The United States Supreme Court recently upheld the constitutionality of the Patient Protection and Affordable Care Act (the ACA). In the wake of this historic decision, employers and plan sponsors must continue to timely implement the provisions of the ACA or face potential penalties. For those who delayed implementation of the ACA requirements pending the Court’s ruling, now is the time to review plans and make important decisions. This Alert (1) highlights the significant provisions that should already be in place and (2) summarizes the major requirements that need to be implemented in the coming months and years.
Prior to 2012
By now, health plans of large employers1 should already have made the following significant changes:
- Cover dependents up to age 26 (with a limited exception expiring in 2014 for grandfathered plans).
- Eliminate lifetime limits
- Eliminate annual limits on essential health benefits (with a limited exception expiring in 2014)
- Eliminate preexisting condition exclusions for anyone under age 19.
- Prohibit reimbursement of non-prescribed over-the-counter medications by health flexible savings accounts, health reimbursement accounts and health savings accounts.2
Additionally, the ACA required plans to prohibit discrimination in favor of highly compensated individuals as to eligibility and benefits under non-grandfathered health plans starting in 2011. However, later guidance postponed the effective date of this requirement until final rules are issued.
Commencing in 2012
- W-2 Reporting. Report the aggregate cost of the applicable employer-sponsored health coverage on Form W-2, starting with the Form W-2 issued for 2012.3
- Rebates. If a plan sponsor receives a rebate from an insurer that failed to satisfy the medical loss ratio standards, the plan sponsor must determine how to distribute or apply the rebate as required by ERISA.
- Summary of Benefits and Coverage. Upon enrollment, plan administrators must provide all employees with a summary of benefits and coverage that describes the benefits covered, cost-sharing measures and coverage limitations and exclusions. If there are any material changes to this information, participants must be notified at least 60 days in advance. This summary is in addition to the existing summary plan description requirement.
- Patient-Centered Outcome Research Trust Fund Fee. This temporary fee will fund a non-profit institute that promotes research on health outcomes and different kinds of treatment. The fee is equal to the average number of lives covered by a plan multiplied by $2 (or $1 in the first year). It is imposed on plan sponsors of self-insured plans and insurers of insured plans. For calendar year plans, the fee will apply from 2012 through 2018.
Commencing in 2013
- Cap FSA at $2,500. Contributions to health flexible spending accounts must be capped at $2,500 per year.
- Medicare Part D Deduction. The tax deduction available to employers who maintain prescription drug plans for Medicare Part D eligible retirees will be reduced by the amount of Medicare Part D subsidy payments received.
- Exchange Notices. Employees must receive a notice that describes the state insurance exchanges and explains the employee’s right to purchase insurance through an exchange, the services offered by the exchange and the employee’s potential eligibility for government credits.
- Medicare Taxes. Employers must increase Medicare tax withholding because the employee’s share (but not the employer’s share) of Medicare taxes will increase from 1.45 percent to 2.35 percent for earnings over $200,000 ($250,000 for married couples filing jointly).
Commencing in 2014
- Automatic Enrollment. A large employer with at least 200 full-time employees that offers health coverage must automatically enroll new full-time employees in a health plan it offers unless the employee opts out or elects another employer option.
- No Pre-existing Condition Exclusions. Preexisting condition exclusions are waived for all participants.
- Cost Sharing. Plans must limit deductibles and other cost-sharing measures to levels that apply to a health savings account-compatible high deductible health plan.
- Reduce Waiting Periods. Waiting periods cannot exceed 90 days.
- Pay or Play Penalty. Penalties may apply to large employers if they do not offer affordable “minimum essential coverage.” For example, if an employer does not offer minimum essential coverage under an eligible plan to all of its fulltime employees and their dependents, and if one full-time employee obtains a premium tax credit or a cost-sharing reduction to purchase coverage on an exchange, the employer may be subject to a penalty tax for each month of the violation, up to a maximum of $2,000 per full-time employee per calendar year. Accordingly, employers should begin to determine whether their health plan offerings will satisfy “minimum essential coverage” requirements and model the potential costs to comply with ACA requirements versus incurring penalties for not complying.
- Minimum Essential Coverage Reporting. Each year, a report listing each individual for whom minimum essential coverage is provided must be filed by plan sponsors of self-funded plans and insurers of fully-insured plans. The reporting requirement applies to coverage provided on or after January 1, 2014, so the first information returns will be due in 2015.
Commencing in 2018
- Cadillac Tax. A 40 percent excise tax will be levied on high cost health coverage, such as single individual health coverage with annual aggregate premiums in excess of $10,200 and family health coverage with annual aggregate premiums in excess of $27,500. The tax would be borne employers, either directly for selffunded plans and indirectly for fully-insured plans.
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Although the requirements of the ACA are complex, numerous exceptions and limitations apply. In addition, because several government agencies have yet to issue final rules providing clarity on how these requirements are applied, there are many unanswered questions. However, employers must still plan ahead. For example, when the nondiscrimination rules are issued, employers must determine whether their health plan benefits, including post-termination health care benefits, such as executive retiree medical plans and severance compensation arrangements, comply with the nondiscrimination requirement.4
Therefore, we recommend that employers and plan sponsors review their health plans in order to identify the changes that need to be made to current plans and to decide how to design future ones. Many of these changes will require amending plan documents and notifying participants.