On June 28, 2012, the Supreme Court issued one of its most important opinions in recent history regarding the basic structure of the employer/employee relationship: It upheld nearly all of the Patient Protection and Affordable Care Act (“Health Care Reform”). With the constitutionality of Health Care Reform settled, employers should continue to prepare to comply with the sweeping changes made to the health care system by the legislation.
What should be an employer's next steps?
1. Prepare to comply with the requirements that go into effect in 2012
- Summary of Benefits Coverage (SBC) – The SBC must be provided to participants at open enrollment effective with open enrollment periods beginning on or after Sept. 23, 2012. Further, newly eligible enrollees must be provided with an SBC effective as of the first day of the first plan year beginning on or after Sept. 23, 2012. (Please see our prior advisory for more information.)
- W-2 reporting – Effective for 2012 and later tax years, the value of the employee’s health insurance coverage sponsored by the employer must be included on an employee’s W-2. This new reporting requirement initially applies to W-2s issued in January 2013. It is not applicable to employers with fewer than 250 individuals to whom the employer must issue a W-2. Employers should be developing systems now to track an employee's health benefit coverage elections so the proper information will be disclosed on the W-2s distributed in January 2013. (Please see our prior advisory for more information.)
2. Prepare to comply with the requirements that go into effect in 2013
- Health care flexible spending accounts – The annual health care flexible spending account (FSA) employee pre-tax contributions must be capped at $2,500 per participant for plan years beginning in 2013. (Please see our prior advisory for more information.)
Prepare for new taxes and penalties
- Premium Tax – Beginning July 31, 2013, insurers and employers will be required to pay a new premium tax to finance comparative clinical effectiveness research. For the first year, the fee is $1 multiplied by the average number of covered lives (employees and dependents) enrolled in the employer's health plan. The multiplier increases to $2 for subsequent years and the tax sunsets for plan years ending after Oct. 1, 2019. (Please see our prior advisory for more information.)
- Payroll Tax – Higher income taxpayers with wages in excess of $200,000 (if single) or $250,000 (if married and filing jointly) will be subject to an additional .9% Medicare hospital insurance payroll tax on wages in excess of these thresholds beginning in 2013. In addition, these individuals will be subject to a 3.8% tax on their net investment income.
3. Strategize for requirements effective in 2014
- Pay or Play – Health Care Reform requires employers with 50 or more full-time employees, as defined under the new legislation, to either provide health care coverage to their employees or pay a penalty tax. If an employer opts to offer a health plan, that health plan must be “affordable,” as determined under Health Care Reform. For employers that already offer health insurance coverage to their employees, the “Pay or Play” provisions of Health Care Reform are not likely to result in significant changes in their practice.
- Under certain circumstances, an employer could be required to pay a penalty if a lower-paid employee opts for coverage under the state exchange rather than the employer-provided health plan, and the employer’s health plan is found to not be affordable.
4. Review health plan to confirm that current requirements of Health Care Reform have been properly implemented
- Employers must provide continued coverage of dependent children until age 26;
- Plans must eliminate lifetime limits on the dollar value of essential health benefits; and
- Plans must restrict annual limits on the dollar value of essential health benefits.
For an overview of the requirements of Health Care Reform on group health plans, and their effective dates, click here.