Federal Health Care Reform Legislation
President Obama signed the $940 billion comprehensive health care reconciliation package. The first piece, the Patient Protection and Affordable Care Act (PPACA) passed and was signed into law by President Obama March 23, 2010. The second piece, a reconciliation measure (HR 4872) to make adjustments to PPACA, was formally adopted March 25 and signed by the president on March 30.
The legislation incorporates adjustments to the Senate-passed legislation based largely on the proposals submitted by President Obama. It maintains proposals to create health insurance exchanges and to provide tax credits to qualifying individuals and small businesses, including nonprofits, for purchasing health insurance.
Colorado Nonprofit Association has put together an overview of Federal Health Care Reform that outlines specific provisions in the Affordable Care Act that affect nonprofits, both as employers and as service providers.
Nonprofits as Employers
- In 2005 (the latest year for which data are available), nonprofits paid more than $48 billion for employee health care coverage and related benefits (not including pension plan contributions or payroll taxes) – more than 4.6 percent of their total expenditures.
- Since 2001, health insurance costs for small firms have increased 119 percent, according to the National Small Business Association.
Nonprofits as Service Providers
- Nonprofits, particularly those that deliver health and human services, incur substantial costs associated with serving the more than 48 million Americans who do not have health care coverage, as well as the millions of other individuals and families whose health coverage is insufficient to cover the costs of care and prevention.
- Benefit and workforce reductions due to rising health care costs greatly diminishes the ability of nonprofit organizations to deliver programs and vital services to communities and individuals in need.
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act, among other changes, extends access to coverage for the uninsured and prevents the denial of insurance for pre-existing conditions. Some of the key provisions that affect nonprofits include:
- Health Insurance Exchanges: Provides a mechanism for individuals and employers to buy lower-cost health insurance as a part of purchasing pool. All employers with fewer than 100 employees and individuals with incomes between 133 percent and 400 percent ($24,352 – $73,240) of the Federal Poverty Level (FPL) will be eligible to participate in the exchanges once they are operational. States are permitted to allow employers with more than 100 employees to access the exchanges after 2017. The law anticipates that the exchanges will be operational by January 1, 2014.
In 2011, the Association supported SB 11-200 to establish the Colorado Health Benefit Exchange (COHBE). While COHBE should be operation in 2013, you can find out more information now at COHBE’s website.
- Small Employer Credit: Provides a tax credit that will allow small nonprofit employers (25 employees or fewer, average wages of less than $50,000 per year) that cover at least 50 percent of health care costs for their employees to make deductions from their tax liability for withholdings for up to two years as follows: up to 25 percent of qualified health costs from 2010–2013; up to 35 percent of qualified costs for 2014 onward. If the employer has more than ten FTEs or average payroll in excess of $25,000, the amount of the credit is reduced from the maximum based on particular formulas. The small business health care tax credit is explained in more detail in an IRS article.
During those three years, the bill permits a credit for all eligible small employers that provide insurance coverage for their employees and beginning in 2014, credits are available to employers purchasing employee coverage through health insurance exchanges. Employees would still receive full credit for taxes withheld from their pay. As it applies to for-profit businesses, the credit is 35 percent initially and 50 percent for 2014 onward.
- Individual Mandate: Beginning in 2013, all US citizens and legal residents would be required to purchase health insurance through individually purchased coverage, employer-sponsored coverage, or a federal insurance program. The penalty for not maintaining health insurance would be an excise tax of $695 per adult in the household. The per adult penalty would be phased in as follows:
- 2013: $0
- 2014: $95
- 2015: $325
- 2016: $695
The tax in 2014 is $95 or 1 percent of income, whichever is greater. The amount rises until 2016, when it becomes $695 for an individual (up to $2,085 for a family), or 2.5 percent of income, whichever is greater. The tax would be indexed after 2016 and could increase based on inflation. No criminal penalties could be imposed on the failure to pay excise tax. Exemptions provide for financial hardships, religious reasons, and Native Americans.
- Individual Affordability Credit: Would provide new tax credits on a sliding scale to individuals and families to limit how much of their income can be spent on premiums. Affordability credits are offered on a sliding scale such that premiums range from 1.5 percent of income at the lowest tier and 9.5 percent of income at 400 percent FPL. Cost-sharing assistance for individuals and families would also be available for those that qualify.
- Employer Mandate: Effective 2014, employers with 50 or more employees would be required to either offer health insurance to their employees or pay a $2,000 fee per employee to help cover the cost of making insurance affordable through the exchange. Employers must pay at least 60 percent of the cost of coverage. For coverage to be affordable, the employee portion cannot exceed 8 percent of the employee’s family income. Plans in existence on March 23, 2010 are considered ‘grandfathered plans’ for purposes of the act. The legislation eases the transition into this policy change by exempting the first 30 workers from the payment calculation.
- Cadillac Plans: Effective 2018, there is a 40 percent excise tax on high-value plans more than $10,200 for individuals and $27,500 for families. The tax is on the insurer or plan administrator.
- Nonprofit Hospitals: Would establish new requirements applicable to nonprofit hospitals. This includes a periodic community needs assessment, financial assistance policy requirements, limitation on charges to patients, collection practices reform, and new reporting and disclosure requirements.
Links to Related Information: