.

The principal changes effective for plan years beginning on or after September 23, 2010, that apply to both new and grandfathered plans are as follows:

The principal changes effective for plan years beginning on or after September 23, 2010, that apply only to new group health plans and NOT to grandfathered plans are as follows:

Upcoming Changes to FSAs, HSAs, and HRAs.

Changes Relating to Retiree Medical Coverage

Small Employer Health Insurance Tax Credit
“Eligible small employers” may apply for a new subsidy in the form of a tax credit to provide health insurance coverage, effective for taxable years beginning on or after January 1, 2010. Tax credits are available for employers with 25 or fewer full-time equivalent employees and average annual wages of no more than $50,000 per employee. The maximum amount of the credit would be between 25 percent and 50 percent of the cost of offering coverage. Complex eligibility and phase out rules apply to this credit.

Form W-2 Reporting Requirement for Health Plan Premium Amounts. 

Beginning with the 2011 tax year (i.e., for Forms W-2 issued in 2012), employers will be required to report the cost of applicable employer-sponsored coverage that is provided to an employee on such employee’s Form W-2. This cost of coverage will be determined using the same methods that are used to determine Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums. The reported benefits are not currently includible in the recipient’s income, but rather will simply need to be reported for informational purposes.

Effects on Costs of Coverage
Perhaps the biggest question facing employers is what will happen to the costs of providing group health coverage? The consensus view is that premiums will rise. A report by the Congressional Budget Office and the Joint Committee on Taxation project that the average premium per person covered (including dependents) in the nongroup market would be about 10 percent to 13 percent higher in 2016 than the average premium would have been under prior law. Comparable increases may or may not apply to employer group health plans. Similar comprehensive coverage requirements in Massachusetts, for example, have led to significant premium increases in the individual and group markets. Such future rate increases under PPACA could face government regulation. On April 20, 2010, the U.S. Senate Committee on Health, Education, Labor & Pensions held hearings on new legislation that would give the Secretary of Health and Human Services the power to review premiums and block “any rate increase found to be unreasonable.” 

More Significant Changes to Come and the Limited Scope of This Alert

In future years, more significant provisions affecting employer group health plans will become effective. Primary among these changes are new mandates to require employers to offer coverage to employees, and, in the case of individuals, to obtain coverage.  

Future Alerts in this series will cover the following topics:

In addition, the Hinshaw & Culbertson LLP’s Health Care Practice Group has issued a series of Alerts on how the new legislation affects health care providers. These Alerts can be viewed on our website at:

Upcoming Breakfast Briefing and Additional Information
Hinshaw’s Labor and Employment Practice Group will host a breakfast briefing on how health care reform affects employers on Wednesday, April 28, 2010 at 8:30 AM. If you are interested in attending, please contact Renee Odom by email at or by telephone at 312-704-3050.

For additional information, please contact James D. HarbertAnthony E. AntognoliLisa M. Burman, or your regular Hinshaw attorney

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.