During the next two years, there are things that employers need to know and need to be doing to comply with the Patient Protection and Affordable Care Act.
“While this was working its way through the Supreme Court, many were holding their breath waiting to see what would happen,” says Dale R. Vlasek, a member and chair of the employee benefits practice group for McDonald Hopkins. “The decision is that it is constitutional, which means that businesses must take action.”
Smart Business spoke with Vlasek about the changes businesses need to be aware of as health care reform takes effect.
How does the ruling play out for employers?
The Supreme Court determined the individual mandate — the requirement that all U.S. citizens have health insurance — and imposing a penalty or tax on those who do not purchase insurance is constitutional. Large employers effectively face a similar mandate, called shared responsibility, or ‘pay or play,’ that goes into effect in 2014, requiring that they offer a health care package that is affordable, limits an employee’s cost sharing and provides essential benefits, or the employer must pay a penalty.
Large employers are those with 50 full-time employees who worked at least 30 hours per week during the previous year. To determine if your company fits this description you should add up all the hours worked by full- and part-time employees and divide that total by 2,080. This could show that you qualify as a company with more than 50 employees and that you must provide your employees with the opportunity to participate in your benefit package or pay a penalty.
How will the mandate affect the benefits offered?
Medical benefit packages must offer a certain level of coverage. There should be a limit on cost sharing in terms of deductibles and co-insurance, and it must be affordable, which means the amount an employer can expect an employee to pay in terms of premium costs. The way the law is written, premium costs can’t be more than 9.5 percent of an employee’s household income. That can be difficult for an employer to determine, so the IRS allows employers to work from an employee’s W-2 income statement.
If the employer chooses not to offer benefits, it will pay an excise tax that is $2,000 per year, multiplied by the number of uninsured full-time employees. The employer can, however, subtract 30 employees from the total who are uncovered, leaving it to pay penalties only on the remaining uninsured.
If an employer is offering coverage that some can’t afford, those employees could get into a health care exchange or potentially be eligible for subsidies or tax credits to help pay for coverage. The employer then must pay an excise tax, but only on those who are eligible for the tax credit or subsidies.
How else might existing benefit plans be impacted?
Insured plans previously had no discrimination rules from a tax perspective, so, for example, you could have a plan that only covered executives. However, health care reform changes that. You can’t be discriminatory and you may need to cover broader classifications of people. This component has been put on hold while the IRS, the Department of Labor and the Department of Health and Human Services write regulations that outline how companies must comply.
Plans that were grandfathered — or those that have been in existence since March 23, 2010 or earlier and that haven’t changed, can continue to operate as they did, even if, under the new law, they could be considered discriminatory. But as the insurance industry moves to provide better benefits and makes changes, these plans are being redesigned and companies may have a difficult time remaining grandfathered.
Will flexible savings accounts face changes?
Previously, there weren’t any limits on how much pretax money employees could defer into FSAs, but the accounts are ‘use it or lose it’ so if the employee didn’t use the benefit the employee lost it. As a result, employees had to look ahead and figure out how much they might need to spend within a year.
Starting in 2013, there is a cap of $2,500 on FSAs. Employers will need to amend their plan documents and the IRS has issued guidance that says this can be done by 2014, as long as it operated in accordance with the law in 2013.
What will change from an administrative and reporting perspective?
For 2012, employers must report on W-2 forms the cost of the health benefits being provided to an employee. Initially, this requirement is limited to employers that issued at least 250 W-2s in the prior year, but eventually all companies will need to comply. On W-2s issued for 2012, companies must put in the actual costs, and for employers that are self-insured, they are required to put in the COBRA cost. There is concern that this is the first step toward making benefits taxable or using the information to determine who should pay a penalty for lack of coverage.
Also, the law requires employers to issue a summary of benefit coverage, a four-page paper that presents key features of the plan, the benefits, cost sharing and an explanation of what it pays for in three common claims scenarios. It also highlights deductibles and copays, who to talk with for more information and a glossary of common terms or a link to a website with that information.
The best strategies for employers is to begin examining their plans to ensure that they are in compliance when the new rules take
Dale R. Vlasek is a member and chair of the employee benefits practice group for McDonald Hopkins. Reach him at (216) 348-5452 email@example.com.