HEALTH REFORM: WHAT’S IN IT FOR SMALL BUSINESS?

HEALTH REFORM: WHAT’S IN IT FOR SMALL BUSINESS? Susan M. Christensen Senior Public Policy Advisor April 14, 2010

This overview was prepared for the general informational use of the clients and attorneys/advisors of Baker Donelson and reflects our understanding of health reform legislation as of the date on the front cover. Any views on the topics presented may change as our experience with the legislation deepens. Therefore, this overview is not intended as legal advice and is not intended or written to be used, and cannot be used, for the purposes of promoting, marketing, or recommending to another party any transaction or matter described or addressed herein.

The Framework of Health Care Reform • Insurance reforms, including required benefit designs • Access to coverage – the “Exchanges” and subsidies • Employer requirements • Individual requirements • Revenue raisers • Medicare • Medicaid/CHIP • Workforce Development Requires major interaction between Treasury and HHS, with Labor thrown in at times (c) 2010 Baker Donelson

Employer Requirements – Effective January 1, 2014 • Employers with 50 or more FTEs pay a penalty if full-time employees access premium subsidies to get required coverage, calculated on a monthly basis • Existing (as of March 21, 2010) coverage: grandfather provisions apply • New coverage: options available • Excludes employers of “seasonal” workers who have 50 or more FTEs fewer than 120 days per year • “Full-time”: employees who work on average at least 30 hours a week on a monthly basis • Part-time employee hours aggregated and divided by 120 to determine equivalent FTEs, then add to full-time total FTEs • No coverage required for: • Part-time • Seasonal and temporary employees with fewer than 90 days • Initial 90-day waiting period • Leased employees – no provision; HHS and Treasury will be providing guidance (c) 2010 Baker Donelson

Employer Requirements – Penalties • If you do not offer coverage needed by full-time employees – if at least one full-time employee receives a premium tax credit, assessment of $2000 per FTE, starting with 31st employee • If you offer coverage but it is not affordable – if at least one full-time employee receives premium tax credit, assessment of lesser of $3000 for each employee who the receives credit or $2000 for each full-time employee (c) 2010 Baker Donelson

If you already offer coverage… • Deemed to meet minimum requirements of coverage for individuals • Most insurance reform requirements not applicable (e.g., guaranteed issue; rating restrictions), regardless of re-enrollments or new members after date of enactment: • Within six months, comply with: • No lifetime limit on essential benefits; and for group plans, “restricted annual limits” to be defined by Secretary • No rescissions (except for fraud) • No pre-existing conditions for dependents up to age 19 • Extension of coverage to dependent adult children under 26 if not eligible to enroll in another employer-sponsored plan • Changes required by 2014: • No exclusions for pre-existing conditions • Limit waiting periods to 90 days • No annual limits • Unclear whether a grandfathered plan may be modified and retain grandfather status; HHS guidance expected (c) 2010 Baker Donelson

Options for Offering Coverage – Effective 2014 • Coverage must be for a plan that pays out 60% of benefits – Secretary of HHS will determine “essential benefits plan” • “Free Choice Voucher” (interfaces with individual mandate provisions) for employees with income under 400% of poverty (2009: almost $90,000 for family of four), if their share of premium expenses is between 8 and 9.8% of their income, to purchase on the Exchange • Employers with fewer than 100 employees can purchase from State Health Insurance Exchange; expands to larger employers in 2016 (c) 2010 Baker Donelson

Small Business Tax Credit – Non-refundable, Can Carry Forward • 2010 through 2013 • Employers with fewer than 25 employees and average annual wages <$50,000 per FTE who offer insurance: sliding scale tax credit • Employers with 10 or fewer FTE employees and average wages of <$25,000: full tax credit • Credit: up to 35% of their contribution to premium (tax-exempts – 25%); must be uniform and at least 50% • 2014 and thereafter, for insurance purchased through the exchange: • Up to 50% (35% for tax-exempts) of contribution if over 50% of premium cost, for two years only • FTEs are calculated differently than for the “50 or more” threshold; “employee” does not include 2% S-Corp shareholder, 5% owner in eligible small businesses (c) 2010 Baker Donelson

Small Business Tax Credit, cont’d. • http://www.irs.gov/newsroom/article/0,,id=220839,00.html • formula for the sliding scale and for calculating FTEs • Premium expense used in calculation of credit will be capped at an amount equal to “the average premium for the small group market” – Determined by HHS on a state-by-state basis (c) 2010 Baker Donelson

Other Employer Provisions • Requirements • Auto enrollment for employers with more than 200 employees • Reporting • Notice to employees about Exchange and how to access • Medicare surtax (payroll) on high-income individuals effective 2013 • Subsidy • Reinsurance for early retirees – HHS is to create a program in 2010 through 2013 to assist with costs of coverage for early retirees, spouses and dependents • Multi-site employers – uncertain; mentioned in statute but HHS and Treasury will be providing guidance (c) 2010 Baker Donelson

Individual Requirements – Effective January 1, 2014 • Mandate: US citizens and legal residents must have qualifying health coverage or be assessed a penalty • Penalty: greater of $695 per year, up to a maximum of $2085 (695x3) or 2.5% of household income • Phased in over three years 2014-2016 • Exempt: financial hardship, religious, American Indians, people without coverage <3 months, undocumented immigrants, incarcerated persons, those whose cost would exceed 8% of income, and those with incomes below tax filing threshold (c) 2010 Baker Donelson

Contact Information Susan M. Christensen, Esq. schristensen@bakerdonelson.com 202.508.3492

HEALTH REFORM: WHAT’S IN IT FOR SMALL BUSINESS?