American Fidelity Healthcare Reform Update

This week, President Obama is expected to sign into law the Health Care and Education Affordability Reconciliation Act of 2010 , which makes a number of changes to the Patient Protection and Affordable Health Care Act that was signed into law on March 22, 2010 .

We are sure you have questions about these new health care laws and the number of changes that may affect your District's Section 125 program and health plan, such as the following:

- Effective January 1, 2011 , over-the-counter drugs can only be reimbursed through the Unreimbursed Medical Expense (URM) Account if they are prescribed by a physician. This change will occur mid-plan year for most URM participants. IRS rules governing URM's will not allow participants to change their elections mid-year on account of this new requirement.

- Effective January 1, 2013 , the maximum amount of contributions to the URM account will be $2,500. This will include both employer and employee contributions. This amount will be indexed annually to the Consumer Price Index (CPI) .

- Effective January 1, 2013 , the threshold for claiming the itemized deduction for medical expenses increases from 7.5% of the taxpayer's adjusted gross income to 10%. Individuals over age 65 can still claim the deduction for medical expenses at 7.5% through 2016.

- Effective January 1, 2018 , high cost health plans (or "Cadillac Plans") that exceed annual thresholds in aggregate ($10,200 for individuals and $27,500 for families, with certain exceptions) will be subject to an excise tax of 40% of the excess benefit payable by the employer or coverage provider (depending on the type of plan). Coverage for major medical, URM Accounts, and Health Savings Accounts (among others) must be included. These thresholds will be indexed to CPI + 1% for 2019 and then CPI thereafter. Employers are also responsible for calculating the value of coverage on an individual basis and reporting such amounts to insurance companies and the Department of Treasury , subject to mandatory failure-to-report penalties .

- Effective January 1, 2013, distributions from Health Savings Accounts that are not for qualified medical expenses will be subject to a 20% excise tax penalty (increased from 10%).

- Health plans that provide coverage for children must make the coverage available for an adult child until the child turns 26 years old. All plans must comply with this requirement beginning in 2014; prior to 2014, plans that are in existence today must comply as of the first plan year beginning after six months after date of enactment for adult children who do not have access to other employer-sponsored group health plan coverage.

- Health plans must cover preventive care services without imposing any cost sharing (such as copayments, coinsurance, or deductibles). Some plans must comply as of the first plan year beginning after six months after date of enactment, but plans that are in existence today have a grace period before they have to comply.

- Employers must automatically enroll individuals in employer-sponsored major medical plan coverage, although employees must be given the ability to opt out. Such a requirement may require amendment of a District's Section 125 plan document and employee communication materials. Employers will also have new notice obligations in connection with this requirement. The effective date of this requirement will need to be clarified by the federal government.

American Fidelity has been following Health Care Reform closely, specifically regarding the impact it would have on our School Districts and Section 125 programs. It is our pledge to educate you on issues, communicate prospective changes to your staff and help implement Health Care Reform into your Section 125 program. Rest assured that we are here to help.

If you have questions regarding the new law, please contact your American Fidelity Account Representative or American Fidelity's Health Care Reform hotline at (877) 302-5073.