As expected, on Tuesday President Obama Signed into law the Health Care and Education Reconciliation Act of 2010 (H.R. 4872), more commonly known as the “reconciliation bill” that makes changes to the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), the sweeping health care overhaul legislation Obama signed on March 23. The House approved this bill for the second time on March 25 by a vote of 220-207. The House had initially cleared the bill on March 21, but needed to take up the measure once again after two minor changes were made in the Senate, which also passed the bill on March 25.

Among other changes, the reconciliation bill alters the employer penalty provisions in the PPACA by increasing from $750 to $2,000 the fee large employers (more than 50 employees) have to pay per the total number of full-time employees if they do not offer health coverage and if any full-time employee receives a federal subsidy to purchase insurance through the newly created health insurance exchange. Large employers that do offer insurance but whose coverage is deemed unaffordable because the premium exceeds 9.5% of the employee’s household income or the plan does not cover at least 60 percent of allowable costs will pay $3,000 for any full-time employee that receives a tax credit in the exchange up to an aggregate cap of $2,000 for every full-time employee. The first 30 full-time employees are excluded from the total number of full-time employees for purposes of calculating the penalty. Employers with more than 200 employees will be required to automatically enroll all employees in their health insurance plans, allowing individual workers to opt-out, and provide notice to employees of their health insurance options, including coverage through the Exchange.

The reconciliation package also raises the threshold for the 40 percent excise tax on high cost “Cadillac” plans. The tax will now apply to employer-sponsored health care plans whose premiums exceed $10,200 for singles, $27,500 for family plans ($11,850 and $30,950 for retirees and for employees in high-risk occupations), indexed for inflation, and delays implementation from 2014 until 2018.

With respect to health flexible spending accounts (FSA), the measure delays the annual $2,500 limitation on contributions and eliminates the deduction for expenses related to the Medicare Part D prescription drug subsidy contained in the PPACA until 2013. Additionally, under the reconciliation bill certain insurance market reforms are made available to so-called “grandfathered” group health plans. These include extending the prohibition of lifetime limits, restrictions on annual limits, prohibition on rescissions, and a requirement to provide coverage for non-dependent children up to age 26 to all existing group health plans for plan years starting on or after six months after enactment of the PPACA. Beginning in 2014, the reconciliation bill extends the prohibition on excessive waiting periods and prohibition on annual limits to grandfathered group health plans. For group health plans, the bill also prohibits pre-existing condition exclusions in 2014 (for children, they are prohibited for plan years starting on or after six months after enactment). 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.

For more information on how the two health care bills will affect the workplace, see Littler’s Insight: Health Care Reform – What are Key Considerations for Employers? by Ilyse W. Schuman and Steven J. Friedman.