Now that the United States Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act, employers and health plan sponsors must begin to review plans and procedures to prepare for its implementation. This Advisory highlights the major provisions of the Act that already have become effective and those that will become effective in 2012 and future years.
Prior to 2012
Effective for plan years beginning on or after September 23, 2010, group health insurance plans and self-insured plans:
- Must extend dependent coverage to adult children up to age 26, without regard to the typical criteria for determining dependent status, such as whether the child is married, resides with the employee or is a full-time student.
- Must eliminate lifetime dollar limits for “essential health benefits” and phase out annual limits on “essential health benefits” coverage through 2014, when annual limits will be prohibited.
- Must eliminate pre-existing condition exclusions for any participant under age 19.
- Cannot cancel or rescind health coverage once the individual has become a covered participant, except in cases of fraud or intentional misrepresentation of material fact.
- Cannot discriminate in favor of highly compensated individuals as to eligibility and benefits (guidance has delayed the effective date of this requirement for certain fully insured group health plans).
Effective January 1, 2011, over-the-counter medications cannot be reimbursed from health flexible spending accounts, health savings accounts or health reimbursement accounts.
Reporting Cost of Employer-Sponsored Health Coverage on W-2. Employers will be required to report the aggregate value of medical benefits, dental, vision, and supplemental insurance coverage on the Form W-2 that is provided to each employee annually.
Uniform Explanation of Coverage. Group health insurance plans and sponsors of self-insured health plans must provide participants a uniform summary of benefits and coverage that describes the health benefits offered under the plan, limits on coverage, cost-sharing provisions, and any restrictions on the continuation of coverage. Participants must be notified of any material changes to this information, at least 60 days in advance of the change. Failure to provide this summary will result in a $1,000 fine per failure. For calendar year plans, this summary of benefits and coverage must be provided to participants in any open enrollment that starts on or after September 23, 2012.
Patient-Centered Outcome Research Trust Fund Fees. This fee is imposed on issuers of certain health insurance policies and plan sponsors of certain self-insured health plans to fund the Patient-Centered Outcomes Research Institute. The fee is $2.00 ($1.00 in 2012) multiplied by the average number of covered lives. For calendar year plans, this means that the first fee will be imposed for the current 2012 plan year and for each of the next six years.
Limits on Health FSAs under Cafeteria Plans. Annual salary reduction contributions to health flexible spending accounts will be limited to $2,500, indexed for inflation.
Notice of Health Care Exchange Options. Not later than March 1, 2013, employers must provide a written notice to newly-hired and current employees informing employees: 1) that health care exchanges are available, the services provided by the exchange, and how to contact the exchange; 2) if the employer pays less than 60% of the costs of benefits, that the employee may be eligible for a premium tax credit and a cost-sharing reduction if the employee purchases health insurance from an exchange; and 3) if the employee purchases health insurance through an exchange, that amount is excludable from the employee’s federal income tax liability.
Increase in Medicare Taxes. The employee’s share of the Medicare tax will increase by 0.9%, from 1.45% to 2.35% for earnings over $200,000 for individuals and $250,000 for married couples.
Automatic Enrollment. Employers with more than 200 full-time employees who offer health plans must automatically enroll new full-time employees in their health care plan, subject to any waiting period authorized by law. Employers must provide an opportunity for employees to opt out of employer-sponsored health insurance in which they have been automatically enrolled.
Waiting Periods Limited. Waiting periods under a group health plan or self-insured plan cannot exceed 90 days.
Annual Reports. Employers with 50 or more full-time employees must file an information return in a form to be established by the Secretary of the Treasury containing 1) the employer’s name and employer identification number, 2) a certification as to whether the employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, 3) the number of full-time employees for each month during the calendar year, 4) the name, address and TIN of each full-time employee during the calendar year and the months during which such employee was covered under a health plan. In addition, the employer must provide a written report to each employee listed in that report that includes the name and contact information for the person filing the return and the information required to be shown on the return for such employee. The report to employees is due by January 31 of the year following the year for which the return is required to be submitted to the Secretary.
Penalty for Failing to Provide Health Coverage. Employers with 50 or more full-time employees that do not offer minimum essential coverage and have at least one employee receiving a premium assistance tax credit or cost-sharing premium assistance will be required to pay an annual penalty of $2,000 per full-time employee, exempting the first 30 full-time employees.
Penalty for Offering “Unaffordable” Health Coverage. Employers with 50 or more full-time employees, offer minimum essential coverage and have at least one employee receiving a premium assistance tax credit or cost-sharing premium assistance will be required to pay an annual penalty equal to the lesser of: 1) $3,000 for each employee who receives a credit or cost-sharing assistance because a) the employer pays less than 60% of the full actuarial value of the coverage provided or b) the employee’s premium is greater than 9.5% of his or her household income; or 2) $2,000 per full-time employee.
Free Choice Vouchers. Employers that pay a portion of the premiums for health coverage will be required to provide “free choice vouchers” to certain low-income employees who elect not to participate in the employer’s health plan. To be eligible for the free choice voucher, the employee must have a household income not exceeding 400% of the poverty level and is required to contribute between 8% and 9.5% of his household income toward the cost of the employer-provided health coverage. The “free choice voucher” is equal to the monthly portion of the cost of coverage that the employer would otherwise have paid if the employee was covered under the employer’s plan and is used by the employee to purchase health care coverage through an exchange. If the amount of the voucher exceeds the cost of the premiums for the exchange health coverage, the employee may retain the excess amount. The amount of the free choice voucher is deductible by the employer.
"Cadillac Plan" Tax. A nondeductible 40% excise tax will be levied on the annual value of health plan costs for employees that exceed $10,200 for individual coverage and $27,500 for family coverage. The tax will be paid by employers, either through increased premiums on an insured plan or directly in a self-insured plan.
Although forthcoming regulations will provide much needed guidance on the implementation of many of the Act’s provisions, employers should now begin reviewing their health plans, assess whether any plan design changes are necessary and create administrative and operational strategies to ensure compliance with the Act. We continue to closely monitor the relevant federal agencies as they continue to work on implementation of the complex healthcare law and will provide timely updates as notable developments occur.