Health care reform’s hidden changes

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The new health care reform law doesn’t just provide for universal health care — it also includes various non-health care provisions relevant to lawyers.

The Patient Protection and Affordable Care Act was signed into law March 23 with its companion bill, the Health Care Education and Affordability Reconciliation Act, signed March 30.

Non-health care measures include tax changes, an amendment to the Fair Labor Standards Act, new whistleblower provisions for hospital employees and other employment-related updates.

Some of the changes were part of the bill in its various permutations as it dragged through the legislative process, but others were relatively new additions of which many lawyers may be now be aware.

For example, the imposition of a new 3.8 percent surtax on investment income “came out of nowhere,” said Robert S. Keebler, a CPA at Baker Tilly and chairman of the firm’s Financial and Estate Planning Team in Green Bay, Wis. “Nobody had time to plan for it because it was added at the last minute, in March.”

But even the known changes will keep lawyers with their own practices who operate a group health plan, or lawyers who advise employers, busy implementing all of the new provisions over the next few months.

Bruce Barth, a partner at Robinson & Cole in Hartford, Conn. and head of the firm’s Employee Benefits and Compensation Group, said several different agencies — the Department of Health and Human Services, the Internal Revenue Service and the Department of Labor — all must issue guidance on a number of different items that remain unclear.

He also encouraged lawyers to stay calm.

“While there are substantial changes to the health care system, it is still an employer-provided system, and it doesn’t change health care as we know it,” he said.

New whistleblower protections

Sections 1558 and 2706(b) of the Act include expanded whistleblower protections that cover hospital employees. Coverage includes protections like an administrative investigation and hearing at the Department of Labor for any claimed discrimination of a hospital employee; reinstatement, compensatory damages, attorney fees and other relief; and the right to a jury trial if the DOL doesn’t respond to the whistleblower within 180 days (or 90 days after an adverse ruling).

The Act also set burdens of proof: it allows whistleblowers to prove their case by arguing their refusal to violate the law or decision to report wrongdoing was a “contributing factor” in getting fired or suffering other discrimination. Employers must prove by clear and convincing evidence that they would have taken the same action for independent reasons had the whistleblower remained silent.

Surtax added

The Act imposes a new 3.8 percent Medicare tax on the lesser of net investment income or the excess of modified adjusted gross income over the threshold amount ($250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for other individuals).

Because distributions to Roth IRAs are exempt when determining modified adjusted gross income — and given the current incentives to switch to Roth IRAs — taxpayers should seriously consider reducing their exposure to the new surtax by converting to a Roth, Keebler said. Because of the new tax, “lawyers should make a concerted effort to learn about Roth IRA planning,” Keebler said, not only for their own financial planning purposes but also to advise their clients.

FLSA update

An amendment to the Fair Labor Standards Act included in the health care reform law requires employers to provide nursing mothers with “reasonable break time” to express breast milk for up to one year after the birth of a child.

While 17 states and Washington, D.C. already have laws on the books with similar requirements, the Act does not preempt state laws with greater protections.

The amendment may conflict with various other federal and state laws that deal with meal and rest breaks.

Also uncertain is what constitutes a “reasonable” break time, or what penalties will be imposed for violations.

Employers with fewer than 50 employees may be exempt from the amendment if they can show the requirements would pose an “undue hardship.”

The DOL will be promulgating regulations to guide employers.

Other tax changes

Employers with no more than 25 employees and less than $50,000 in average wages are eligible for a tax credit under the Act for employer-provided health coverage. Through 2013, the credit can reach up to 35 percent of the employer’s contribution if the employer contributes at least 50 percent of the premium.

Beginning Jan. 1, 2011, employers will be required to disclose the value of the benefit they provide to each employee’s health insurance coverage on the employee’s W-2 form.

Other tax changes included an increase in the Medicare portion of the FICA tax; an excise tax on “Cadillac” health plans as well as on uninsured individuals; expansion of the term “dependent” for purposes of the Internal Revenue Code’s medical reimbursement exclusion; and a credit for taxpayers who purchase health insurance from the state.

Employer-sponsored health plans

The new law made a multitude of changes to how employers will operate their sponsored health plans for employees. Group health plans may no longer place lifetime dollar limits or annual dollar limits on claims, and must provide dependent coverage to the children of covered employees up to age 26.

In addition, group health plans may not impose any preexisting condition exclusions for children under age 19 beginning this year; for adults, the prohibition begins Jan. 1, 2014. Once an individual is covered, group health plans may not rescind coverage (absent fraud or intentional misrepresentation of a material fact). The Act also mandates non-discrimination for group health plans, which means an employer can’t charge some employees more than others for health insurance. Certain preventative services and immunizations must be covered without cost to employees.

For health spending accounts, the measure increases the tax on withdrawals for non-heath care related reasons. For flexible spending accounts, the law caps contributions at $2,500. Expenses for over-the-counter medications (excluding insulin) are no longer eligible for tax-free reimbursement from FSAs and HSAs.

In 2011, a provision kicks in that “every group health plan must pay $2 per participant per year to the government for research,” Barth said.

Under the Act, employers must pay $2,000 per employee to the government if they do not provide coverage — but the first 30 employees are free. So a small law firm with 29 employees or less would not have to pay anything.

While the “pay or play” provisions don’t take effect until 2014, some firms may consider dropping group health plans as a result, Barth said.