Determining if 'play or pay' applies to you
Source: https://eba.benefitnews.com
By Deborah L. Grace
Under the Patient Protection and Affordable Care Act, a large employer is subject to penalties if it fails to offer to full-time employees health coverage or if the coverage that it offers is not affordable or does not provide minimum value. These new “shared responsibility” rules are effective as of January 1, 2014, and apply to all employers, including non-profits and governmental entities. This article describes the regulations proposed by the Internal Revenue Service in December 2012 for determining if an employer is a “large employer” for purposes of the shared responsibility rules of Section 4980H of the Internal Revenue Code.
What is a large employer?
For any calendar year, an employer is a “large employer” if it employed an average of at least 50 full-time and full-time equivalent employees on business days during the preceding calendar year. The calculation used to determine large employer status seems deceptively easy. An employer totals the number of full-time employees and FTEs that it employed each month and then divides that total by 12. If the resulting number is 50 or greater, the employer is a large employer.
An exception is provided for an employer who, for 120 days or less during the calendar year, exceeded the 50 full-time employee threshold due to the employment of seasonal employees. This means that hiring activity for 2013 may affect an employer’s status as a large employer for 2014. Note also that this analysis must be made for every calendar year.
All employees of entities that are under common control, as determined under Code Section 414(b) or (c), or that are members of an affiliated service group under Code Section 414(m) or (o), are taken into account in determining if the members of the group constitute a large employer. For example, suppose Company A has 20 full-time employees and Company B has 40 full-time employees. Company A owns 80% of the stock of Company B.
Under Code Section 414(b), Company A’s ownership of at least 80% of the stock of Company B causes Companies A and B to be members of a parent-subsidiary controlled group. Because of the controlled group status, the employees of Company A and B are added together when determining large employer status, resulting in both Company A and Company B being large employers for purposes of the shared responsibility rules.
Who is an employee?
For purposes of these rules, only common-law employees are counted. A sole proprietor, a partner in a partnership, a member of a limited liability company taxed as a partnership, and a 2-percent or more S corporation shareholder is not counted as an employee. Also excluded from this test’s definition of “employee” is any individual who is paid by a staffing agency but provides services to an employer on a substantially full-time basis, including an individual whose services would meet the “leased employee” definition of Code Section 414(n).
How does an employer determine if an employee is full-time?
A “full-time employee” is one who is employed by the employer an average of at least 30 hours of service per week or 130 hours of service per calendar month. Consistent with longstanding Department of Labor rules, hours of service include both hours for which the employee is paid for services performed and also hours for which the employee is paid and no services are performed due to vacation, holiday, illness, disability, layoff, jury duty, military duty or leave of absence. If an employee is paid on an hourly basis, then the employer must use those hours to determine if the employee’s status for the month is full-time.
Use of equivalencies for non-hourly employees. If an employee is not paid on an hourly basis, then the employer may use one of the following methods to determine the hours that the employee worked: (i) count actual hours worked by the employee; (ii) credit 8 hours of service for any day that the employee would be credited with at least 1 hour of service; or (iii) credit 40 hours for each week that the employee would be credited with at least 1 hour of service. An employer cannot use an equivalency method if it would result in understating an employee’s hours. For example, if an employee usually works three 10 hour days a week, the employer cannot use the days-worked equivalency, since that would understate the employee’s hours.
Service outside the U.S. Hours worked outside the U.S. where the employee does not receive the U.S. source income for that service are disregarded. As a result, a U.S. entity that is a member of a multinational controlled group may, for purposes of determining whether it is a large employer, exclude individuals who do not work in the U.S. For example, a U.S. sales office of a multinational entity with no other presence in the U.S. that has 5 full-time employees will not be a large employer for purposes of the shared responsibility rules. Note, the proposed regulations do not change the rules under COBRA that require all employees, including foreign nationals with no U.S. source income, to be counted when determining if the entity has crossed the 20 employee threshold and thereby be required to offer COBRA continuation coverage to qualified beneficiaries.
How does an employer calculate the number of full-time equivalents?
All employees (including seasonal employees) who were not full-time employees for any month are included in calculating the employer’s FTEs for that month. The number of FTEs is determined using a two-step process. First, the employer must calculate the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not employed on average at least 30 hours of service per week for that month; second, the total hours for the month for all such non-full-time employees is divided by 120. Fractions are included in determining a monthly FTE count but, as explained in the next paragraph, are disregarded for the determination of whether an employer is a large employer.
How does an employer calculate its large employer status?
Once the employer has the number of full-time employees and FTEs that it employs each month during the prior calendar year, the employer totals these monthly numbers and then divides that total by 12 to determine the average. Fractions are disregarded for this purpose. For example, an employer that has on average 49.9 full-time employees (including FTEs) for the preceding calendar year is allowed to round the total down, and therefore would not be a large employer.
Transition Rule. For 2014, an employer may determine its large employer status by using a period of at least 6 consecutive months in 2013 rather than the full 2013 calendar year. This transition rule will allow an employer who is close to the 50 full-time employee threshold time to determine its status for 2014 and make any needed adjustments to its health plan to comply with Code Section 4980H. For example, an employer could determine its large employer status during the period of March through August 2013 and then decide what changes are needed for its health plan (or implement a plan) between September through December 2013.
What is the seasonal employee exception?
An employer that on average exceeds the 50 full-time employee threshold (taking into account FTEs) for 120 days or fewer during a calendar year due to the employment of seasonal workers during that 120 day period is not a large employer. The 12 day period does not need to be consecutive, and an employer may choose to use four months as a measuring period in place of 120 days. An employee may be able to be treated as a “seasonal worker” for purposes of the large employer definition if the employee worked on a seasonal basis for more than four consecutive months.
Definition of Seasonal Worker. Under Code Section 4980H, employees who perform services on a seasonal basis as defined by the Secretary of Labor, including migrant and seasonal agricultural workers, and retail workers employed exclusively during holiday season qualify as seasonal workers. Under the proposed regulations, the IRS has determined that the term seasonal employee is not limited to agricultural or retail workers, and would include individuals whose employment “is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year.” Until further guidance is issued, an employer may apply a reasonable good faith interpretation of this definition. For example, it may be reasonable for an accounting firm to determine that the additional staff hired during the months of February through April to prepare individual income tax returns are seasonal workers.
If an employer is not in existence during all of 2013, then it will be a large employer if it reasonable expects to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during 2014.
In a merger of acquisition situation, Code Section 4980H defines the term “employer” to include any predecessor to such employer. The IRS has indicated that in defining a predecessor employer, it may use rules similar to those that apply for determining a successor employer for employment tax purposes. Under those rules, an employer that acquires all of the property used in a trade or business of another employer is a successor employer to the predecessor business.
What are the Suggested Next Steps?
Determine if your business will be a large employer for 2014, based on the company’s anticipated full-time employee count for 2013. If the company and other members of its controlled group regularly employ between 40 and 60 full-time employees and FTEs, establish a 6 month or longer transition period in 2013 to determine large employer status for 2014.
Steps that a large employer will want to take, including determining if the health plan that it offers employees is affordable and provides minimum value and identifying full-time employees who must be offered coverage to avoid a penalty, will be addressed in a subsequent article.
Tax the rich – and limit retirement contributions? It doesn’t add up
Source: https://eba.benefitnews.com
By: Aaron Friedman
Tax the rich! Raise their rates! Limit their deductions! That seems to be the populist mantra. It’s perpetuated in the press, and there’s some indication that the general public seems to support the idea. Now middle class workers with higher than average incomes seem to be caught up in discussions defining those that are “rich.”
As this applies to tax-exempt organizations, we’re talking about hospital administrators, educators, executive directors of local community and other charitable organizations – people who generally earn a better than average income, yet by no stretch of the imagination do their incomes compare to Warren Buffett’s. And when it comes to the impact on their employers’ retirement plans, shouldn’t the tax structure support retirement readiness for those who have dedicated their careers to giving back to their communities?
For example, current conventional belief supports that people should be saving 11-15% of their pay, including matching contributions, every year throughout their working careers in order to save enough to be retirement ready. Assuming a 3% match, and therefore an average of a 12% annual savings need, anyone earning less than approximately $146,000 annually should be fine. (12% of $146,000 is approximately the $17,500 annual limit.)
However, what about the person making $250,000 per year? Contributing a maximum of $17,500 only equates to 7% of pay. When the match is included it’s still short of the target necessary for retirement readiness — yet as the numbers show, these limitations currently in place put these people at a disadvantage for retirement savings. In addition, one of the alternatives under consideration is limiting qualified plan contributions even further.
Fortunately, there is something that can be done. Private (non-governmental) tax-exempt organizations can maintain a deferred compensation plan under section 457 of the internal revenue code. These 457 plans allow for additional benefits for a select group of management or highly compensated individuals, over and above the limitations in their 403(b) or 401(k) plan.
457 plans are an excellent tool for tax-exempt organizations to be able to recruit, retain, reward and retire key personnel. In other words, they help meet the goals of the organization (which in turn, serves their communities) while empowering key employees to meet their financial goals.
Last summer, Sen. Tom Harkin released a report called “The Retirement Crisis and a Plan to Solve It.” One premise of the report is that there is inadequate savings for Baby Boomers and Gen Xers to pay for basic expenses in retirement. The report footnotes studies that show this ”retirement income gap” is between $4.3 and $6.6 trillion, but as we see above, there is already pressure in regular tax rules that make it difficult for higher-than-average income people to achieve retirement readiness.
As Congress continues the tax debate, it’s important that we consider what’s good for the long term, and helping all plan participants achieve retirement readiness should be of paramount importance. Tax reform and retirement policy should not be at odds.
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 Issues Three Proposed Regulations Addressing Open Issues Under PPACA
On Nov. 20, 2012, the Department of Health and Human Services issued three sets of proposed rules that provide some of the needed details on how PPACA will probably unfold. The proposed rules address:
- Wellness programs under PPACA
- Essential health benefits and determining actuarial value
- Health insurance market reforms
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.
The proposed rule confirms that nongrandfathered 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.
The proposed rule confirms that nongrandfathered 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.
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.
Small businesses don’t understand health reform requirements
Source: benefitspro.com
By: Kathryn Mayer
Most small businesses either incorrectly believe or aren’t sure whether they must provide health insurance to employees in 2014, according to a recent survey of small business owners by eHealth.
Beginning in 2014, the Patient Protection and Affordable Care Act requires businesses with the equivalent of 50 or more full-time employees to provide health insurance coverage for their workers. Businesses with fewer than 50 employees are exempt from this requirement, although employees may be required to purchase their own coverage.
The eHealthInsurance survey was conducted in August and received responses from 439 small businesses.
Based on their size (fewer than 50 employees), only two of the businesses surveyed would be required by the PPACA to offer health insurance coverage to employees in 2014. But one-third incorrectly believed that they were required to buy insurance for employees in 2014, while 35 percent weren’t sure. Nearly 70 percent either incorrectly believed or were not sure whether they would be required to pay a tax for not providing health insurance in 2014. Only 31 percent of respondents correctly said that the reform law does not require them to pay a tax if they don’t offer insurance.
Another main part of health reform—health insurance exchanges—isn’t factoring into employers’ strategies. Most small business owners (78 percent) said they weren’t familiar with health insurance exchanges and how they could impact their business. Exchanges, which are slated to come online by 2014, would make subsidized health insurance available to individuals who don’t have access to health insurance through an employer.
The eHealth poll is yet another survey reporting similar findings: Health reform is confusing both employees and their employers.
Though the Supreme Court upheld the PPACA in June, many employers continued their wait-and-see approach until after the presidential election. Republican Mitt Romney had promised that he would work on repeal of the law if elected.
The survey also found that nearly a third of small businesses (29 percent) said they would consider dropping coverage for their employees in 2014. The majority, at 68 percent, said they don’t have plans to do so, while 3 percent said they planned to stop offering coverage.
The survey also addressed their willingness to adopt new cost-cutting strategies.
To reduce costs, more than half (51 percent) said they would increase employees’ share of premiums. Nearly 40 percent would consider increasing employees’ deductibles. Nearly half of the employers surveyed (44 percent) felt it would be fair to impose penalties on employees who don't participate in wellness programs.
What Does the Election Mean for Employers and PPACA
Maintenance of the status quo in Washington, D.C. (the re-election of Barack Obama, with a Republican majority in the House of Representatives and a Democratic majority in the Senate) means that implementation of the Patient Protection and Affordable Care Act (PPACA) will move forward largely as the law was passed in 2010.
The law left the task of working out many of the details to the regulatory agencies (the Department of Labor, the IRS and the Department of Health and Human Services), and with many questions remaining unanswered, employers can expect that an enormous number of regulations and other types of guidance will be issued between now and the end of 2013.
Of greatest interest to many employers is the employer shared-responsibility ("play or pay") requirement. As of Jan. 1, 2014, employers who have 50 or more full-time or full-time equivalent employees must offer "minimum essential" (basic) medical coverage for their full-time (30 or more hours per week) employees or pay a penalty of $2,000 per full-time employee, excluding the first 30 employees. Employers who offer some coverage but whose coverage is either not "affordable" or fails to provide "minimum value" must pay a penalty of $3,000 for each employee who receives a premium tax credit. (Coverage is not "affordable" if the employee's cost of single coverage is more than 9.5 percent of income. Coverage does not provide minimum value if it is expected to pay less than 60 percent of anticipated claims. Regulations are still needed to provide details on how the penalty will be determined and collected for employers who do not provide health coverage to their full-time employees, what exactly is the "minimum value" coverage that must be provided to avoid the penalties, and when dependent coverage is "affordable.")
The health insurance exchanges are also scheduled to begin operation in January 2014. (While PPACA is a federal law, the health insurance exchanges were designed to be operated by the states.) A number of states have delayed work on the exchanges pending the outcome of this election, while a few have affirmatively decided not to create a state exchange. If a state is unable or chooses not to create an exchange, the federal government will run the exchange on the state's behalf.
According to the Kaiser Family Foundation, as of Sept. 27, 2012, the following have established exchanges: California, Colorado, Connecticut, District of Columbia, Hawaii, Kentucky, Maryland, Massachusetts, Nevada, New York, Oregon, Rhode Island, Utah, Vermont, Washington and West Virginia. Arkansas, Delaware and Illinois were planning for a partnership exchange with the federal government. Alaska, Florida, Louisiana, Maine, New Hampshire, South Carolina and South Dakota have stated that they will not create an exchange (meaning the federal government will run the exchange on the state's behalf). The remaining states are studying their options but could well end up with a federally run exchange at least for 2014 as the deadline to submit the state's plan for implementing an exchange is next week (Nov. 16).
It remains to be seen whether the federal government will be able implement so many exchanges on behalf of the states by the 2014 target date. It also remains to be seen whether a change of governor, insurance commissioner or control of a state legislature or political realities, will change a state's stance on the exchanges. Because employees may choose to obtain coverage through the exchange even if they have access to coverage through their employer and because the exchanges likely will request information from employers when determining eligibility for premium tax credits, all employers will want to have an understanding of the status of their state's exchange.
In addition to deciding whether to "play" (provide health coverage) or "pay" (the penalties), employers (including those with fewer than 50 employees) have a number of compliance obligations between now and 2014, including:
- Expanding first-dollar preventive care to include a number of women's services, including contraception, unless the plan is grandfathered
- Distributing medical loss ratio rebates if any were received from the insurer
- Issuance of summaries of benefits and coverage (SBCs) to all 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
- Withholding an extra 0.9 percent FICA on those earning more than $200,000 beginning in 2013
- 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
- Providing a notice about the upcoming exchanges to all eligible employees in March 2013
- 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)
- Working with the exchanges to identify those employees eligible for premium tax credits
- Removing annual limits on essential health benefits and pre-existing condition limitations for all individuals, beginning with the 2014 plan year
- Limiting eligibility waiting periods to 90 days, beginning with the 2014 plan year
- Reporting to the IRS on coverage offered and available (the first reports are actually due in 2015 based on 2014 benefits)
If you have questions or would like additional information about your options and obligations under PPACA, please contact us.
Obama Wins Re-election: Health Care Reform Law Here to Stay
After hard-fought campaigns by both candidates, President Barack Obama has been re-elected for a second term in office. Obama’s victory in the election, along with last summer’s Supreme Court decision upholding the health care reform law, cements the Democratic Party’s dedication to the legislation.
While opponents of the law have called for its repeal, health care reform’s supporters consider the legislation to be the major achievement of Obama’s first term. Obama’s re-election, along with continued Democratic control of the Senate, means that implementation of the law will now continue without additional roadblocks.
WHAT DO EMPLOYERS HAVE TO DO NEXT?
With the landscape of employer-provided health care potentially changing over the next few years, employers should consider their future plans related to their role in employee health care. They may have to make some big decisions about whether to continue providing coverage to their employees. The “pay or play” penalties provide some incentive for employers to continue coverage, since they will be at risk for significant penalties if they do not. However, employers may decide that paying the penalty is more cost-effective than continuing to pay the ever-increasing costs of health care for employees and their families.
On the other hand, uncertainty among employees about the quality and cost of individual health coverage continues to make employer-provided health coverage an attractive recruiting and retention tool. Because of these advantages, most employers plan to continue offering coverage for now. The additional uncertainty for employers, with compliance obligations hinging on court decisions and the political process, has made many companies hesitant to make any large-scale changes.
Whatever their future decisions may be, employers that will continue to sponsor group health plans for the near future must prepare for upcoming deadlines. Significant health care reform provisions with looming effective dates include:
Summary of Benefits and Coverage
Health plans and issuers must provide an SBC to participants and beneficiaries that includes information about health plan benefits and coverage in plain language. The deadline for providing the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period is the first open enrollment period that begins on or after Sept. 23, 2012. The SBC also must be provided to participants and beneficiaries who enroll other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees) effective for plan years beginning on or after Sept. 23, 2012.
60-Days’ Notice of Plan Changes
A health plan or issuer 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. This 60-day notice requirement becomes effective when the SBC requirement goes into effect for a health plan.
$2,500 Limit on Health FSA Contributions
The health care law will limit the amount of salary reduction contributions to health flexible spending accounts to $2,500 per year for plan years beginning on or after Jan. 1, 2013.
W-2 Reporting
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 issued in January 2013.
Preventive Care for Women
Effective for plan years beginning on or after Aug. 1, 2012, non- grandfathered health plans must cover specific preventive care services for women without cost-sharing requirements. Calendar year plans must comply effective Jan. 1, 2013.
Employee Notice of Exchanges
Effective March 1, 2013, employers must provide a notice to employees regarding the availability of the health care reform insurance exchanges. HHS has indicated that it plans on issuing model exchange notices in the future for employers to use.
Additional Medicare Tax for High-wage Workers
In 2013, health care reform increases the hospital insurance tax rate by 0.9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly). Employers will have to withhold additional amounts once employees earn over $200,000 in a year.
WHAT GUIDANCE WILL WE SEE?
Regulations on a number of issues remain outstanding. The regulatory agencies responsible for implementation and enforcement of the health care reform law—the Departments of Labor, Treasury and Health and Human Services— began issuing additional guidance once the Supreme Court upheld the law. Additional guidance is expected now that the election is over.
Issues that will likely be addressed in future guidance include:
Employer Pay or Play Mandate
The agencies are expected to, and have indicated that they will, issue more guidance for employers to help them determine how to comply with the shared responsibility provisions of the law.
Automatic Enrollment
The Department of Labor is required to issue regulations implementing the rule requiring large employers that offer health coverage to automatically enroll new employees in the health plan (and re-enroll current participants).
Nondiscrimination Rules for Fully-insured Plans
Under health care reform, non-grandfathered fully- insured plans will not be able to discriminate in favor of highly-compensated employees with respect to their health benefits. The IRS delayed the effective date of this rule for additional regulations, which have yet to be issued.
State governments may also take further steps to establish the health insurance exchanges required by the health care reform law. The federal government will step in and set up exchanges for states that fail to establish their own exchanges. Many states have delayed implementation and will need to accelerate their efforts if they want to run their own exchanges.
CHALLENGES FOR IMPLEMENTATION
As we get closer to full implementation of the health care reform law, questions linger about whether the framework is in place for all pieces to be operational by their deadlines. Insufficient staffing of the responsible agencies is one potential issue, along with employer and state government hesitation or inability to implement certain parts of the law. Compliance efforts are likely to pick up now that the election is over.
Summary of Benefits and Coverage and the Uniform Glossary
The Health Care Reform law requires plan sponsors to provide two new government-developed documents to plan participants. The "Summary of Benefits and Coverage" (SBC) and the "Uniform Glossary" are intended to provide high-level descriptions of a plan (and definitions of standard terms) and are in addition to the ERISA requirement to provide a Summary Plan Description (SPD). An SBC need not be provided for plans, policies, or benefits packages that constitute excepted benefits. If a plan sponsor intends to make any material modifications in coverage, such as increases in cost-sharing or benefit reductions, the law requires the sponsor to notify participants at least 60 days before the modifications become effective. Penalties for non-compliance are significant.
The federal agencies published final regulations and template versions of the SBC and Uniform Glossary on February 9, 2012. The final regulations are very similar to the proposed regulations. The templates were developed by the National Association of Insurance commissioners for insurance policies and the final regulations relaxed the requirement about completing the template "as is". If the plan's terms cannot reasonably be described "in a manner consistent with the template and instructions, the plan or issuer must accurately describe the relevant plan terms while using its best efforts to do so in a manner that is still consistent with the instructions and template format as reasonably possible.". Plan sponsors (or their health insurance carriers) must begin distributing the SBC to participants and beneficiaries eligible to enroll in group health coverage through an open enrollment period beginning on the first day of the first open enrollment period that begins on or after September 23, 2012. For participants and beneficiaries who enroll in group health plan coverage other than through an open enrollment period, the requirements begin on the first day of the first plan year that begins on or after September 23, 2012. Distribution is required with enrollment materials, by the first day of coverage if there are changes since the enrollment, upon renewal, and upon request. An SBC may be distributed in paper or electronic form. The Uniform Glossary may also be distributed in paper or electronic form, but distribution is required only upon request. Click here to see a completed SBC template.
HIGHLIGHTS OF THE PATIENT-CENTERED OUTCOMES / COMPARATIVE EFFECTIVENESS FEE
Important: these highlights describe the rules based on the actual law and proposed regulations. Most likely, therefore, the rules will take effect largely as described here, but some of the details may change.
- The fee applies from 2012 to 2019, based on plan/policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2019
- The fee is due by July 31 of the year following the calendar year in which the plan/policy year ended
- The first fee is due July 31, 2013, for calendar year plans and for those on October, November and December plan years
- The first fee is not due until July 31, 2014, for those with plan years that start February through September.
- The fee will be calculated and paid by:
- The insurer for fully insured plans (although the fee likely will be passed on to the plan)
- The plan sponsor of self-funded plans
- This includes health reimbursement arrangements (HRAs)
- Third-party administrator (TPA) may assist with calculation, but plan sponsor must file
- If multiple employers participate in the plan, each must file separately unless the plan document designates one as the plan sponsor
- The fee is based on covered lives (i.e., employees, retirees and dependent spouses and children)
- May exclude employees/dependents residing outside U.S.
- May exclude dependents, and only count the employee/retiree, when counting for an HRA
- For the first year, the fee is $1 per covered life during the plan/policy year
- For the second year, the fee is $2 per covered life during the year
- For the third through seventh years, the fee is $2, adjusted for medical inflation, per covered life during the year
- Applies to private, government, not-for-profit and church employers
- Applies to grandfathered plans
- "Group health coverage" includes:
- Medical plans
- Retiree only plans
- HRAs
- "Group health coverage" does not include:
- Stand-alone dental and vision (stand-alone means these benefits are elected separately from medical and have discrete premiums)
- Life insurance
- Short- and long-term disability and accident insurance
- Long-term care
- Health flexible spending accounts to which only employee contributions are made
- Health savings accounts
- Hospital indemnity or specified illness coverage
- Employee assistance programs and wellness programs that do not provide significant medical care or treatment
- Stop loss coverage
- Several options have been proposed for calculating the fee:
- Actual count method -- count the covered lives on each day of the year, and average the result
- Snapshot method -- determine the number of covered lives on the same day of each quarter or month, and average the result
- Could multiply the employee/retiree count by 2.35 to approximate the number of covered dependents rather than actually counting them
- 5500 method - determine the number of participants at the beginning and end of year as reported on the 5500
- If dependents are covered, add the participant count for the start and the end of the plan year
- If dependents are not covered, add the participant count for the start and the end of the plan year and average the result (this method cannot be used by insurers)
- If there are multiple self-funded plans (e.g., self-funded medical and HRA) with the same plan year, only one fee would apply to a covered life
- If there are both fully insured and self-funded plans (e.g. insured medical and a self-funded HRA), a fee would apply to each plan -- the insurer would pay the fee on the insured coverage and the plan sponsor would pay the fee on the HRA
- Plan sponsor reporting and paying the fee would be done electronically on IRS Form 720 each July 31
- This would be an annual filing, even though form 720 is generally filed quarterly
Action Steps:
- Insured plans may want to:
- Ask their carrier if/when this fee will be reflected in rates
- Include the anticipated fee in their budget
- Self-funded plans may want to:
- Include the anticipated fee in their budget
- Review the likely calculation methods, determine which is best for their situation and close any data gaps
- Verify there is a named plan sponsor if more than one employer participates in the plan, and if a plan sponsor has not been named, amend the plan to name a plan sponsor before the first fee is due
Note: PPACA created a private, non-profit corporation called the Patient-Centered Outcomes Research Institute. The Institute's job is to research the comparative effectiveness of different types of treatment for certain diseases, and to share its findings with the public and the medical community. The goal is to improve quality of treatment and reduce unnecessary spending. This fee is to support this research.
Reminder: These highlights describe the rules based on proposed regulations. Some of this may change.