HEALTH CARE REFORM: WHAT ARE THE NEXT STEPS FOR EMPLOYERS?

As the Affordable Care Act (ACA) has been upheld by the U.S. Supreme Court, employers must now understand and implement the various provisions of the law in 2012 and 2013. One fallout of the Supreme Court’s opinion is the law’s potential to generate a flood of law suits against employers.

Employers must take steps to accomplish the following:

  • (a) W-2 Reporting (2012) — Employers must report the aggregate cost of employer-sponsored health coverage (including employee contributions) on the employee’s W-2 form which should be distributed by January 31 of the following year. Contributions to a Health Reimbursement Account, Health Savings Account or Flexible Spending Account (unless non-salary reduction contributions are made) do not have to be included. Reporting is not required for stand-alone dental or vision plans or if the employer filed fewer than 250 W-2 forms for the preceding year.
  • (b) Flexible Spending Accounts (2013) — Effective for plan years that begin in 2013 and later, employee salary reduction contributions must be limited to $2,500.
  • (c) Summary of Benefits and Coverage (“SBC”) (2012) — Effective for open enrollment periods beginning on and after September 23, 2012, an SBC must be provided which summarizes the benefits provided under the plan in a prescribed format, together with a uniform glossary that explains commonly used terms in health plans. Assuming that certain safeguards are met (which are intended to ensure that SBCs are actually received), SBCs may be provided electronically.
  • (d) Summary Plan Descriptions (2012-2013) — Summary Plan Descriptions (SPDs) must be updated to reflect the requirements of the ACA that are already in effect. These include continued coverage for adult children until age 26 (until 2014, grandfathered plans may delay coverage to adult children if they have alternative employer-provided coverage), elimination of lifetime dollar limits on essential health benefits, restrictions on annual dollar limits, the provision of preventive care and contraceptive drugs and devices to female participants without cost sharing (non-grandfathered plans only), elimination of any pre-existing condition exclusion for a participant who is under the age of 19, and implementation of an enhanced internal/external appeal process (non-grandfathered plans only).
  • (e) Health Care Tax Credit (2012-2013) — Small employers (less than 25 full-time equivalent employees) with average annual wages of less than $50,000 may be eligible for an income tax credit for qualifying employer paid premiums. The employer must pay at least 50% of the premiums for health care coverage for a single employee. The maximum credit is 25% (35% for not-for-profit employers) of the premiums paid.
  • (f) New Fee Imposed on Insurers and Self-Insured Plans (2013) -- Insurers and plan sponsors of self-insured plans must pay a new per-participant fee to the IRS to fund the Patient-Centered Outcomes Research Trust Fund that will analyze research findings on comparative clinical effectiveness. The fee is due for plan years ending on and after October 1, 2012 and before October 1, 2019. The initial filing for a calendar year plan is due by July 31, 2013.
  • (g) Medicare Tax Increase (2013) — The Medicare tax rate paid by employees on wages will increase from 1.45% to 2.35% for earners with a modified adjusted gross income in excess of $250,000 (if filing jointly) or $200,000 (if filing as a single taxpayer or as head of household).

EMPLOYER SHARED RESPONSIBILITY FOR HEALTH CARE (2014)

Most of the remaining provisions of APA will become effective in 2014. Most significantly, employers with 50 or more full-time employees (who work at least 30 hours/week) must pay a penalty or provide health coverage to their full-time employees and their dependents that is both:

  • 1. Affordable – A plan is considered affordable if the employee’s required contribution does not exceed 9.5% of the employee’s W-2 wages from the employer-sponsor. The contribution is based on the premium charged for employee-only coverage under the lowest cost option.
  • 2. Minimum Value – The plan must cover at least 60% of the average employee’s eligible expenses. The IRS will be issuing further guidance on determining if a plan provides minimum value (including some plan design safe harbors). It is anticipated that the vast majority of plans will satisfy this requirement.

If an employer does not offer any plan and has at least one employee who obtains health coverage through a state run exchange and is certified by the exchange as eligible for a premium tax credit available to low income earners, the employer is subject to a penalty. The penalty is equal to $2,000 per full-time employee (disregarding the first 30 full-time employees). It is not clear how this penalty will apply if an employer offers coverage to most but not all full-time employees. Logically, the penalty would apply only to those who are not offered coverage but further guidance is needed.

If an employer offers a plan that is either not affordable or fails the minimum value test, the penalty is $3,000 per employee who is eligible for the premium tax credit (capped at $2,000 multiplied by the number of full-time employees less 30). If a plan does not satisfy the affordability test, it may be able to do so by adding a low cost option.

MORE GUIDANCE TO COME

Employers are not required to provide health coverage by the APA. However, they are incentivized to do so in order to avoid the penalty tax or, in the case of qualifying small employers, obtain a tax credit. There are still many unanswered questions and more guidance is needed. It is anticipated that the Federal government will be issuing guidance over the next year.

MEANING FOR CB&D CLIENTS AND FRIENDS OF THE FIRM

The foregoing provisions and a host of others yet to be written set the stage for lawsuits against employers by the government and by employees who may take companies to court for both large and small violations. Employers will need to become fully conversant with a maze of regulations added to an already complex body of law, for example, new liability could result from the reporting, record-keeping and benefits requirements, violations of which could trigger fines. The IRS, the DOL and the Department of Health and Human Services are writing thousands of pages of regulations that will apply as healthcare reform is rolled out. There will inevitably be disputes about exactly what the legislation means as the ACA is filled with potential land mines for companies that are not paying close attention. Employers and their lawyers who believe they have been mistreated may well have a field day testing the limits and pitfalls of “Obamacare.” The extremely complex regulatory framework places an increased burden and substantially increased potential liability for all employers which makes compliance with the ACA a must.

If you have any questions regarding this article on the impact of the ACA on your health plans, please contact Richard Muser or Eva Rasmussen, lead attorneys at CB&D’s employee benefits, executive compensation and ERISA litigation group.

This Update is not intended to be legal advice, but rather is intended to inform the reader of problem areas and recent developments in labor and employment law. If legal advice is required concerning a particular matter, your attorney should be consulted.