HHS Issues Proposed Rule on Exchange Liability; IRS Provides Coordination Options for Noncalendar-Year Plans

On Jan. 14, 2013, the Department of Health and Human Services (HHS) issued another lengthy proposed rule under the Patient Protection and Affordable Care Act (PPACA).  Among other things, the proposed rule provides some information on how employers will be notified if an employee applies for a premium subsidy / tax credit and how an employer may appeal a determination of premium subsidy eligibility that it believes is incorrect.  The proposed rule is HERE

Employee Requests for Premium Subsidies

An employee will be eligible for a premium subsidy only if:

  • His household income is less than 400 percent of federal poverty level,
  • He purchases coverage through the public exchange,
  • He does not have access to affordable, minimum value coverage through his employer, and
  • He is not covered by a plan through his employer that provides minimum essential coverage (even if that coverage is not affordable or it does not provide minimum value)

The employee will be required to provide information to the exchange about his income and access to employer-provided affordable, minimum value coverage.  The exchange (or HHS if the state asks HHS to do this) will attempt to verify this information from available data bases, but in all likelihood it will need to contact the employer for verification of information regarding coverage.

HHS is considering the use of a one-page template that the employer would complete with respect to the employee’s eligibility for coverage, plan affordability and plan value.

Employee Eligibility for a Premium Subsidy

Under the proposed rule, HHS or the exchange would notify the employer if an employee is determined to be eligible for a premium subsidy (“certified under Section 1411”).  The employer would have 90 days to appeal the determination if it believed the employee should not be eligible for the subsidy.  (All employers, regardless of size, would receive the notice that an employee has been found to be eligible for a premium subsidy. Employers large enough to be responsible for paying a penalty on employees who receive a premium subsidy would receive a separate notice from the IRS actually assessing the penalty. The IRS notice most likely would be sent during the second quarter after the calendar year for which the premium subsidy was provided.)

Coordinating Exchange and Plan Open Enrollments

On Jan. 2, 2013, the IRS issued a detailed rule that, among other things, provides that noncalendar-year plans may amend their Section 125 plans to allow employees to make midyear changes because of PPACA.  Open enrollment for the exchanges will begin in October 2013 for a Jan. 1, 2014, effective date, and the individual coverage mandate also begins Jan. 1, 2014.  The proposed rules provide that employers with noncalendar-year plans may amend their Section 125 plans to allow participants to drop coverage as of Jan. 1, 2014, to enroll in an exchange plan.  Employers also may amend their plans to allow employees who had declined coverage to enroll and pay premiums on a pre-tax basis as of Jan.1, 2014, so that the employee can meet the coverage requirement.  (Employers considering allowing a special enrollment for those who had declined coverage should obtain the consent of their carrier or reinsurer before implementing this option.)   The proposed rule is here:
https://www.gpo.gov/fdsys/pkg/FR-2013-01-02/pdf/2012-31269.pdf

 

Important: The HHS rules are still in the “proposed” stage, which means that there may be changes when the final rule is issued.  Employers should view the HHS proposed rule as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.

 

 


PPACA: Play or Pay? 7 Reasons Why ‘Pay’ is Not the Easy Answer

By Thom Mangan, CEO, United Benefit Advisors
Source: https://www.insurancebroadcasting.com

With every day that goes by, the nation’s employers move a step closer to having to make a decision: Do I play or pay?

Employers now have just a little more than one year to prepare themselves and their workforces for the arrival of the core of the Patient Protection and Affordable Care Act (PPACA), which requires employers with 50 or more full-time employees to offer medical coverage or pay a penalty. Although a year might seem like ample time, the decision isn’t an easy one, and it’s fraught with financial, legal and competitive implications.

Some employers assert that the play-or-pay mandate will raise their costs and force them to make workforce cutbacks. As a result, a number are considering eliminating their health care coverage altogether and instead paying the penalty on their full-time employees. While the “pay” option might be worth considering, there are strong reasons why employers should look carefully at all of their options and do their best to calculate the actual outcomes of each.

Here are some of the issues employers should factor into their decision-making process:

1.    Lost Tax Advantages—Employers that eliminate health care coverage or opt not to offer it to full-time employees will be missing out on tax breaks (as will their employees).  Employer contributions for health care coverage are not considered taxable income to the employee (and are deductible by the employer).  Employee premiums that are paid through a Section 125 plan reduce the employee’s taxable income, which reduces both the employer’s and the employee’s FICA tax.

2.    Reporting Burdens Remain—Employers that don’t offer health care coverage will still face federal reporting requirements, in part so the penalty amount can be determined.  In addition, employees who are not offered coverage are likely to go to the exchanges for coverage. These exchanges will require a variety of employee data from employers, particularly for employees who may be eligible for the premium tax credit, which means employers may have to deal with a significant number of inquiries from exchanges (staff time, effort, costs).

3.    Recruitment and Retention Challenges—Employers who opt not to offer health care coverage could be doing long-term damage to their employment brands, making it difficult to attract top talent in the future. Even worse, they could lose current employees to organizations that do provide coverage. And the damage to the brand could be even greater for employers that once offered coverage but elect to eliminate it in favor of paying penalties. Not offering coverage could tarnish the employment brand and disrupt business in another way: Employees who are forced to use exchanges—especially untested or insufficiently staffed exchanges—could feel undervalued or abandoned by their employers.

4.    Counting Employees Can Be Complex—What constitutes a full-time employee?  Answering this question can be tricky; in late August the IRS issued 18 pages of rules that only partly answer the question. Employers that believe they won't face penalties for dropping or not offering coverage because they have fewer than 50 employees may have calculated incorrectly. If that happens, the results could be costly. Be certain you know how to count full-time and full-time equivalent employees and what your obligations are.

5.    The Cost of Coverage Can Be Adjusted—While employers may have to cover more people, they do have options for reducing the costs of this coverage. For example, employers could reduce their lowest-cost coverage to stay just above the 60 percent minimum value threshold; they could reduce workers’ hours below the “full-time employee” level; and they could consider paying targeted penalties (e.g., not providing “affordable coverage” to certain segments of their workforce).

6.   Other Financial Implications—Employees may demand additional compensation from employers that elect to drop coverage to cover the cost of health care they must now purchase with their own, after-tax dollars. Employers who haven't properly budgeted for nondeductible penalties may compound their financial burdens, especially if they don't make long-term plans for penalty increases.

7.    Carriers Will Address Plan Designs—Insurance carriers will become experts on coverage requirements out of sheer necessity, so the myriad of plan design criteria won't likely be a burden on many employers. In addition, carriers will implement a variety of tools to communicate with employees, helping to keep business disruptions to a minimum.

These play-or-pay decisions actually represent just one aspect of PPACA, and there are obligations and implications attached to both sides of the argument. Again, employers would do well to consider all of their options and calculate the outcomes as accurately as possible.

 


IRS Offers Some Help with 'Pay or Play' Proposal

The IRS kicked off 2013 with a little relief for some employers under the Patient Protection and Affordable Care Act (PPACA).

The proposed guidance, released Dec. 28, 2012, eases some of the penalties for larger employers who fail to provide adequate health care coverage for all their full-time employees. The PPACA "pay or play" penalty -- $2,000 per full-time employee for employers with at least 50 workers as of Jan. 1, 2014 -- will not apply as long as the employer covers at least 95 percent of their full-time employees and their dependents up to age 26, according to Littler Mendelson PC.

The proposed guidance clears up questions that have lingered since the inception of the law in 2010, according to a report in Business Insurance. As it was originally written, any employee with a large employer who opted to receive a premium subsidy under the PPACA-created health care exchanges instead of taking the employer-sponsored coverage might trigger the penalty for the employer. The 95 percent rule would give employers a little wiggle room in case a handful of employees decided to take the subsidy.

These proposed rules also would provide flexibility in the event that part-time employees who take the premium subsidy occasionally accrue hours that temporarily push them into full-time status, according to the Business Insurance report.

In addition to the 95 percent rule, the IRS handed out a few other surprises for employers, according to the law firm of Kilpatrick Townsend & Stockton LLP. For instance, the guidance would:

  • Require coverage of full-time employees and dependents under age 26, but not of spouses.
  • Aggregate employers in a controlled group (common ownership) to determine if an employer is subject to the penalty. However, if an employer is subject to the penalty, the calculation of the fine is applied to each employer separately in a controlled group -- meaning "one member's failure will not affect the other members of the group."

 

While the "pay or play" penalty doesn't go into effect until next year, employers need to start tracking their employees' status now, advises Kevin R. McMurdy, an attorney with Fox Rothschild.

"The release of this information continues to underline the importance of counting employees and measuring their hours to see if they are full- or part-time under the definitions provided in PPACA," McMurdy wrote in Employee Benefit News. "Employers should start counting now and avoid any last-minute confusion over their status or their obligations. As more guidance is issued, we can fine-tune these measurements, but don't get caught short at year-end having failed to manage your population."

The IRS currently is taking public comments on the rules through March 18 and plans to conduct a hearing in April to further explore these proposals.

 


New $63 Fee Announced to Help Offset Healthcare Reform Cost

Source: openforum.com

Original article by Ricardo Alonzo-Zaldivar

As the regulations for Healthcare Reform are formulated and finalized, small-business owners need to be aware of a new fee that will be assessed beginning in 2014. The fee will be collected for 3 years and is set at $63 per insured person in the first year and is supposed to decline after that.

The fee is meant to help offset the cost for insurance companies as they comply with requirements to provide coverage for people with pre-existing conditions. The fee is expected to generate $25 billion most of which will be placed in a federally administered fund and the rest will be given directly to the Treasury Department. Employers will have to pay the fee in advance on behalf of their employees. Individuals who purchase their own policies and do not participate in group policies, as many small-businesses owners do, will still be responsible for the fee.

Learn more at The Huffington Post.


What Employers Need to Know About the New Proposed Rules of Health Care Reform

PPACA is confusing as it is and staying up with "proposed" and "final" rule clarifications is even harder. We have broken each of the guidelines down further making them easier to understand.

On Nov. 20, 2012, the Department of Health and Human Services issued three sets of proposed rules that provide some of the details on how PPACA will probably unfold. In early December , 2012, they issued two more sets. All rules are still in the “proposed” stage, which means that there may – and likely will – be changes when the final rules are issued.

The proposed rules address:

- Wellness programs under PPACA
- Essential health benefits and determining actuarial value
- Health insurance market reforms
- Benefit and Payment Parameters
- Multi-State Plan Program

Nondiscriminatory Wellness Incentives
The proposed rule largely carries forward the rules that have been in effect since 2006.  There still would not be limits on the incentives that may be provided in a program that simply rewards participation, such as a program that pays for flu shots or reimburses the cost of a tobacco cessation program, regardless whether the employee actually quits smoking.  Programs that are results-based (which will be called “health-contingent wellness programs”) still would need to meet several conditions, including a limit on the size of the available reward or penalty.  Beginning in 2014, the maximum reward/penalty would increase to 50 percent for tobacco nonuse/use and to 30 percent for other health-related standards. 

Essential Health Benefits (EHBs) and Actuarial Value
The proposed rule confirms that non-grandfathered plans in the exchanges and the small group market will be required to cover the 10 essential health benefits and provide a benefit expected to pay 60, 70, 80 or 90 percent of expected allowed claims.  The proposed rule also says that self-funded plans and those in the large employer market would not need to provide the 10 EHBs; instead, they would need to provide a benefit of at least 60 percent of expected allowed claims and provide coverage for certain core benefits.  The proposed rule would consider current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) as part of the benefit value calculation.

Market Reforms
The proposed rule confirms that non-grandfathered health insurers (whether operating through or outside of an exchange) would be prohibited from denying coverage to someone because of a pre-existing condition or other health factor.  The proposed rule also provides that premiums for policies in the exchanges and individual and small group markets could only vary based upon age, tobacco use, geographic location, and family size and sets out details on how premiums could be calculated.

The “Benefit and Payment Parameters” proposed rule addresses a number of topics.  Of particular interest to employers are proposed rules regarding:

- The Temporary Reinsurance Program (TRP): intended to provide funding to cover additional costs associated with covering formerly uninsured individuals who may have unmet health needs.  Funding will be provided by assessing all fully insured and self-funded major medical plans.

- Small-business health options program (SHOP) exchanges: The proposed rule provides that, at least through 2016, eligibility for the small-business health option program (SHOP) exchange would be limited to small employers.  An employer would be “small” for exchange purposes if it has 100 or fewer employees, although a state could elect to use 50 employees for the limit in 2014 and 2015.

- A timing change for medical loss ratio (MLR) beginning in 2014: The proposed rule provides that MLR payments will be due Sept. 30, beginning in 2014.  Beginning next year, if an MLR payment is used to reduce premiums, it would need to be applied to the next premium due after the MLR due date.

- A user fee for those using federally facilitated exchanges: HHS has proposed a user fee of three and one-half percent of premium to cover the cost of running a federally facilitated exchange (FFE) for those states that choose not to run their own exchange.

The “Multi-State Plan Program” proposed rule begins to address the complex topic of multi-state health exchanges. PPACA directs the federal Office of Personnel Management (OPM) to enter into contracts with private health insurance issuers to offer at least two Multi-State Plans (MSPs) through the exchanges. Health insurance issuers who wished to provide an MSP would apply to OPM. OPM would determine which issuers are qualified to become MSP issuers, enter into contracts with the issuers and approve the plans to be offered on exchanges.

Important: These rules are still in the “proposed” stage, which means that there may be changes when the final rule is issued.  Employers should view the proposed rules as an indication of how plans will be regulated beginning in 2014, but need to understand that changes are entirely possible.


PPACA’s 2013 provisions near implementation

Source: Benefitspro.com

By: Katie Kelley

Apart from the latest debates on political opinions over health care changes, it’s important to know what necessary steps are required to get HR and their employees on the right track for 2013.

The Patient Protection and Affordable Care Act outlines changes set to kick in over several years. Benefits managers and human resource advisors are nearing the implementation of the 2013 provisions, and while these changes might not be as newsworthy as the 2014 provisions that are dominating headlines, they do hold credence to employees and their health plans.

According to Troy Filipek, a principal and consulting actuary for Milliman, the best way to prepare for compliance next year is to employ contingency planning as well as develop open lines of communication with employees.

Filipek says employers need to be proactive for 2013 while thinking ahead for 2014.

“There are a lot of changes that are occurring, and there are things employers can benefit from just by considering these options. Talk to your advisors and obviously if you do decide to make a change, talk to your employees or your retirees because with anything you make changes to, it’s important that your people are well advised on it, why you’re doing it and how it’s going to impact them.”

Sharon Cohen, a principal at Buck Consultants and an expert in pretax benefits and health care, shared a similar viewpoint, but also noted that it’s imperative for employers and benefits managers continue with what’s required by law right now—despite any changes that may still occur. “The provisions will start taking effect and the government is moving forward. I wouldn’t count on this all going away before I would take action.”

Medicare subsidy taxation

The major PPACA provision impacting Medicare Part D closes the ‘donut hole’ or gap between coverage limits and out-of-pocket spending on the cost of prescription care, but the law also changes the retiree drug subsidy program.

“The big change for 2013 with the RDS program is that in the past, from 2006 forward, the allowance that these employers receive from the government for the subsidies used to be non-taxable income,” Filipek says. “That has changed since the enactment of the [PPACA].”

Now, Filipek explains, the money that employers receive from the government for these subsidies is subject to taxation.

“It’s a pretty big change,” he says. “A lot of employers have already felt the impact of it because once the law passed, based on the accounting standards, you had to recognize the future impact of that in your financial statements.”

Options include continuing coverage and working with the newly taxed subsidies or dropping coverage and allowing retirees to enroll in individual part D plans. Additionally, Filipek says, employers can maintain group coverage and work with a pharmaceutical benefit manager or health plan in the Part D program to develop a custom benefits package through a Part D Employer Group Waiver Plan plus secondary wrap plan design, which are plan options gaining traction in the marketplace.

Regardless of what decision is made, it’s imperative that both brokers and HR professionals “make sure it’s seamless for the retiree and easy for them to understand,” Filipek says.

“It’s important to communicate with the retirees because these are not people who are coming into the workplace every day where it’s easier to communicate with them. You have to find ways for outreach to them and their spouses.”

The RDS program is designed for employers to continue offering prescription drug coverage to retirees since Part D went into effect six years ago. The government provides a subsidy to employers who maintained a benefit rather than dropping coverage and having their retirees sign up for Medicare Part D individually.

“That program has been what a lot of employers have done since 2006 when Part D started. They had to make a decision to continue offering pharmacy coverage or end their coverage and have retirees sign up for Part D,” Filipek says. “Most opted to continue coverage and get the Retiree Drug Subsidy but that is starting to change with some of the PPACA provisions taking effect.”

FSA caps

HR advisors will need to prepare and communicate newly implemented salary reduction contributions regarding flexible spending accounts that go into effect next year, which impose a cap of $2,500 on these accounts.

“Any employer that has a calendar year beginning Jan. 1, will have to have implemented that provision,” Cohen says. “The salary reduction dollars are capped at $2,500 though, right now, with open enrollment periods typically starting in October and in November—that is a communication that employers who previously had a higher maximum on their FSAs now need to communicate to their employees.”

It’s important to note that only a small percentage of individuals who have FSAs made available to them actually use them. Regardless, employers must inform employees of the change and how it could affect their health coverage long term.

“This is a change that now needs to be communicated to employees,” Cohen says.

But there will be a grace period on contributions that go unused and HR directors will have the opportunity to amend plans through the end of 2014, the limit will be necessary beginning Jan. 1.

“For benefits managers, it would have been last year or the beginning of this year that they would have needed to make design changes to accommodate this,” Cohen says. For those who run on a different plan year other than January, the design considerations must be determined now in order to offer concrete options for open enrollments, she says.

W-2 insurance reporting

The PPACA requires that beginning in 2013, W-2 reporting will need to list employer-sponsored health coverage for the calendar year of 2012. Although this is not a 2013 provision, employees will notice the changes beginning in January of next year, and it’s necessary for HR to convey this to individuals.

“Employees have concern that their tax-free health coverage will be taxable, which will not be the case,” Cohen says. “The communications challenge for employers is to now let employees know that this is just information reporting and is not going to be taxed.”

This provision affects employers of larger companies with 250 or more employees, but those who receive life insurance as a retiree are also required to report their expenses as well.

SBC notification and exchanges

Beginning Sept. 23, during open enrollment periods, and continuing through next year, employers were required to offer employees a four-page summary benefits coverage of the packages made available to an employee for a company’s group health plan.

“[This is] a four page document that tells individuals what benefits are offered under the plan, how much they cost and it has to be in a uniform format that the government has put out,” Cohen says. “The idea is that it makes it easier for individuals who are purchasing coverage to compare the different coverages.”

In order to become compliant with this, it’s important for employers and HR to work with their benefits managers and access the guidance that has been introduced by government agencies including the Internal Revenue Service the Department of Labor, and the U.S. Department of Health and Human Services.

“They have provided templates and instructions,” Cohen says. “This requirement is for health plans large or small.” Cohen also notes this will be the same format of the state insurance exchanges, when they are up and running in 2014.

The state insurance exchanges also require contingency planning for the following year of 2014, when they are established within each state. Beginning next year it’ll be necessary to offer employees notice of these state insurance exchanges, by March 1, in compliance with the DOL guidance that takes precedent in this notification.

“States are still considering if they will adopt the exchange or if the federal government will run the exchange for them,” she says. “They will very soon have to put out some guidance, but right now we don’t have specifics around the exchanges.”

Cohen notes there’s no preparation necessary on behalf of HR or brokers for this provision; it’s simply wait-and-see.

Medicare wage expense

The Federal Insurance Contribution Act Medicare tax rate will increase among individuals with earnings greater than $200,000 and $250,000 for couples filing joint returns. This provision was set in place as a revenue-raising activity. It’s dependent on the employer to collect the tax of 0.9 percent, but this “will not increase the employer’s share of Medicare tax,” according to Sam Hoffman, a partner at Foley and Lardner, who specializes in health care.

“What employers really have to focus on is to set up the payroll system to increase the tax for employees who meet these limits,” Hoffman says. “Most people have thought it through.”

Hoffman doesn’t believe there’s a great need for strong communications campaigns because the 0.9 percent increase will be noted on pay stubs for individuals affected by this. However, employers should have prepared their payroll systems if they haven’t done so already to ensure this provision is met beginning next year. HR also should prepare themselves for questions that could arise in this arena.

“It is the responsibility of the employer to increase the withholdings of individuals earning more than $200,000 a year,” Cohen says. “Typically, the employer’s payroll system will need to be programed for that increase. It’s not so much the responsibility of HR as it is payroll, but there is a communications issue.”

For preparation purposes, Cohen echoes a strong necessity for both HR and brokers to be completing preparation as soon as possible.

“Most of these things, if they haven’t been implemented, they should be hurrying now,” she says.

Tax deduction limits

The income-tax deductions for health expenses sit at 7.5 percent of the adjusted gross income, but as of next year this will be raised to 10 percent of the AGI. Although, during a four year period of 2013 to 2016, those turning 65 (and their spouses) won’t be subject to this provision.

While this scarcely affects employers and HR, it will largely affect individuals and their taxes, which can require benefits managers to step in and work with individuals on a better understanding of this provision.

“This is more for individuals who file on an individual basis,” Cohen says. “It doesn’t normally affect an employer’s group health plan.”
Substantial adjustments have been taken in the form of reflections of these soon-to-be taxed subsidies. “Starting in 2013, it will be a practical effect that these moneys are going to be taxed,” Filipek says.Hoffman also paralleled a related sentiment that if you’re an employee under a group health plan, this is irrelevant, however, “if you buy your own health insurance then you’ll need to notate the cost to yourself and how to itemize those deductions.”

He notes that a lot of brokers, advisors and even employers are currently in the process of reevaluating their options for offering retirees prescription drug coverage. As far as what steps are necessary to take in order to be prepared for the coming year’s changes, Filipek feels it’s important for employers and their advisors to simply understand that there are a variety of choices available.

 


Health insurance methods to shift in post-PPACA world

By Brian M. Kalish
Source: eba.benefitnews.com

With health reform moving full steam ahead, most employers will continue to offer employee coverage, but will make alterations to how they provide it, said a speaker at the Workplace Benefits Transitions conference Tuesday.

An overwhelming majority of employers plan to stay in the health care business, said Cheryl Larson, vice president of the Midwest Business Group on Health, whose members represent senior HR benefits professionals who annually spend more than $4 billion on health care. Her group’s research shows that only 4% of members plan to drop health coverage. They will stay in the game for three main reasons, she said, as they:

  1. Don’t want to deal with the penalty for not offering coverage;
  2. Don’t want to “gross up” employer salaries to allow them to buy coverage on their own; and
  3. Need to stay competitive.

Speaking in the opening keynote at the conference co-sponsored by Employee Benefit Adviser in Chicago, Larson noted, however, that there will be some key differences come 2014, including an exit strategy of dropping coverage for retirees (53%) and part-time employees (33%), according to a National Business Group on Health survey.

In practice, it will be interesting to see what employers actually do, Larson said. While they say publically they are not walking away from providing health care, privately “in the boardroom they will say, ‘If so and so goes, so will we.’ That’s scary,” she said.

Larson also predicted an increased focus on consumerism and wellness. “Ten years ago, that was not important to employers,” she said. “I’ve been a real passionate person about engaging employees and their families with knowledge and information. We’ve forgotten about teaching people how to deal with navigating the health care system.”

An MBGH survey further found that employers of all sizes plan to offer consumer-directed health plans, such as an HSA/HRA option. Of those surveyed, among small group employers – 200 or fewer employees – 50% plan to offer a form of CDHP, for large groups – more than 5,000 — that increases to 100%. Further, employers of all sizes will be shifting their dental and vision coverage to a voluntary offering by 2017-2018. Specifically, 59% of small and 49% of large employers plan to do so.


New Taxes to Take Effect to Fund Health Care Law

By ROBERT PEAR
Source: nytimes.com

WASHINGTON — For more than a year, politicians have been fighting over whether to raise taxes on high-income people. They rarely mention that affluent Americans will soon be hit with new taxes adopted as part of the 2010 health care law.

The new levies, which take effect in January, include an increase in thepayroll tax on wages and a tax on investment income, including interest, dividends and capital gains. The Obama administration proposed rules to enforce both last week.

Affluent people are much more likely than low-income people to havehealth insurance, and now they will, in effect, help pay for coverage for many lower-income families. Among the most affluent fifth of households, those affected will see tax increases averaging $6,000 next year, economists estimate.

To help finance Medicare, employees and employers each now pay a hospital insurance tax equal to 1.45 percent on all wages. Starting in January, the health care law will require workers to pay an additional tax equal to 0.9 percent of any wages over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

The new taxes on wages and investment income are expected to raise $318 billion over 10 years, or about half of all the new revenue collected under the health care law.

Ruth M. Wimer, a tax lawyer at McDermott Will & Emery, said the taxes came with “a shockingly inequitable marriage penalty.” If a single man and a single woman each earn $200,000, she said, neither would owe any additional Medicare payroll tax. But, she said, if they are married, they would owe $1,350. The extra tax is 0.9 percent of their earnings over the $250,000 threshold.

Since the creation of Social Security in the 1930s, payroll taxes have been levied on the wages of each worker as an individual. The new Medicare payroll is different. It will be imposed on the combined earnings of a married couple.

Employers are required to withhold Social Security and Medicare payroll taxes from wages paid to employees. But employers do not necessarily know how much a worker’s spouse earns and may not withhold enough to cover a couple’s Medicare tax liability. Indeed, the new rules say employers may disregard a spouse’s earnings in calculating how much to withhold.

Workers may thus owe more than the amounts withheld by their employers and may have to make up the difference when they file tax returns in April 2014. If they expect to owe additional tax, the government says, they should make estimated tax payments, starting in April 2013, or ask their employers to increase the amount withheld from each paycheck.

In the Affordable Care Act, the new tax on investment income is called an “unearned income Medicare contribution.” However, the law does not provide for the money to be deposited in a specific trust fund. It is added to the government’s general tax revenues and can be used for education, law enforcement, farm subsidies or other purposes.

Donald B. Marron Jr., the director of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution, said the burden of this tax would be borne by the most affluent taxpayers, with about 85 percent of the revenue coming from 1 percent of taxpayers. By contrast, the biggest potential beneficiaries of the law include people with modest incomes who will receive Medicaid coverage or federal subsidies to buy private insurance.

Wealthy people and their tax advisers are already looking for ways to minimize the impact of the investment tax — for example, by selling stocks and bonds this year to avoid the higher tax rates in 2013.

The new 3.8 percent tax applies to the net investment income of certain high-income taxpayers, those with modified adjusted gross incomes above $200,000 for single taxpayers and $250,000 for couples filing jointly.

David J. Kautter, the director of the Kogod Tax Center at American University, offered this example. In 2013, John earns $160,000, and his wife, Jane, earns $200,000. They have some investments, earn $5,000 in dividends and sell some long-held stock for a gain of $40,000, so their investment income is $45,000. They owe 3.8 percent of that amount, or $1,710, in the new investment tax. And they owe $990 in additional payroll tax.

The new tax on unearned income would come on top of other tax increases that might occur automatically next year if President Obama and Congress cannot reach an agreement in talks on the federal deficit and debt. If Congress does nothing, the tax rate on long-term capital gains, now 15 percent, will rise to 20 percent in January. Dividends will be treated as ordinary income and taxed at a maximum rate of 39.6 percent, up from the current 15 percent rate for most dividends.

Under another provision of the health care law, consumers may find it more difficult to obtain a tax break for medical expenses.

Taxpayers now can take an itemized deduction for unreimbursed medical expenses, to the extent that they exceed 7.5 percent of adjusted gross income. The health care law will increase the threshold for most taxpayers to 10 percent next year. The increase is delayed to 2017 for people 65 and older.

In addition, workers face a new $2,500 limit on the amount they can contribute to flexible spending accounts used to pay medical expenses. Such accounts can benefit workers by allowing them to pay out-of-pocket expenses with pretax money.

Taken together, this provision and the change in the medical expense deduction are expected to raise more than $40 billion of revenue over 10 years.


2012 Election: PPACA Is Here to Stay

The votes have been counted and the campaign signs are gone from yards and highway medians (at least most of them). Now, employers are evaluating what the election results will mean for their businesses in the coming years.

On the national level, Americans chose to keep the status quo with President Barack Obama's re-election and split party control of Congress. For employers, the most significant and immediate impact of the election will be the preservation and advancement of the Patient Protection and Affordable Care Act (PPACA), according to a Reuters report.

"There's sort of an immediate acceptance that this law will stay in place in some meaningful way," Chris Jennings, who served as an advisor to former President Bill Clinton, told Reuters. "It's sort of like a big barrier has been removed."

Although the survival of the law now seems all but certain, its final form has yet to take shape. A number of provisions still lack guidance from federal agencies, and employers should expect an "avalanche" of regulations in the coming months, Gretchen Young of the ERISA Industry Committee told Business Insurance.

For example, the details of the penalty ($2,000 per full-time employee) on some employers that don't offer adequate coverage remain sketchy. Also, employers are still waiting for full guidance on how much they will have to contribute to the federal reinsurance program that is mandated by the law, Business Insurance reports.

In the meantime, employers should focus on the immediate requirements that are known. Some of these include:

  • Expanding first-dollar preventive care to include a number of women's services, including contraception, unless the plan is grandfathered
  • Issuance of summaries of benefits and coverage (SBCs) to all health plan enrollees
  • Reducing the maximum employee contribution to $2,500 if the employer sponsors a health flexible spending account (FSA), beginning with the 2013 plan year
  • Providing information on the cost of coverage on each employee's 2012 W-2 if the employer issued 250 or more W-2s in 2011
  • Calculating and paying the Patient Centered Outcomes Fee in July 2013 if the plan is self-funded (insurers are responsible for calculating and paying the fee for insured plans but will likely pass the cost on)
  • Providing a notice about the upcoming health care exchanges to all eligible employees in March 2013

 

The issue of the exchanges -- marketplaces that will allow employees and employers to shop for health care coverage represents another question mark for employers. State leaders have until mid-February to decide whether they will set up their own exchange or let the federal government run the show in their state. Nearly a half-dozen Republican-controlled states have already stated they won't set up exchanges, and more may follow. Because the makeup of these exchanges will affect a wide range of employers, companies should keep an eye on what's happening in their state, UBA notes.

Of course, the law still faces dozens of lawsuits, including one aimed at overturning the requirement that church-affiliated organizations must cover contraceptives for their employees, Reuters reports. Yet the reality for employers seems clear: PPACA is here to stay.

"There is no way the law is going to be repealed in the next two years, and Republicans know that," Chantel Sheaks of Buck Consultants L.L.C. told Business Insurance.


States get more time on exchanges

Source: benefitspro.com
By: Kathryn Mayer

The Obama administration is giving states extra time to decide whether they’ll work on implementing a key feature of health reform.

Health and Human Services Secretary Kathleen Sebelius told state governors in a letter Friday that they can have another three months to decide if they will split the task of running an exchange with the HHS or if they want to leave it entirely up to the government.

Sebelius said she still wants states to tell HHS their intentions by the original Nov. 16 deadline, but they now have until Dec. 14 to submit blueprints showing how they would operate the exchanges. Those who want to partner with the federal government have until Feb. 15 to tell the federal government so.

The move may be a concession to the many states who had said they were waiting until after the presidential election to comply with the PPACA mandates. Many Republicans and opponents of reform hoped that Republican Mitt Romney would win and begin work on repealing the law.

Under the Patient Protection and Affordable Care Act, exchanges would operate in every state to allow individuals to buy health insurance. Exchanges can be run by individual states, by the federal government or by a combination of the two under an arrangement known as a “state partnership exchange.” The exchanges are scheduled to begin operating on Jan. 1, 2014.

“This Administration is committed to providing significant flexibility for building a marketplace that best meets your state's needs,” Sebelius wrote in her Nov. 9 letter. “We intend to issue further guidance to assist you in the very near future.”

Though the law intended that each state run its own exchange, many governors have refused to do so. Others have complained there hasn’t been enough guidance from the government on how to do so. For those that don’t intend to set up an exchange, the government will set up one for them.

Despite the looming deadline, most states haven’t told the government what their plans are for their state exchange. About 15 states are working on setting up their own.

Since last week's election, a handful of states, including Texas and Florida, have said they will not pursue a state-based exchange. Some conservative groups have been encouraging states to not take action on exchanges, telling them that resistance shows the government their dissatisfaction with health reform.