On January 1, 2014, the most significant provisions of the Patient Protection and Affordable Care Act (the “ACA”) will apply to large employers. While some ACA rules have been in effect for some time, such as the extension of dependent coverage up to age 26, the coverage and responsibility requirements applicable to large employers and individuals become effective next year. However, the ACA requires action from employers this year in order to comply with the ACA’s employer responsibility requirements, as well as other requirements of the ACA. Now is the time for employers to focus on a list of critical tasks that must be completed to ensure compliance with the ACA and avoid any penalties. In addition, employers must take action this year to comply with the final HIPAA rule and the final wellness regulations.
Employers should review the items on the following list and take action where needed to ensure that they will be in compliance with these requirements and deadlines:
Determine whether the ACA requires the employer to provide coverage or pay a penalty. Effective January 1, 2014, large employers will be required to make adequate, affordable health coverage available to full-time employees or pay a penalty, and most individuals will be required to be enrolled in health coverage or pay a penalty. Employers with 50 or more full-time employees (or full-time equivalents) are considered “large employers” and may be subject to a shared responsibility penalty if they do not offer a health plan with adequate, affordable coverage to at least 95% of full-time employees. Employers with fewer than 50 full-time employees are not required to provide coverage. Part-time employees and their hours worked count in aggregate to determine the number of full-time equivalent employees of an employer. The total number of full-time employees and full-time equivalent employees is used to determine whether an employer meets or exceeds the 50 employee threshold.
Identify full-time employees. In general, a full-time employee is an employee who works, on average, 30 hours per week. The IRS has issued guidance to help employers determine whether employees are considered full-time under the ACA. Employers must carefully examine the hours of part-time employees to ensure that they do not work enough to be considered full-time employees. If it is determined that an employee considered ineligible for coverage due to part-time status is actually considered full-time under IRS guidance, and that employee seeks coverage through an exchange, the employer would be subject to a penalty.
Provide coverage that is affordable and adequate to avoid a penalty. If it is determined that an employer is a large employer for a given year, the employer must offer affordable, adequate employer-sponsored health coverage to at least 95% of its full-time employees to avoid the risk of a penalty. The employer is not required to offer coverage to part-time employees.
To be considered affordable coverage under the ACA, an employee’s required contribution for employee-only health coverage through the employer cannot exceed 9.5% of the employee’s household income. Because employers will generally not know an employee’s household income, employers may rely on certain affordability safe harbors when designing contribution strategies. For example, employers may look at an employee’s W-2 wages (Box 1). Coverage will be deemed affordable for purposes of the employer penalty if the employee’s required contribution for employee-only coverage is not more than 9.5 percent of his or her W-2 wages. In addition, the plan offered by the employer must meet the 60% minimum value test. Coverage meets the 60 percent minimum value test if the coverage has an actuarial value of at least 60 percent – this means that on average the plan is designed to pay at least 60 percent of covered charges. (The employee would be responsible for the other 40 percent through the deductible, copays, and coinsurance.) Employers should review their plans to determine if the coverage provided meets these minimum requirements.
Understand what penalties apply if an employer does not comply with the requirements of the ACA. There are two different penalties that may apply to an employer if an employee seeks coverage through an exchange. If a large employer does not offer coverage to at least 95% of its employees, and a full-time employee obtains insurance through a health care exchange and qualifies for a premium credit or cost-share reduction, the employer is subject to a “shared responsibility” penalty of $2,000 per year multiplied by the total number of full-time employees of the employer, excluding the first 30. If a large employer does offer coverage, but full-time employees choose to enter the exchange and qualify for a premium credit or cost share reduction because the offered coverage is not affordable and/or does not meet the minimum value test, the penalty is the lesser of (1) $3,000 annually for each employee entering the exchange, or (2) the penalty calculated for employers not offering insurance at all ($2,000 per year times the number of full-time employees, excluding the first 30).
If an employer provides employee-only coverage that meets the minimum value test and is affordable for full-time employees, the employer will not be subject to a penalty if an employee forgoes employer-provided coverage and instead obtains coverage through an exchange. If part-time employees obtain health insurance through an exchange, the employer is not subject to a penalty regardless of whether the employer is in compliance with the requirements of the ACA.
Have a basic understanding of how the Health Insurance Exchanges will work. Employers who provide health coverage to their employees should have an understanding of how the health insurance exchanges will operate. The exchanges are meant to offer affordable, quality health insurance to small employers and individuals purchasing their own health coverage. These groups have historically had trouble obtaining affordable plans that meet the current standards of health care under the ACA. Although the exchanges are available to everyone, those who have other options that meet the standards of the ACA will not receive financial help. This includes those who earn over 400% of the poverty level. Workers who are eligible for health insurance through an employer can use the exchanges. However, they may not be eligible for premium tax credits or cost-sharing reductions, unless their employer-provided coverage is inadequate or unaffordable. If an employee goes to an exchange and applies for a premium assistance tax credit, he or she will only qualify for assistance if his or her group health plan coverage is either unaffordable or does not meet the 60 percent minimum value test.
Individuals shopping for insurance on an exchange will be able to compare policies sold by different companies. Purchasing insurance can be confusing, so information on the plan benefits will be standardized in an effort to make it easier to compare cost and quality. Plans will be divided into four different types, based on the level of benefits: bronze, silver, gold, and platinum. The exchanges are also required to operate toll-free hotlines to help consumers choose a plan, determine eligibility for federal subsidies or Medicaid, rate plans based on quality and price and conduct outreach and education.
Understand what the coverage sold on the exchanges look like. Plans will have to offer a set of "essential benefits", which includes coverage for hospital, emergency, maternity, pediatric, drug, lab services and other care. Participants will have to pay some of the cost of coverage, called cost-sharing. Cost-sharing includes any expenditure required by or on behalf of a participant with respect to essential benefits, such as deductibles, co-payments, co-insurance and similar charges. The ACA caps the cost-sharing limit allowed for coverage by tying it to the enrollee out-of-pocket maximum for HSA-compatible high deductible health plans (HDHPs). There are separate limits for employee-only coverage and family coverage. For 2013, the HDHP out-of-pocket maximum cannot exceed $6,250 for employee-only coverage and $12,500 for family coverage. For 2014, the HDHP out-of-pocket maximum cannot exceed $6,350 for employee-only coverage and $12,700 for family coverage.
Pay the Patient-Centered Outcomes Research Institute fee. The first payment of the Patient-Centered Outcomes Research Institute fee (the "PCORI" fee) is due July 31, 2013, regardless of the plan year of the health plan. The recently revised IRS Form 720, along with payment voucher Form 720-V, should be used to report and remit the PCORI fee to the IRS. Although the Form 720 is designed for quarterly payments of certain excise taxes, the PCORI fee is paid annually. This fee is $1.00 per participant (including employees and dependents) for the first year and $2.00 for the next year. For policy or plan years ending on or after Oct. 1, 2014, the fee will be increased based on increases in the projected per capita amount of national health expenditures. Health insurers will be responsible for filing the form and paying the fee for insured plans; a plan sponsor of a self-insured plan is responsible for filing and payment of the fee for a self-insured plan.
Provide Employees with the Notice of Marketplace Coverage Options. The ACA requires employers to provide employees with a notice of their options under the health care exchanges. The notices must be provided to each employee when hired, or with respect to current employees, not later than October 1, 2013. For 2014, the notice must be provided within 14 days of the employee’s hire date. The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail, or it may be provided electronically if the requirements of the Department of Labor’s electronic disclosure safe harbor are met. The DOL has released two model notices; one is for employers that provide health coverage and one for employers that do not. These models can be used to satisfy the notice requirement, and can be found on the DOL’s website (www.dol.gov/ebsa/healthreform).
Review policies, procedures, and agreements for compliance with HIPAA final rule. The HIPAA final rule governing privacy and security of health care information became effective March 26, 2013. Covered entities generally have 180 days from the effective date to comply (until September 23, 2013. However, covered entities and their business associates have an additional year to comply with respect to certain existing agreements. The final rule expands the coverage of the HIPAA privacy and security rule, and expands liability for violations to business associates of HIPAA covered entities.
Review wellness programs for compliance with final regulations. The Department of Health and Human Services recently issued final HIPAA wellness regulations that are effective for plan years beginning on or after January 1, 2014. These regulations include a number of important changes from the November 2012 proposed rules, including an increase in the amount of reward or penalty a plan can offer. Existing wellness programs should be reviewed to ensure that they comply with the final regulations and to evaluate whether any design changes might be appropriate.