On June 28, 2012, the United States Supreme Court upheld nearly every provision of the Patient Protection and Affordable Care Act, referred to colloquially by the general public as "Obamacare" (the "Act"). Now that President Obama has been re-elected and the Act declared constitutional, there are no material obstacles preventing the Act from becoming effective. The Act contains many new group health plan requirements and administrative responsibilities for employers, some of which have already taken effect and many of which have fast approaching compliance deadlines. Accordingly it is imperative that employers become familiar with the Act and are cognizant of when certain key provisions take effect.
Provisions Effective in 2012
- As of August 1, 2012, health insurers who do not spend at least 80% to 85% of premium dollars on medical care claims and the improvement of health care qualities (the "medical loss ratio") must provide rebates to their enrollees. Employers who provide health coverage and receive a medical loss ratio rebate should have procedures in place to determine how rebates are apportioned. Employers should review their plan information to determine whether they are obligated to pay the rebate directly to employees or use the rebate for the benefit of employees.
- For group health plans that have open enrollment on or after September 23, 2012, employers must provide employees with a summary of their benefits and coverage. The summary must be distributed to employees at enrollment, upon renewal, and within seven days of an employee request. The U.S. Department of Health and Human Services ("DHHS") has adopted rules setting forth the format of the summary. Employers must ensure that their summaries of benefits and coverage are compliant with applicable rules and distributed to employees at the appropriate times.
- Employers and insurers who offer health plans that expire between October 1, 2012 and October 1 2013 will face an excise tax that will be used to support research on the effectiveness of different treatment options. The fee will be $1 per person covered for the first year, and rise to $2 per person the following year.
Provisions Effective in 2013
- Beginning with the 2012 tax year, employers filing 250 or more Form W-2s must report the cost of employer-sponsored health coverage on W-2s issued in 2013. Both employer and employee contributions must be included in the amount reported.
- For taxable years beginning on or after January 1, 2013, employers are required to report any Medicare Part D subsidies they receive as taxable income.
- For plans beginning on or after January 1, 2013, employees' health flexible spending arrangements' ("FSA") salary reductions will be limited to $2,500 per FSA plan year.
- With respect to wages earned on or after January 1, 2013, employees will be required to pay an additional Medicare tax of 0.9% on wages above $200,000 ($250,000 for married couples filing jointly). The employer's share of the Medicare tax will not change, but employers will need to update payroll systems to ensure that proper employee withholdings are made.
- By March 1, 2013 employers must provide written notice to employees providing information about the availability of state health exchanges. Notice must comply with Department of Labor ("DOL") guidance that is expected to be issued shortly.
Provisions Effective in 2014
While certain parts of the Act have already become effective or will become effective shortly, the Act's full impact on employers will be felt in 2014 when the "employer mandate" provision becomes effective.
- Beginning in 2014, employers with 50 or more full-time employees (including full-time equivalent employees) must offer full-time employees and their dependents "qualified health insurance coverage" that meets affordability and value requirements specified by the Act.
- If an employer fails to provide health insurance to full-time employees, the employer will pay a penalty equal to $2,000 per full-time employee (with a credit for the first 30 employees, i.e., $60,000).
If the employer provides health insurance, but fails to meet affordability or value requirements established by the Act, the employer will be subject to a penalty that will be the lesser of (a) $3,000 for each full-time employee receiving subsidies under the state health exchange or (b) $2,000 per full time employee (with a credit for the first30 employees, i.e., $60,000).
Other Requirements for Which Guidance is Forthcoming
While many significant aspects of the Act begin to take effect in 2014 or earlier, a number of provisions have been delayed until further guidance is released. However, these provisions will inevitably impact many employers, and accordingly, should remain on employers' radars.
- Originally set to take effect in 2014, the Act prohibits employer-sponsored health plans from discriminating in favor of highly compensated employees. Pending future regulatory guidance, employers should begin revising the types of benefits offered to their employees, particularly with respect to executive level employees.
- Employers with more than 200 full-time employees must automatically enroll employees in a health care plan unless an employee affirmatively opts-out. Employers must also provide notice of automatic enrollment and of the procedures for opting-out of the health plan. Until regulations are issued, employers are not required to comply with the automatic enrollment requirements.
What This Means To You
The Act imposes numerous new administrative tasks for employers. Accordingly, employers should take the following steps to reflect the changes already implemented under the Act and those that will soon become effective:
- Review group health plan documents to ensure that they are in compliance with the Act.
- Prepare to report the cost of 2012 employer-sponsored health care coverage on 2013 W-2s.
- Ensure that summaries of benefits and coverage are distributed to employees at the appropriate times and are compliant with DHHS rules.
- Plan for the payment of the new excise tax if your plan expires during the applicable time period.
- Consider changes to payroll processing, particularly with respect to the increased employee Medicare tax withholdings.
- Be on the lookout for upcoming regulatory guidance.
- Engage in a cost-benefit analysis to determine whether it is more cost efficient to continue providing group health coverage or pay the statutory penalty under the "pay or play" employer mandate.