Healthcare Reform: Readers’ Questions Answered
Originally published: 08.01.10 by Mike Coyne
Changes coming this fall, but recipients won’t be taxed on benefits.
Last month I wrote about the new healthcare nondiscrimination rules and their potentially adverse impact on many small employers. That article raised some questions from readers. I renew my health insurance on Sept. 1 each year. My agent has told me that I do not have to worry about the new law until Sept. 1, 2011. Is he correct? Unfortunately, no. The new nondiscrimination rules take effect for nongrandfathered plans as of the first day of the plan year beginning after Sept. 23, 2010. What is the plan year? Many people have assumed that the plan year is the same as the policy year, but this is not the case. The plan year is supposed to be defined in a written health-plan document, but very few employers comply with this requirement. Unfortunately, the health insurance policy is generally insufficient to serve as the plan document. In the absence of a written plan document that specifies the plan year, federal regulations state that the plan year is the deductible or limit year used under the plan. For most health insurance policies, this is the calendar year. Only if the plan does not impose deductibles or limits on a calendar year basis will the plan year be the same as the policy year. In our experience, most health insurance policies calculate the deductible and the policy limits on a calendar year, making the plan year the calendar year. I recently received an e-mail stating that next year’s W-2 form will be increased to show the value of whatever health insurance is provided by the employer, and that employees will be taxed on this amount. Is this true? No. The value of health care benefits is not included in taxable income. However, it is true that the Form W-2 for 2011 wages will include a box that shows the value of healthcare benefits. If the value is not going to be taxed, why does it have to be included on Form W-2? This is a good question, and one that has led to a great deal of speculation. Many of us believe that Congress wants employees to be aware of the value of healthcare coverage so that it will be more difficult for employers to modify or terminate coverage. By seeing this information on Form W-2, employees will be led to believe that healthcare coverage is a part of their compensation so that any modification or termination of healthcare will be viewed by employees as a pay cut. Is there any chance that the law will be changed before it becomes effective? While anything is possible, we are not optimistic that there will be any significant changes. One of our colleagues recently contacted the Senate Finance Committee to inquire whether there would be a so-called technical-corrections bill. (Frequently, Congress passes a technical-corrections bill after passing a major piece of legislation in order to fix mistakes made in the legislation.) Our colleague was told that a technical- corrections bill is not being considered because it was so unlikely that the Democrats and Republicans would agree on anything. It is always possible that a change in control of Congress might lead to new legislation. Unfortunately, there is little time to make significant changes before parts of the law, such as the nondiscrimination rules, take effect. n Michael P. Coyne is a founding partner of the law firm, Waldheger Coyne, located in Cleveland, Ohio. For more information on the firm, visit: www.healthlaw.com or call 440-835-0600.
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