As we previously notified our clients, the United States Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act.  Employers need to begin looking at plan designs and internal procedures to prepare for ACA changes that become effective in 2012 and 2013. Employers should also keep in mind the ACA reforms that will take place in 2014. Below are highlights of the major provisions of Health Care Reform:

2012

 Reporting Health Coverage Costs on Form W-2.  Beginning with the 2012 tax year, employers that are required to issue 250 or more W-2 Forms must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 Forms. The cost must be reported beginning with the 2012 W-2 Forms, which are due in January 2013.

This requirement is optional for smaller employers for the 2012 tax year and until further guidance is issued. This reporting is for informational purposes only; it does not affect the taxability of benefits.

Uniform Summary of Benefits and Coverage.  Plans and insurance issuers must provide a summary of benefits and coverage (SBC) to participants and beneficiaries. The SBC is intended to be a concise document – no more than four double-sided pages – providing simple and consistent information about health plan benefits and coverage in plain language. A template for the SBC is available, along with instructions and examples for completing the template and a uniform glossary of terms.

Plans and issuers must start providing the SBC as follows:

  •       Issuers must provide the SBC to health plans effective Sept. 23, 2012.
  •       Plans and issuers must provide the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period beginning with the first day of the first open enrollment period that begins on or after Sept. 23, 2012. Thus, many plans will need to include the SBC in their open enrollment packages for 2013.
  •       For participants who enroll in coverage other than through an open enrollment period (for example, newly eligible individuals and special enrollees), plans and issuers must provide the SBC beginning on the first day of the first plan year that begins on or after Sept. 23, 2012 .

If either the plan or issuer provides the SBC to a participant or beneficiary in accordance with the timing and content requirements, both will have satisfied their SBC obligations. Thus, a fully-insured plan will satisfy the requirement to provide an SBC to an individual if the issuer provides a timely and complete SBC to the individual.

In addition, once the SBC requirement becomes effective, plans and issuers must provide 60 days’ advance notice of any material modifications to the plan that are not related to renewals of coverage. Notice can be provided in an updated SBC or a separate summary of material modifications.

CER Fees.  Self-funded plans and health insurance issuers must pay comparative effectiveness research fees, or CER fees, to help fund ACA’s new Patient-Centered Outcomes Research Institute. The CER fees apply for plan years ending on or after Oct. 1, 2012. The CER fees do not apply for plan years ending on or after Oct. 1, 2019. For calendar year plans, the research fees will be effective for the 2012 through 2018 plan years.

For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the CER fee is $1 multiplied by the average number of lives covered under the plan. The CER fee will increase to $2 for the next plan year. For plan years ending on or after Oct. 1, 2014, the CER fee amount will be indexed for inflation.

Sponsors of self-funded plans and issuers must report and pay their CER fees by July 31 of each year for the plan year that ended during the preceding calendar year. The first possible due date for reporting and paying CER fees is July 31, 2013.

2013

Limits on Health FSAs under Cafeteria Plans. The health care law will limit the amount of salary reduction contributions to health FSAs to $2,500 per year, indexed by CPI for subsequent years. 
Notice of Health Care Exchange Options. Not later than March 1, 2013, employers must provide a written notice to newly-hired and current employees informing employees: 1) that health care exchanges are available, the services provided by the exchange, and how to contact the exchange; 2) if the employer pays less than 60% of the costs of benefits, that the employee may be eligible for a premium tax credit and a cost-sharing reduction if the employee purchases health insurance from an exchange; and 3) if the employee purchases health insurance through an exchange, that amount is excludable from the employee’s federal income tax liability.

Medicare Tax Increase. Effective Jan. 1, 2013, an additional 0.9 percent Medicare tax will apply to high-income individuals. Employers are required to withhold the additional Medicare tax on an employee’s wages in excess of $200,000 ($250,000 for married couples filing jointly).

2014

Effective for plan years beginning on or after Jan. 1, 2014, group health plans and issuers may not:

  •          Impose pre-existing condition exclusions on any covered individual, regardless of the individual’s age;
  •          Have a waiting period for coverage that exceeds 90 days; or
  •          Apply any annual limits on essential health benefits.

In addition, effective in 2014, ACA’s state-based insurance Exchanges are scheduled to be operational. Also in 2014, the individual mandate will become effective, as will ACA’s “pay or play” penalties for employers. Under the pay or play rules, certain employers with at least 50 full-time equivalent employees will face penalties if one or more of their full-time employees obtains a premium credit through an Exchange. An individual may be eligible for a premium credit either because the employer does not offer health care coverage or the employer offers coverage that is either not “affordable” or does not provide “minimum value.”

Penalty for Failing to Provide Health Coverage. Employers with 50 or more full-time employees that do not offer minimum essential coverage and have at least one employee receiving a premium assistance tax credit or cost-sharing premium assistance will be required to pay an annual penalty of $2,000 per full-time employee, exempting the first 30 full-time employees.

Penalty for Offering “Unaffordable” Health Coverage. Employers with 50 or more full-time employees, offer minimum essential coverage and have at least one employee receiving a premium assistance tax credit or cost-sharing premium assistance will be required to pay an annual penalty equal to the lesser of: 1) $3,000 for each employee who receives a credit or cost-sharing assistance because a) the employer pays less than 60% of the full actuarial value of the coverage provided or b) the employee’s premium is greater than 9.5% of his or her household income; or 2) $2,000 per full-time employee.

Free Choice Vouchers. Employers that pay a portion of the premiums for health coverage will be required to provide “free choice vouchers” to certain low-income employees who elect not to participate in the employer’s health plan. To be eligible for the free choice voucher, the employee must have a household income not exceeding 400% of the poverty level and is required to contribute between 8% and 9.5% of his household income toward the cost of the employer-provided health coverage. The “free choice voucher” is equal to the monthly portion of the cost of coverage that the employer would otherwise have paid if the employee was covered under the employer’s plan and is used by the employee to purchase health care coverage through an exchange. If the amount of the voucher exceeds the cost of the premiums for the exchange health coverage, the employee may retain the excess amount. The amount of the free choice voucher is deductible by the employer.

2018

“Cadillac Plan” Tax.  A 40 percent excise tax is to be imposed on the excess benefit of high cost employer-sponsored health insurance. This tax is known as a “Cadillac tax.” The annual limit for purposes of calculating the excess benefits is $10,200 for individuals and $27,500 for other than individual coverage. Responsibility for the tax is on the “coverage provider” which can be the insurer, the employer, or a third-party administrator. There are a number of exceptions and special rules for high coverage cost states and different job classifications.

Implementation of many of The Affordable Care Act’s provisions will require significant guidance which should be forthcoming from the appropriate federal agencies.  Employers should begin reviewing their health plans to determine what changes, both in plan design and operationally, will be required to comply with the Act’s requirements.

The Broad Reach Benefits team will continue to monitor the relevant federal agencies and work with you to weave our way through this complex healthcare law.