by Miranda Morgan and David Ball, SZD
The Patient Protection and Affordable Care Act (PPACA), better known as Health Care Reform, signed into law in March 2010, contains a series of measures that will impact employers over the next several years. This article summarizes several of the more significant provisions, including the Employer Mandate, which goes into effect in 2014. Much remains to be determined, however, as government agencies, principally the Department of Health and Human Services, issue regulations and interpretive bulletins to clarify the numerous unknowns.
This timeline is based on requirements for single-employer plans that operate on a calendar year basis.
· Small Business Health Tax Credit: Companies with 10 employees or less may get a tax credit of up to 35 percent of the employer’s premium costs (25 percent for tax exempt small employers), but only if they pay their workers $25,000 or less and provided the employer contribution is at least 50 percent of the premium costs. Credit is reduced on a sliding scale per employee for companies with 11-25 employees, and is reduced as the average wage increases from $25,000 to $50,000. Companies with more than 25 employees, or that pay their employees on average over $50,000, are not eligible. This tax credit is only available for a maximum of five years, and only two years once the Health Insurance Exchanges are up and running in 2014.
· Nursing Mothers: Effective immediately, employers are required to provide nursing mothers with reasonable break time to express breast milk for up to one year after the birth of their child. The Department of Labor will issue regulations to define what constitutes reasonable break time and how violators will be penalized. Employers also are required to provide a place, other than a bathroom, shielded from view and free from intrusion, where nursing mothers can take these breaks. This requirement generally applies to all employers, regardless of size, but employers with less than 50 employees may be exempted if this would cause an undue hardship. The PPACA does not require that this time must be compensated.
· Early Retirees: The legislation creates a temporary reinsurance program to assist companies that provide early retiree health insurance for ages 55-64. Employers will be reimbursed up to 80 percent of the cost of providing coverage to early retirees, their spouses, and dependents. Claims in excess of $15,000 and below $90,000, indexed for inflation, will be reimbursed.
· This fund will sunset on Jan. 1, 2014, or earlier if the $5 billion that has been appropriated is depleted. Employers offering benefits to early retirees may want to evaluate their offerings in view of this temporary program.
· Automatic Enrollment: As soon as implementing regulations become effective, unless the employee affirmatively opts out or selects a different coverage option, all employers with 200 or more full-time employees must automatically enroll new full-time employees in the lowest premium group health plan coverage option.
· Employers will need to amend their plan materials and prepare materials that notify employees that they will be automatically enrolled unless they opt out.
· Coverage for Older Children: Effective Jan. 1, 2011, persons under age 26 who would be treated as dependents under the plan but for their age are eligible for coverage. This is not limited to full-time students or unmarried children.
· Employers will need to remove any student eligibility requirements from their plan documentation and enrollment materials that would otherwise apply prior to age 26. Employers also will need to decide whether the additional cost should be paid only by employees who request coverage for older children (if this is permitted by the forthcoming regulations) or spread across all employees that elect family coverage.
· Coverage Reforms: Lifetime dollar limits on essential health benefits, as will be defined by forthcoming regulations, rescission of existing coverage, and exclusion based on pre-existing conditions for children under age 19 are prohibited. In addition, the Department of Health and Human Services will restrict employers ability to impose annual limits for essential health benefits. Dental and vision care will likely not be included within the regulatory definition of essential health benefits.
· Employers will need to amend their plan materials to reflect these changes, and consider whether changes in plan design are necessary to limit the increases in premiums that would otherwise result.
· W-2 Reporting: Employers will be required to report the aggregate cost of employer-sponsored health care benefits on the employees W-2.
· Employers will need to develop a process for determining this amount and ensuring that it is reported.
· Health Savings Account Penalty: The penalty for making non-qualified purchases from a Health Savings Account increases to 20 percent.
· Nondiscrimination Based on Salary or Wages: Eligibility for health care benefits may not be limited based on compensation and may not otherwise discriminate in favor of more highly paid employees.
· Employers may need to amend their plans, particularly with respect to any special health care benefits provided to executives.
· Over the Counter Medications: Non-prescription medications (other than insulin) can no longer be reimbursed under Flexible Savings Accounts, Health Savings Accounts, or Health Reimbursement Accounts.
· Employers will need to amend their plan materials and change their procedures to monitor this change.
· Federally Subsidized Long-Term Care: Employees may begin to authorize payroll deductions for the Community Living Assistance Services and Supports (CLASS) long-term care program. Working adults may be automatically enrolled unless they opt out.
· Employers will need to coordinate these deductions with their payroll services providers.
· Uniform Explanation of Coverage: Group health plans and self-insured companies must provide participants a uniform summary of benefits and coverage. This summary may not be longer than four pages and must describe the benefits in a culturally and linguistically appropriate manner.
· Notice of Coverage Options: No later than March 1, 2013, employers must provide written notice to newly hired and current employees informing them of the availability of the Health Insurance Exchanges, how to contact the Exchange, eligibility requirements for public assistance, and the tax consequences to the employee of purchasing coverage through an Exchange.
· Elimination of Part D Deduction Subsidy: The employer tax deduction for the Part D subsidy will be eliminated.
· Medicare Payroll Taxes: For those with wages and self-employment income in excess of $200,000 ($250,000 joint), Medicare payroll taxes will increase by 0.9 percent.
· Flexible Spending Account Limits: Flexible Spending Account contributions will be limited to $2,500 annually. This figure will be adjusted annually for inflation after 2013.
· Health Insurance Exchanges: States must establish Health Insurance Exchanges to facilitate the purchase of qualified health plans, with a SHOP exchange that will enable small businesses to offer a choice of plans to their employees.
· Employer Mandate: Some companies will be required to provide insurance, pay penalties, or both. Penalties are based on the number of full-time employees; whether the company offers coverage; and whether one or more employees qualify for a government health care coverage premium subsidy. Individuals whose household income is below 400 percent of the federal poverty line ($88,000 for a family of four) are eligible to apply for the premium subsidy. Companies that either employ 50 or fewer employees or offer insurance and no employee receives a subsidy will not be penalized. Companies that employ more than 50 employees, that offer health care insurance, and one or more receives a premium subsidy will be penalized the lesser of: (a) $3,000 per employee who receives a credit or public assistance because (1) the employer pays less than 60 percent of the full value of the coverage provided or (2) the employees premium is greater than 9.5 percent of the employees household income; or (b) $2,000 per employee. Companies that employ more than 50 employees, do not offer health care insurance, and have one or more employees receiving a premium subsidy will be penalized $2,000 per employee, after subtracting the first 30 employees.
· Free Choice Vouchers: Employees whose household income does not exceed 400 percent of the federal poverty line and for whom the employee premiums for an employer-provided health plan cost between 8 percent and 9.5 percent of the employees household income are eligible for a Free Choice Voucher. The value of the Free Choice Voucher is equal to the cost of coverage that the employer would otherwise have paid if the employee was covered under the employers plan and is used by the employee to purchase coverage through a Health Insurance Exchange. The amount of the Free Choice Voucher is deductible by the employer.
· Small Business Health Tax Credit: Maximum tax credit for small employer premium costs increases from 35 percent to 50 percent (35 percent for tax exempt small employers).
· Annual Reports: Employers with more than 100 full-time employees must file an annual report with the Department of Health and Human Services on whether they offer a health plan that covers essential health benefits and other details of coverage offered and employee participation. Employers must provide a copy of their report to participants.
· Coverage Reforms: Annual limits and pre-existing condition exclusions for persons of any age prohibited for group health plans. Plans may no longer set eligibility rules based on health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, or disability. Waiting periods limited to a maximum of 90 days.
· Employers will need to amend their plan documents to reflect these changes. Employers that currently have longer waiting periods or that permit admission only on certain days will need to amend their plan materials.
· Large Employer Participation in Exchanges: States may choose to permit large employers to offer coverage through the Health Insurance Exchanges.
· Cadillac Tax: Health coverage costing in excess of $10,200 annually for an individual or $27,500 annually for a family (with increased thresholds for certain high-risk professions and retirees over age 55) will be taxed at 40 percent. These thresholds are indexed to the Consumer Price Index (CPI) plus 1 percent for the first two years, and to the CPI only for 2020 and beyond.
If you have questions about the impact of health care reform on employers or for assistance with compliance issues, please contact Miranda Morgan, a member of SZDs Employee Benefits and Tax and Wealth Management Practice Areas, David Ball, or any member of SZDs Labor and Employment Practice Group at (614) 462-2700.