Department of Employee Trust Funds
October 20, 2010
FEDERAL HEALTH INSURANCE CHANGES
The recently-enacted federal Patient Protection and Affordable
Care Act (H.R. 3590) and the Health Care and Education Affordability
Reconciliation Act (H.R. 4872) will make changes to health insurance
coverage. The Department of Employee Trust Funds (ETF), the state
agency that administers the state and local group health insurance
programs for state employees and participating local government
employees, is currently reviewing the Act to determine the effect
it will have on the health insurance programs administered by ETF.
The Acts contain a substantial amount of language (more than 2,500
pages). The federal government’s rules related to the Acts
are still in the process of being developed and implemented as of
this writing. Therefore, it may be awhile before we have complete
information on how the new laws will affect our health insurance
programs. In the meantime, please find below a sampling of questions
we have received from people who participate in our health insurance
programs. Note: For information about the provisions that become
effective in 2011 and how those provisions affect the coverage provided
by the state and local group health insurance program, please refer
to the 2011 It’s Your Choice Decision Guide, particularly
the Important Changes section. Click here for the State
It's Your Choice Decision Guide. Click here for the Local
Employers It's Your Choice Decision Guide.
If you are a state resident and seeking general and reliable information
about how the Acts affect you, please visit http://www.healthcarereform.wisconsin.gov
Questions and Answers
Q: Does the
new health care law require workers (and retirees who use sick leave
credits to pay for health insurance premiums) to pay income tax
on the value of employer-provided health insurance?
A: No. Based on our interpretation of
the Act, the value will appear on employees’ W-2 forms for
information purposes, but will not be considered taxable income.
Q: How does
the Early Retiree Reinsurance Program (ERRP) in the Act work?
A: The program reimburses plan sponsors
(such as ETF) for a portion of health insurance costs for retirees
not covered by Medicare. The program is designed to encourage sponsors
of health programs to maintain coverage for early retirees. $5 billion
has been allocated for the program, with funds distributed on a
first-come, first-served basis. However, experts predict that the
$5 billion in federal funding for this program will not be enough
to meet the demand from plan sponsors nationwide. ETF submitted
an application for program funding in July 2010, and our application
was approved in October 2010. The Group Insurance Board's actuary
previously indicated that ETF's application would make ETF eligible
for a reimbursement of up to $18 million for the retiree health
insurance program, subject to the availability of funds at the federal
level. We do not know the exact amount of funds that will be available
to ETF at this time. ETF will keep members informed about the reimbursement
process as information becomes available.
Q: Did the
Act make any changes to imputed income (and what is imputed income)?
A: Under federal tax law, employer contributions
for health insurance are excluded from an employee’s gross
income. However, the exclusion is permitted only for coverage of
the employee, the employee’s spouse, and the employee’s
tax dependents. For all other individuals covered on the employee’s
health insurance, the employer must include the fair market value
of the health insurance benefits in the employee’s gross income.
This is known as “imputed income.” To learn more about
imputed income, visit our website at: http://etf.wi.gov/employers/benefit_programs_imputed_income.htm
Effective March 30, 2010, the Health Care and Education Affordability
Reconciliation Act amended previous law to provide that expenses
incurred for the medical care of a taxpayer's child who is under
27 at the end of the tax year are not taxable. For these purposes,
a "child" is the son, daughter, stepchild, adopted child
(or child placed for adoption) or eligible foster child of the taxpayer.
Note that this is a change in federal law -- not state law. Therefore,
for Wisconsin tax purposes, one would still have imputed income
for the fair market value of any employer-sponsored health insurance
coverage of a non-tax-dependent adult child under age 27. Elimination
of the imputed income at the state level would require legislation
to conform the state tax code to the federal change.
The federal Act did not make changes to the imputed income requirement
relating to health insurance coverage of non-tax-dependent domestic
Q: What provisions
are effective in 2011 and how will they affect the state and local
government group health insurance programs administered by ETF?
A: There are other provisions, such
as the elimination of lifetime maximums on health insurance coverage
that are effective in 2011. The 2011 It’s Your Choice Guide,
which is available here State
It's Your Choice Decision Guide or Local
Employers It's Your Choice Decision Guide will explain the specific
provisions and how the provisions effect coverage in the our health