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Employee Benefits Client Alert
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John McMorrow
 
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April 12, 2010
Federal Health Care Reform Affects Employers Now
Far reaching federal health care reform legislation has now been enacted.  The ground rules for employer-sponsored health plans are now changing.  Although many provisions of health care reform do not go into effect until sometime in the future, and could be revised or revoked prior to implementation, some provisions are effective immediately. 
 
Payroll Tax Change for Parents of Non-Dependent Children
 
In effect now One change in the law that requires immediate employer action is a payroll tax change that affects the parents of non-dependent children.  Before health care reform, there was a federal tax cost to a parent who covered an older non-dependent child under an employer health plan.  The IRS required employers to impute the value of the child's coverage as taxable income and report the imputed income on the parent's Form W-2 as wages.  Health care reform removes this requirement, effective for payrolls after March 31, 2010, provided the child does not reach age 27 in the calendar year.  Therefore, 2010 W-2s will reflect three months of imputed income (January through March) and nine months of tax-free income.  After that, there is no federal tax cost for such coverage.  Note that health care reform does not change the existing requirement that employers impute the value of coverage for other non-dependents (such as ex-spouses and same-sex spouses that do not qualify as dependents under the Internal Revenue Code) as taxable income for federal tax purposes. 
 
Requirement to Extend Coverage for Non-Dependent Children
 
In effect soon.  Another change in the law that is effective for plan years starting after September 22, 2010, provides  that if an employer's health care plan offers dependent coverage, then a parent must be allowed to elect such coverage for an older non-dependent child until the child reaches age 26.  This federal health care reform requirement is similar to, but not the same as, the current Massachusetts requirement, which permits a parent to elect coverage for an older non-dependent child.
  • The Massachusetts health care reform law only applies to insured plans.  The federal health care reform law applies to insured and self-insured plans.
  • The Massachusetts law requires coverage until the earlier of age 26 or two years as a non-dependent.  The federal law has no two-year limit, and only requires coverage until age 26.
  • The federal law permits plans to reject older non-dependent children who have access to other group health coverage, until the plan years starting in 2014.  The Massachusetts law does not permit rejection for that reason.
This client alert is intended to inform you of developments in the law and to provide information of general interest.   It is not intended to constitute legal advice regarding a client's specific legal problems and should not be relied upon as such.  This client alert may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.