Impact of Health Care Reform on UC's Benefits

Since President Obama signed the Patient Protection and Affordable Care Act and the Health Care Education Reconciliation Act in March, UC faculty and staff have been asking questions about how the health care reform laws will affect their UC-sponsored medical insurance. The following is from a conversation with Mark Esteban, Director of Benefits Programs, UC Human Resources, Office of the President. For more articles related to HR and Benefits, check out the May issue of "Our University" in Related Information.

We've been ahead of the curve on many of the provisions in the law, so we will have to take relatively small steps to get into compliance. We are in a much better position regarding benefits that are mandatory under the law than a lot of other employers. For example, our HMO plans already have no lifetime limits on benefits, and we already cover all of the mandated benefits. At the same time, some of the steps we will need to take, such as covering children up to age 26, could have significant financial implications for the program.

UC will be implementing this provision for 2011, and all the details will be available in our Open Enrollment information in October. At this point, there are nearly as many questions as answers in terms of how "adult child" will be defined. All employers are waiting for regulatory guidance and definitions that will come out of the U.S. Department of Health and Human Services. This provision also has tax implications. The IRS has confirmed that coverage extended to an adult child to age 26 will not be treated as taxable income to the employee or the child.

We do know a few other details. For example, an employee's married child will be eligible for coverage, which is a change. But the child's spouse or domestic partner and/or children will not be eligible, which is consistent with current law. If the adult child is eligible for employer-sponsored coverage elsewhere, he/she would not be eligible for coverage under the parent's plan. Also, the adult child does not need to be a tax dependent.

It is still unclear when coverage of the adult child ends. The tax code says the child can get health care tax-free through the end of the year in which he or she turns age 26, but the health care reform law says coverage is required to last through the end of the month in which the child turns 26.

The cost of this provision for UC's plans is also unclear. Although this population is generally healthy, adding more people to the plan will increase our costs.

While these requirements may apply only to certain UC plans, this is one of the areas where we're ahead of the curve. Our plans already cover most of the mandated benefits, including mental health and substance abuse services, prescription drugs, rehabilitative services and devices, preventive and wellness services and chronic disease management.

The excise tax will be imposed if the value of UC's health coverage exceeds $10,200 for individuals and $27,500 for families. Given the current increases in health care costs and that the thresholds are in 2018 dollars, some UC plans could be subject to the tax. This tax is effective in 2018, so, while we have an eye on it, it is not currently our focus.

Currently, everyone contributes 1.45 percent of pay to Medicare. Beginning in 2013, those who make more than $200,000 will pay 2.35 percent on any income over $200,000. For married people filing a joint tax return, the threshold is $250,000.

Again, we're ahead of the curve regarding this provision. Our health plans have not excluded employees or their dependents with pre-existing conditions for many years.

Medicare benefits remain fully intact for retirees. That being said, we do need to assess how federal funding reductions for Medicare Advantage plans will affect premiums for UC's Health Net Seniority Plus and Kaiser Senior Advantage plans. Historically, UC has covered the full cost of these plans, so our retirees have not had to pay a premium. Many factors outside the health care reform law will determine UC's costs and contribution to the premium, and hence retirees' costs. More information about the rates and other impacts will be available in the coming months.

There are two areas that could affect UC: the elimination of lifetime benefit limits and provisions regarding flexible spending accounts (FSA).

The elimination of lifetime limits on benefits could affect people enrolled in our Anthem Blue Cross Plans or the CIGNA Choice Fund Plan, which currently have lifetime limits. As we go through the renewal process with our carriers over the next few months, we will know the cost of eliminating the limits. It could have an impact on premium rates.

Our HMO plans (Kaiser, Health Net and WHA) don't have lifetime limits, so they should not be affected.

Other provisions of the law affect our Health Flexible Spending Account. Beginning in 2011, over-the-counter drugs will no longer be reimbursable. We're concerned that this will lead some employees to use more expensive prescription drugs, which could affect medical plan costs.

Also, the maximum contribution to a health FSA will be reduced from $5,000 per year to $2,500 per year beginning in 2013.

Anything that affects our plans for 2011 will be included in our Open Enrollment communications in the fall. We'll also continue to keep people informed through Our University, the At Your Service website and your local Human Resources and Benefits Offices.