On June 28, 2012, the United States Supreme Court upheld the constitutionality of the individual mandate to have health insurance under the Patient Protection and Affordable Care Act (PPACA), thereby leaving the statute intact (except for the provisions of PPACA that would have withheld all of a state's existing federal Medicaid funding if the state did not comply with the eligibility expansion, which the Supreme Court found unconstitutional).
The decision itself (and the concurring and dissenting opinions) will certainly be the subject of endless political debate and countless law review articles. That said, now that the Supreme Court has spoken, absent future legislative or regulatory changes, employers must refocus on the provisions of PPACA that will become operative during 2012, 2013, 2014 and beyond. This Briefing highlights upcoming key requirements and action items.
Uniform Summary of Benefits and Coverage (SBC)
This mini summary plan description (no longer than 4 double-sided pages) for each benefit option under an employer's medical plan must be provided annually to participants as part of the plan's open enrollment process, must be provided to newly eligible employees as part of their initial enrollment, and must be provided generally to participants upon request. The U.S. Departments of Treasury, Labor and Health and Human Services issued final regulations regarding the SBC requirements on February 9, 2012. The first SBCs will need to be distributed to participants as part of the open enrollments that occur on or after September 23, 2012.
- Confirm that your vendors are preparing SBCs for each benefit option.
- Incorporate the SBC into open enrollment materials this fall.
- Develop distribution mechanism for new hires and other newly eligible employees, and for handling requests for copies.
W-2 Reporting of Employer-Provided Coverage
Beginning with the 2012 Form W-2s issued in January 2013, each W-2 must include the applicable cost of employer-provided coverage. The IRS provided guidance in Notice 2012-9. For 2012, this requirement does not apply to employers that filed fewer than 250 W-2s for 2011.
- Work with internal payroll department and/or outside payroll vendor to make sure they are prepared for this new reporting requirement.
- Develop a process for accurately calculating the cost of employer-provided coverage for each plan option and level of coverage.
Patient-Centered Outcomes Research Fee
This is an annual fee per person covered under an employer-sponsored plan, and applies to both insured and self-insured plans. The fee for 2012 is $1 per covered person, increasing to $2 per covered person in 2013. The IRS issued proposed regulations regarding this fee on April 17, 2012. The first payment of the fee will be due in July 2013. The IRS has issued a new form (Form 720) to report this payment.
Additional preventive services for women must be covered at 100% with no cost-sharing (e.g., co-payments). (This requirement is not applicable to grandfathered plans.) These additional services include comprehensive annual "well woman" visits, HPV DNA testing, HIV screening, prescription contraceptives, RU 486 "morning after" pills and sterilization procedures.
- If your plan is not grandfathered, make sure these provisions are included in the underlying administrative documents, as well as open enrollment materials, summary plan descriptions and summary of material modifications for 2013.
$2,500 Annual Limit on Health FSAs
For plan years that begin in 2013, the maximum amount that an employee can contribute to a health care flexible spending account (FSA) will be $2,500. (Plans have generally imposed their own dollar limits on contributions to health FSAs, but a statutory limit has not previously applied.)
- Make sure this limit is communicated in your 2013 open enrollment materials.
- Amend your cafeteria plan to reflect this limitation.
- Update election forms and procedures to prevent employees from making FSA elections exceeding the $2,500 limit.
Additional Medicare Tax for High Earners
Beginning in 2013, an additional 0.9% employee Medicare tax is imposed on wages for individuals earning over $200,000 (and couples earning over $250,000) for amounts over those thresholds. This additional Medicare tax does not apply to the employer portion of the Medicare tax, which remains at 1.45%.
- Work with your internal payroll department and/or your external payroll vendor to make sure this additional Medicare tax will be collected.
Medicare Part D Subsidies
If the employer participates in the CMS Medicare Part D subsidy program relating to retiree prescription drug coverage, those subsidies will effectively become taxable to the employer.
Notice about Exchanges
PPACA envisions that employers will notify employees by March 1, 2013 about the applicable state health insurance exchange and how that exchange will work. In addition, the notice is expected to contain information about health insurance premium credits and cost share reductions. Regulatory guidance has yet to be issued regarding this requirement.
- Individual mandate becomes effective, along with government subsidies to purchase coverage.
- Insurance market reforms—guaranteed issue and community rating—become effective.
- Insurance exchanges become operative.
- Employer "play or pay" mandate for employers with more than 50 full-time equivalent employees becomes effective.
- Minimum essential coverage requirements for medical plans become effective.
Most of the substantive provisions that become effective in 2014 still await regulatory guidance. As a result, we expect significant regulatory activity over the next 12 to 18 months. In addition, by early 2013 employers will need to make strategic decisions regarding employer sponsored medical plan coverage for 2014 and beyond in order to allow adequate time for implementation.
As issues under the PPACA continue to evolve (whether through regulatory guidance, emerging best practices, etc.) employers will have to keep up-to-date. Vedder Price will continue to provide timely guidance through Employee Benefits Briefings and webinars to support that effort. Full steam ahead!