Health Insurance Reform and Your Budget

By: James A. Woehlke, CAE

Will the March 2010 healthcare reform legislation change your association's health plan?

March 2010 saw the enactment of health insurance reform, but not exactly healthcare reform. The new law does little to relieve the underlying pressures of increasing costs but does significantly broaden health insurance coverage. As a result, associations should budget more for their employee healthcare benefits.

The law will broaden health insurance coverage of Americans. There is a mandate that all individuals, with certain exceptions, either be covered by employer-sponsored group plans or obtain their own coverage. The mandate is a weak one, however, because the penalty imposed is a great deal less than the cost of obtaining coverage. On the employer front, technically there is no mandate to provide employees coverage. However, employers with more than 50 full-time employees, including full-time equivalents (FTEs), must provide health insurance or incur a penalty.

A Fragile Grandfather Clause

While the new law grandfathers in health plans in existence as of the March 23 enactment date, the grandfather status is fragile and slightly misleading. It's misleading because the law requires a number of changes to grandfathered plans. It is fragile because any changes made to a health plan, other than adding or subtracting employees and those required by the law, result in loss of grandfathered status. In other words, if an employer alters a grandfathered plan to hold down premium increases by increasing copays or deductibles—a typical plan-renewal occurrence—grandfathered status is lost.

Most likely, premiums on grandfathered plans will increase, not only due to normal pricing pressures, but also because the law requires certain changes to all plans, including grandfathered plans. Those changes, together with approximate effective dates, include the following:

  • Extending coverage to participants' children up to age 26 (effective for plan years beginning on or after September 23, 2010);
  • Removing lifetime limits on "essential health benefits" (September 23, 2010), which are to be defined in regulations;
  • Setting minimum annual caps via regulation (September 23, 2010) and later prohibiting annual caps (January 1, 2014) on "essential health benefits";
  • No denial of coverage for preexisting conditions for children under 19 (September 23, 2010) and later none for anyone (January 1, 2014);
  • Except for fraud and material misrepresentations, no rescission of coverage (September 23, 2010);
  • Waiting periods to enter plans cannot exceed 90 days (January 1, 2014);
  • For employers with more than 200 employees, automatic enrollment (as soon as regulations are issued).

Requirements for New Plans

These changes will affect pricing, and to contain costs, employers will make design changes to many, if not most, plans. When that happens, grandfathered status will be lost. New plans must contain a number of additional features, including:

  • No cost sharing—copays or deductibles—for "preventive care," which is to be defined in regulations (September 23, 2010);
  • Nondiscrimination rules (September 23, 2010);
  • Guaranteed availability and renewability (January 1, 2014);
  • Limitations on sharing costs with participants. Part of the requirement is that participants may not be required to pay more than the health savings account limits, currently $5,950 for individual and $11,900 for family coverage (January 1, 2014).

Many changes will occur as soon as plan renewals take place in the final quarter of 2010. Under these circumstances, association executives should plan to meet with their health insurance brokers earlier and more often than usual to gain an understanding of the impact on their budgets.

Associations should also consult their CPA firm or lawyer to learn if the small- business tax credit included in the bill will have any budgetary impact. That credit, which amounts to 25 percent for tax-exempt organizations (35 percent after 2013) of the amount spent by the employer on health insurance, applies for employers with fewer than 25 FTEs who have an average compensation of less than $50,000. The maximum credit applies to organizations with 10 or fewer employees and an average compensation of $25,000 and phases out completely at the 25-employee, $50,000-average-compensation level.

To help ASAE & The Center members stay on top of health insurance reform in their organizations, the Legal Section collected a number of excellent resources for the April issue of the Association Law and Policy e-newsletter. They can be accessed at

James A. Woehlke, Esq., CPA, CAE, is the general counsel and COO of MBL Employee Benefits. Email: [email protected]