Employers should consider the following checklist of new requirements as the nation moves ahead with compliance with the Affordable Care Act ("ACA").

Effective in 2013:

The following list itemizes the changes that generally will become effective in 2013. The effective date depends upon a number of factors, including whether the health plan is grandfathered, the first day of the plan year, the number of employees and the controlled group status of the employer.

  • Women's Preventive Health Care Mandates 

Applicable To: Non-grandfathered plans only

Effective:   Plan years beginning on or after August 1, 2012 (January 1, 2013 for calendar year plan years)

Details: Plans are required to provide in-network coverage with no cost sharing for preventive care such as coverage for contraceptives, contraceptive counseling, breastfeeding support, supplies and counseling, and screening for domestic violence.

  • Reduction in the Maximum Employee Contributions to a Health Flexible Spending Accounts

Applicable To: Only health flexible spending accounts (generally offered under a cafeteria plan)

Effective: January 1, 2013 for calendar year plan years  

Details: The maximum amount that an employee can contribute to a health flexible spending account on a pre-tax basis cannot exceed $2,500 per taxable year.  While the reduced limit was effective January 1, 2013 (or the first day of the plan year beginning after January 1, 2013 for plans with fiscal years), employers have until December 31, 2014, to adopt amendments to reflect this reduced limit.

  • Annual Benefit Limits

Applicable To: Health plans other than health flexible spending accounts, health reimbursement accounts, and medical savings accounts  

Effective: Generally only for the 2013 plan year (see below for changes in 2014)

Details: The annual limit on the dollar value of essential health benefits cannot be less than $2 million.

  • Reporting the Cost of Group Health Insurance Coverage on Forms W-2

Applicable To: Employers that issued at least 250 Forms W-2 for 2012 (transition relief applies to exclude employers that issued fewer than 250 Forms W-2 for 2012, and certain types of plans)

Effective: For the 2012 W-2s which were issued by January 31, 2013  

Details: The Forms W-2 issued by employers in early 2013 were required to report the value of any health coverage provided to each employee in 2012, regardless of who paid the premium for that coverage. 

  • Summary of Benefits and Coverage and Notices of Material Modification

Applicable To: Group health plans other than certain "excepted benefits"

Effective: For open enrollment periods beginning on or after September 23, 2012 and for plan years beginning after that date.  

Details: Employer health plans must provide a Summary of Benefits and Coverage (SBC) to all plan participants, as well as to all employees who are eligible to participate.  If the employer makes a mid-year change in the plan provisions that would change the terms of the SBC, the plan also must provide a Notice of Material Modification at least 60 days before the change takes effect.

  • Additional Medicare Tax Withholding

Effective: January 1, 2013  

Details: An employer is required to withhold an additional 0.9% Medicare tax on an employee's compensation in excess of $200,000.  The additional tax does not have an employer matching requirement.

  • Taxation of the Retiree Drug Subsidy

Effective: January 1, 2013  

Details: Employers who were providing retirees with prescription drug coverage that was generous enough to qualify for a federal tax subsidy will no longer be allowed to deduct all of those expenses.

  • Patient-Centered Outcomes Research Comparative Effectiveness Fee

Applicable To: Plan sponsors maintaining a self-insured plan (insurers will pay this for fully-insured plans)  

Effective: First payment is due by July 31, 2013

Details: Plan sponsors must begin to pay a fee (the "PCORI Fee") to the Internal Revenue Service per average covered life ($1 for the first year, $2 for the second year, and increased as permitted in future years) per plan using Form 720.  The payment is due in July based on numbers applicable to the prior plan year.  These fees will be used to fund the new nonprofit corporation, the Patient-Centered Outcomes Research Institute, to support clinical effectiveness research.  Some rules permit the limited aggregation of plans.

  • Notice of Exchange (Marketplace) Availability 

Applicable To: Employers subject to the Fair Labor Standards Act

Effective: October 1, 2013

Details: Employers must provide a notice to employees concerning the availability of health coverage through the state-wide exchanges.  The notices will explain some of the benefits and consequences to employees if they choose to purchase a qualified health plan through the state exchange instead of electing coverage under an employer-sponsored health plan.  Model notices are now available on the Department of Labor's website.

  • Certification of Compliance to Health and Human Services (HHS)

Effective: By December 31, 2013  

Details: Group health plans must file a certification statement with HHS certifying that their data and information systems for the plan are in compliance with the HIPAA standards and operating rules for health plan eligibility, electronic funds transfer, health claim status, health care payments, and remittance advice transactions.

Effective in 2014:

The following list itemizes many of the changes that generally will become effective in 2014.  The effective date depends upon a number of factors, including whether the health plan is grandfathered, the first day of the plan year, and the number of employees.

  • No Pre-Existing Condition Exclusions

Effective: Plan years beginning on or after January 1, 2014

Details: No plan can impose any pre-existing condition limitation on any participant, regardless of age (prior to 2014, pre-existing condition limitations were prohibited for children younger than 19).

  • Clinical Trial Coverage

Applicable To: Non-grandfathered plans

Effective: Plan years beginning on or after January 1, 2014  

Details: Plans may not (1) deny a qualified individual's participation in an approved clinical trial, (2) deny, limit, or impose additional conditions on coverage of routine patient costs for items and services furnished in connection with the trial, or (3) discriminate against the individual based on trial participation.

  • New Incentive Standards for Wellness Plans

Effective: For plan years beginning on or after January 1, 2014  

Details: Wellness programs can increase incentives (rewards or penalties) provided for meeting health factor standards from 20% to 30% of the total cost of the applicable coverage.  Rules allow an additional 20% incentive to be provided to the extent that the additional incentive is used in a program designed to prevent or reduce tobacco use.

  • Nondiscrimination Against Health Care Providers

Applicable To: Non-grandfathered health plans

Effective: Plan years beginning on or after January 1, 2014

Details: Plans cannot discriminate with respect to plan participation or coverage against any health care provider acting within the scope of that provider's license or certification.  Plans can still require a provider to abide by its terms and conditions, and can still establish varying rates of reimbursement based on quality or performance matters.

  •  Nondiscrimination Based on Health Status

Applicable To: Non-grandfathered plans

Effective: Plan years beginning on or after January 1, 2014  

Details: Nondiscrimination requirements applicable to group health plans are now applicable to health insurers offering individual coverage.

  • No Annual Benefit Limits

Applicable To: Group health plans, including health reimbursement accounts (but not health flexible spending accounts)

Effective: For plan years beginning on or after January 1, 2014

Details: No plan may impose an annual limit on essential health benefits.  HRAs will violate this requirement unless the HRA is integrated with other group health plan coverage that satisfies this rule.  An employer-sponsored HRA will not be treated as integrated if it provides benefits to employees who do not enroll in the other coverage.  Amounts credited to an HRA before January 1, 2014, are not subject to these rules.

  • Coverage of Older Children

Effective: For plan years beginning on or after January 1, 2014

Details: Plans (including grandfathered plans) now will have to extend eligibility to all children until age 26, even if they were eligible for other employer-sponsored coverage.

  • Essential Health Benefits

Applicable To: Non-grandfathered, fully-insured plans in the individual and small group markets only

Effective: Plan years beginning on or after January 1, 2014  

Details: Plans will be required to cover essential health benefits, which include items and services in ten statutory benefit categories, and provide a minimum level of coverage as specified in ACA.

  • Cost Sharing Limitations

Applicable To: Non-grandfathered plans

Effective: Plan years beginning on or after January 1, 2014

Details: For all plans, self-only and coverage other than self-only cannot exceed the maximum out-of-pocket expense limits for self-only and family coverage for HSA-compatible high deductible health plans. In the small group market, the deductible cannot exceed $2,000 for a plan covering a single individual or $4,000 for any other plan.

  • Fair Health Insurance Premiums

Applicable To: Non-grandfathered plans in the small group market.

Effective: Plan years beginning on or after January 1, 2014  

Details: Insurers may only vary premium rates with respect to a plan based on coverage category, rating area, age, and tobacco use.

  • Guaranteed Availability and Guaranteed Renewability of Coverage

Applicable To: Non-grandfathered insured plans

Effective: January 1, 2014  

Details: The rules apply now to the large group market (generally employers that employed an average of more than 100 employees during the preceding calendar year, but special rules apply for plan years beginning before January 1, 2016).

  • 90-Day Limit on Eligibility Waiting Periods

Effective: Plan years beginning on or after January 1, 2014  

Details: Plans no longer will be allowed to impose waiting periods for eligibility which are longer than 90 days.  An employee also must be allowed to enter the plan by the 91st day after satisfying that eligibility requirement.

  • Transitional Reinsurance Payments

Applicable To: Self-insured and insured group health plans other than excepted benefits

Effective: Calendar years 2014-2016  

Details: Insurers and third party administrators will be required to pay on an annual basis, a fee (in addition to the PCORI Fee) to support the transitional reinsurance program on behalf of insured and self-funded plans.  The transitional reinsurance program is designed to help stabilize premiums for coverage in the individual health insurance market.  The fees will be distributed to insurers selling coverage on the exchanges to offset the cost of covering individuals with high claims.  HHS has proposed annual fees equal to $63 per covered individual for 2014.  Generally, payments will be made to HHS in December.  The fees are expected to decrease in 2015 and 2016.

  • Pay or Play - The Shared Responsibility Penalty

Applicable To: Employers with 50 or more full-time employees (including full-time equivalents) in the prior calendar year

Effective: January 1, 2014 (with special transition rules for certain non-calendar year plans).  

Details: An employer will need to pay penalties if it either fails to offer health coverage to full-time employees or offers coverage that is either unaffordable or does not provide minimum value.  More information is provided below regarding this important requirement.

  • Reporting of Health Insurance Coverage

Applicable To: Insurers, employers that self-insure and large employers  

Effective: Coverage provided on or after January 1, 2014 (but first forms will not be filed until 2015)

Details: Any individual who provides "minimum essential coverage" during a calendar year must provide specific information to the IRS. In addition, large employers are required to report to the IRS and full-time employees whether they offer full-time employees and their dependents the opportunity to enroll in minimum essential coverage.

Focusing on the Pay or Play Mandate

Guidance has been issued that can help large employers determine how they will adapt to the Pay or Play Mandate beginning in 2014.

These rules define a large employer as an employer who employed an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year.  Regardless of how an employer has categorized its employees in the past, for purposes of these rules, full-time employees are generally employees who are employed to work on average at least 30 hours per week.   These rules apply the traditional controlled group rules, so for purposes of determining whether the employer is subject to the Pay or Play Mandate, the employees of all of the employers in the same controlled group or affiliated service group will be counted.  Controlled group status may also impact the amount of penalty that may be imposed.

Under the general rules, if the employer fails to offer its full-time employees and their dependents group health coverage and at least one full-time employee receives premium assistance to purchase health coverage through an exchange, the no-coverage penalty is $166.67 per month per full-time employee (but excluding the first 30 such employees from the calculation).

If the employer offers health coverage that is unaffordable or does not provide minimum value and at least one full-time employee receives premium assistance to purchase health coverage through an exchange, the penalty is $250 per month for each full-time employee receiving premium assistance, but not to exceed the amount of the no-coverage penalty above.  For purposes of this rule, coverage is affordable if the employee's portion of self-only coverage for the employer's lowest-cost coverage that provides minimum value does not exceed 9.5% of the employee's household income for the taxable year.  Under current guidance, the IRS has provided 3 safe harbors for purposes of determining affordability: (1) the employee's wages reported on Form W-2; (2) the employee's rate of pay based on projected monthly income; or (3) the federal poverty line. The IRS also has offered three different methods for determining whether a plan provides the required minimum value: (1) a minimum value calculator, (2) a design-based safe harbor based on certain criteria, and (3) actuarial certification.

The IRS has issued (optional) safe harbors to help employers determine who is a full-time employee for purposes of the Pay or Play Mandate.  The safe harbors depend upon whether the employee is a new or ongoing employee. 

  • If a new employee is reasonably expected to work full-time (an average of at least 30 hours per week), then the employee will be counted for purposes of any applicable penalty, subject to the plan's waiting period.
  • For a newly hired variable or seasonal employee, the employers may use an initial measurement period to determine whether the employee is full-time for the prospective period. The initial measurement period must be between three and 12 months.  The employee's status then applies for a stability period.  
  • For ongoing employees, the employer has to use look back period to determine status as a full-time employee.  If the employee is determined to be a full-time employee during the standard measurement period, then that status will continue for the stability period.

Employers have some discretion in determining the length of the measurement periods, stability periods, and administrative periods for determining an employee's status.

While we still are waiting for additional guidance on a number of these different rules, employers can take some steps now to determine their options.  Those steps include:

Gather Information:

  • Identify whether employees would fit the definition of full-time employees under these requirements and determine whether those employees (and their dependents) are considered eligible for coverage now. 
  • Identify whether the waiting periods applicable to the health plan may need to be reduced to less than 90 days.

Analyze and Evaluate:

  • Analyze the potential costs based on the following variables: ◦The cost of providing coverage to employees who now meet the requirements of full-time employees (and their dependents)
    • The potential penalty amounts for no coverage and unaffordable coverage
    • Whether coverage would be unaffordable for any employee
    • Whether the coverage offered now meets the requirements for minimum value
    • The tax implications
    • Employee relations
    • The need for coverage due to the individual mandate that will apply
    • Recruiting/retention issues
  • Evaluate the current employment classifications and determine whether business needs can be met by reclassifying some employees by reducing work schedules