In a historic series of votes held on Sunday, the House of Representatives passed both the Senate-approved Patient Protection and Affordable Care Act (H.R. 3590), (pdf) and the Health Care and Education Affordability Reconciliation Act of 2010 (H.R. 4872), (pdf) otherwise known as the reconciliation package of “fixes” to the Senate bill. The legislation, which is expected to provide health insurance to an additional 32 million people, would create state-based health insurance exchanges through which eligible individuals and businesses can purchase health insurance. The legislation would also provide federal government subsidies to help lower-income individuals purchase insurance.

The President is expected to sign the Patient Protection and Affordable Care Act – which narrowly cleared the House by a vote of 219-212 – into law. The reconciliation bill, which was approved by a slightly larger margin (220-211), will move to the Senate this week, where it will likely pass despite anticipated procedural tactics. According to an article in the Hill’s Blog Briefing Room, Republican Senators plan to institute a series of amendments and parliamentary challenges to the reconciliation package.

On Saturday, the House dropped its plans to pursue the controversial “deem and pass” procedural strategy, in which it would have voted on the reconciliation measure and deemed the Senate bill passed. This method would have allowed House members to avoid a direct vote on the Senate bill. Instead, the House decided to hold three separate votes on Sunday: the first on the rule to vote on the measure, the second on the Senate bill, and the final on the reconciliation package. Certain Democratic anti-abortion holdouts were swayed to approve the bill after details emerged about Obama’s plans to issue an executive order ensuring that no taxpayer funds could be used to fund the procedure.

Health care legislation contains a myriad of new requirements that will impact employers both directly and indirectly. The new “employer responsibility” requirements will likely have the most impact on businesses. Under the Patient Protection and Affordable Care Act, an employer is not required to provide or maintain health insurance, but those with 50 or more employees would face a penalty to help defray the cost of health insurance if any employees receives government subsidies to purchase their own insurance through a health insurance exchange because the employer plan is deemed unaffordable, or if the employer does not offer coverage at all. Specifically, starting in 2014, the employer would pay the lesser of $3,000 per full-time worker who obtains a tax credit or $750 times the total number of full-time workers if the insurance it does provide is considered inadequate or too costly. If the large employer does not offer insurance at all, it would need to pay $750 per full-time worker if any employee obtains tax credits for the purchase of health care. However, the reconciliation bill increases the penalty large employers have to pay if they do not offer coverage. Large employers that do not offer health coverage at all would be required to pay $2,000 per employee, up from the $750 amount in the Senate-passed bill. The reconciliation bill would also alter the employer penalty provisions by exempting the first 30 workers from the payment calculation. Therefore, an employer that does not offer health insurance coverage would be required to annually pay $2,000 times the amount equal to the number of employees minus 30.

Small business will receive assistance in offering health insurance to their workers. Small businesses with fewer than 25 employees and average annual wages of $50,000 or less will receive a tax credit of up to 35 percent of the employee’s premium to help cover the cost of providing health insurance to their employees. This tax credit will begin this year. Beginning in 2014, when the state health insurance exchanges become operational, eligible employers who purchase coverage for their employees through the exchange can receive a tax credit for two years of up to 50 percent of the employee’s premium. Initially, the state exchanges would be open to small employers with 100 or fewer employees, unless the state wants to limit this to firms of 50 or fewer workers. Beginning in 2017, states have the option of expanding this to larger employers.

With respect to the contentious excise tax on high-cost “Cadillac” health insurance plans, the reconciliation bill delays the application of this tax until 2018, and increases the dollar thresholds of the 40% excise tax to amounts above $10,200 for single coverage, $27,500 for a family plan, $11,850 for retirees and $30,950 for employees in high risk professions. The reconciliation plan would also exclude stand-alone dental and vision plans from the excise tax, and permit an employer to reduce the cost of the coverage when applying the tax if the employer’s age and gender demographics are not representative of the age and gender demographics of a national risk pool. The dollar thresholds would be indexed to inflation and would be automatically increased in 2018 if the Congressional Budget Office turns out to be incorrect in its forecast of the premium inflation rate between now and 2018.

The reconciliation bill also delays the annual $2,500 limitation on contributions to health flexible spending arrangements and the elimination of the deduction for expenses related to the Medicare Part D prescription drug subsidy contained in the Senate bill until 2013. Notably, under the reconciliation bill certain insurance market reforms are made available to so-called “grandfathered” group health plan. These include extending the prohibition of lifetime limits, prohibition on rescissions, and a requirement to provide coverage for non-dependent children up to age 26 to all existing health insurance plans starting six months after enactment. Starting in 2014, the reconciliation bill extends the prohibition on excessive waiting periods to existing health plans. For group health plans, the bill prohibits pre-existing condition exclusions in 2014 (for children, they are prohibited starting six months after enactment), restricts annual limits beginning six months after enactment, and prohibits them starting in 2014. For coverage of non-dependent children prior to 2014, the requirement on group health plans is limited to those adult children without an employer offer of coverage.

More details about the House-passed reconciliation bill can be found on the House Committee on Education and Labor’s webpage.

House Passage of the health care reform package comes after more than a year of debate on legislation that will have profound implications for employers. It sets in motion dramatic changes to both the current system of employer-sponsored health care benefits and, over time, the nature of the workplace itself. While the timeline for implementation of health care legislation varies, employers should begin preparing for these changes now.

This entry was written by Ilyse Schuman.