Recap of House Health Reform Bill - November 9, 2009

11/9/2009

Source: Kilpatrick Stockton

Saturday night, November 7, 2009 the House passed by a margin of only 5 votes its version of health care reform. A number of minor amendments were adopted at the last minute, and we understand that a final version of the bill will not be available today. The action now moves to the Senate where the Senate is still trying to craft a compromise bill between the two competing bills from the Senate HELP committee and the Senate Finance Committee. If a compromise bill can be crafted and brought to the Senate floor, then debate must be scheduled and the bill must be brought up for a vote. Assuming a compromise Senate bill is passed by the Senate, then the differences between the two bills will need to be worked out in a special House-Senate conference committee. The differences between the two bills are fundamental and substantial, and therefore it is unclear whether a final bill could be voted on before Christmas.

The House bill contains a number of items for employers:

1. Individual Mandate. Requires all individuals to obtain health care coverage meeting certain minimum requirements beginning in 2013. Individuals who do not have such coverage pay a penalty equal to 2.5% of AGI, subject to certain threshold requirements.

2. Employer Mandate. Requires employers to offer health care coverage meeting certain minimum requirements beginning in 2013, including minimum employer contributions of 72.5% for FT employees with individual coverage and 65% for FT employees with family coverage. Employers with payrolls of more than $500,000 are subject to a penalty of up to 8% of payroll for failure to comply.

3. Vesting Retiree Coverage. The bill prevents changes to retiree coverage or terminations of retiree coverage after an employee has retired.

4. Taxation of Part D Subsidy Payments. Currently, the Part D subsidy payments that employers receive for sponsoring a retiree drug subsidy plan that is equivalent to Part D is not subject to taxation. The bill would now subject these payments to income taxation.

5. Public Option. The bill contains a public option to begin in 2013. Many business groups have indicated that similar to the experience with Medicare, a public option is expected to increase costs on employer plans, because it will not be able to contain costs and will underpay for services, leaving employer plans with larger expenses.

6. Health FSAs. Beginning in 2011, the bill limits annual contributions to health FSAs to $2,500, indexed for inflation.

7. HSAs. Increases penalties for non-health distributions from 10% to 20%.

8. OTC Drugs. Beginning in 2011, reimbursements from health FSAs, HRAs and HSAs would not be allowed for OTC drugs.

9. Individual Tax Increase. An income tax surcharge of 5.4% is placed on individuals earning more than $500,000 (or $1,000,000 for a joint return).

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