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Health care reform update

by on May 7, 2010

With Health Care Reform legislation now signed into law, what could it mean for AEP employees, retirees and others covered through the company’s benefit plans? Curt Cooper, AEP director of employee benefits, provides some answers.

Question: Exactly how will the new health care legislation affect AEP medical plan benefits?

 

Curt Cooper

Cooper: The new legislation could impact our benefit plans in a number ways, but most of the changes are not scheduled to go into effect for several years. Like most legislation, it could take a number of months (optimistically) for new regulations to be issued and for us to determine exactly what will be required, as well as to consider our options and what we might need to change in order to comply with the new law.

Question: I understand companies will be required to cover dependents in the medical plan up to age 26 as early as next year. When will AEP begin covering these dependents?

Cooper: Dependent coverage is one of the first changes to go into effect under the new law. Currently, AEP covers eligible dependents (defined as unmarried children or step children of the employee, retiree or surviving spouse) up to age 19 (or up to age 25, if full-time students). The new law requires us to cover all eligible dependents up to age 26, regardless of their student or marital status, unless they are eligible for their own employer-provided coverage. Those of us who offer coverage on a calendar year (Jan. 1 through Dec. 31) will need to make this coverage available for the 2011 plan year. Details on how to enroll eligible dependents and the cost to enroll them will be communicated during annual enrollment this fall.

Question: I’ve read that the government plans to tax “Cadillac” health care plans, or those that are considered to provide above-average benefits to participants. Are we in danger of being taxed for our medical plan benefits? Will AEP lower our benefits and shift more of the cost to participants?

Cooper: First of all, it is the company — not the participant — that would be charged the 40 percent excise tax for plans that exceed a certain annual dollar value — $10,200 per individual or $27,500 for family coverage. That change is not scheduled to go into effect until 2018. Depending on medical inflation, our plans could exceed that value by that time. Fortunately, we have several years to consider the implications of this tax and any adjustments we might need to make as a result.

Question: The new law has some provisions related to Medicare Part D. How might these provisions impact retiree medical coverage for age 65-plus retirees under the AEP plan?

Cooper: Currently, the government pays us a tax-free subsidy for retirees who are eligible for Medicare Part D but who instead receive drug coverage under the AEP Medical Plan. Under the new law, beginning in 2013 we may have to pay additional taxes because we receive that subsidy. We have to book the effect of that change in tax treatment on the company’s financial statements going forward. There are a number of ways we might deal with this issue, and we will look at all of them before making any decisions to change retiree medical coverage. On the positive side, the government plans to offer a “reinsurance” program that would reimburse us up to 80 percent of the cost of certain high-dollar claims for retirees between the ages of 55 and 64. However, only $5 billion in total funds have been allocated for this program nationwide. While this may result in some initial cost savings, the savings would most likely be short-lived as the $5 billion is exhausted.

Question: Are health care flexible spending accounts impacted by the new law?

Cooper: Yes. Currently, employees are allowed to contribute up to $5,000 each year to a pre-tax health care flexible spending account. The amounts credited to that account can be used to pay for over-the-counter drugs, along with various other eligible health care expenses. The new law caps the health FSA contributions at $2,500 starting in 2013 and will no longer allow participants to use their accounts for non-prescription drugs starting in 2011. Details on FSA changes will be communicated during annual enrollment this fall.

Question:I heard that high-income individuals will be taxed to pay for the new health care bill. Is that true, and will the company automatically withhold these taxes?

Cooper: Individuals who have an adjusted gross income over $200,000 (or $250,000 if married and filing jointly) will be required to pay an additional Medicare tax of 0.9 percent on any earned income that exceeds that limit. Once an employee’s AEP wages have reached that limit, the company will automatically withhold the extra 0.9 percent through payroll taxes. The law also requires those individuals who make over $200,000 (or $250,000 if married and filing jointly) with net investment income (interest, dividends, rental income, etc.) in excess of $200,000 (or $250,000 if married) to pay an additional 3.8 percent tax on their net investment income. Because this income is not monitored or controlled by the company, it will be up to the individual taxpayer to report and pay these additional taxes.

Question: The new law requires all U.S. citizens to carry health care insurance by 2014. Will AEP employees be forced to elect AEP medical coverage, or can they continue to be insured by a spouse’s plan or some other coverage?

Cooper: Those who elect AEP health care coverage for themselves, their spouse or their eligible dependents will meet the requirements of this law. However, the company cannot force individuals to take our coverage and we will not automatically enroll those not in our plan. One exception: new employees who do not make an active election to participate during the new hire orientation process will default into the Anthem Lumenos HRA plan option with single coverage.

Question: Does AEP contemplate making any changes to our benefits plans beyond those changes required by the new law?

Cooper: AEP leaders remain committed to the health and wellness of our employees, retirees and family members, including providing a quality benefits package. So a great deal of analysis and discussion will need to take place before any potential changes to our benefit plans are considered. Should changes be made, we will fully communicate them through annual enrollment materials and other resources prior to them going into effect.

From → Benefits

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