As reported last month in the April 2010 Employee Benefits Update, the Patient Protection and Affordable Health Care Act (the PPACA) became law on March 23, 2010 and was subsequently amended by the Health Care and Education Affordability Reconciliation Act on March 30, 2010. Together, these two pieces of complex and comprehensive legislation have significant long-term implications of health care reform for group health plans. Reinhart has recently published four client alerts that begin to describe many of these long-term impacts: (Health Care Reform: A Brave New World?, Health Care Reform: What Employers Need to Know for 2010 and 2011, IRS Issues Guidance on Tax Exclusion for Health Care Coverage of Adult Children and Health Care Reform: Early Retiree Reinsurance Program). Reinhart anticipates publishing additional client alerts as the agencies publish guidance.
The following highlights several provisions of PPACA that have a short-term impact or impact smaller groups of employees. These provisions may not be addressed in more detail by other Reinhart client alerts:
- Impact on Executive Compensation. Effective on or after January 1, 2011, the nondiscrimination rules of Internal Revenue Code (the Code) section 105(h) will begin to apply to nongrandfathered insured health plans. Code section 105(h) generally prohibits discrimination in favor of highly compensated employees. Employers that add a post-retirement medical arrangement for executives after March 23, 2010 that is funded through a separate insurance policy must comply with the nondiscrimination testing requirements of Code section 105(h). However, the plan designs most often used for these arrangements will not pass these requirements. Alternative plan designs for these arrangements will need to be analyzed to avoid the negative tax consequences resulting from a failure to comply with Code section 105(h).
- Work Breaks for Nursing Mothers. Effective as of March 23, 2010, PPACA amended the Fair Labor Standards Act to impose new requirements on employers with respect to nursing mothers. Any state laws providing greater protections to nursing mothers still apply.
- Employers must provide reasonable break time for a nursing mother to express milk until the nursing child is one year old. These breaks must be long enough for the employee to express milk and must be provided each time that the employee has a need to express milk. We note that this amendment was added to a section of the Fair Labor Standards Act that does not apply to salaried exempt employees, although employers could extend this opportunity to all employees.
- A private place other than a bathroom must be provided for the breaks.
- The employer is not required to compensate an employee for these breaks.
- Employers with fewer than 50 employees are not required to comply with the new law if providing reasonable break time or providing a private place would impose an "undue hardship." Undue hardship means causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature or structure of the employer's business.
- Elimination of Tax Deduction for Medicare Part D Subsidy Has Immediate Impact on Financial Statements. Employers who receive the Medicare Part D subsidy will no longer be permitted to deduct the amount of the subsidy beginning in 2013. Pursuant to accounting rules, this change in the tax law must be immediately recognized in the employer's income statement for the period that includes the enactment date (March 23, 2010). Therefore, this change will have an immediate impact for employers that receive the Part D subsidy and have deferred tax assets on their balance sheet for the future tax deduction of retiree medical expenses. Several large employers have tried to lobby Congress to repeal this provision. To date, Congress has not taken any such action. Employers who carry this deferred tax asset on their financial statements and have not yet adjusted their first quarter financial statements should do so as soon as practicable.
- Small Business Tax Credit. PPACA added a small employer tax credit for small businesses and tax-exempt organizations that provide health coverage to their employees. Beginning in 2010, a small employer tax credit of 35% of premiums paid (25% for tax-exempt organizations) is available to employers with 10 or fewer full-time equivalent (FTE) employees and average annual wages of $25,000 or less that contribute at least 50% of the premium cost of single coverage for enrolled employees. The credit phases out for employers with 10 to 25 FTE employees and those with average annual wages between $25,000 and $50,000. This credit is available for the employer's 2010 tax return. More information about the credit, including details regarding how the credit works and how an employer becomes eligible, can be found on the IRS website at http://www.irs.gov/newsroom/article/0,,id=220839,00.html.
Additional resources that may provide helpful information on PPACA are:
- The Fact Sheets published by the White House on http://www.whitehouse.gov/briefing-room/statements-and-releases; and
- The Department of Health and Human Resources Web site, www.healthreform.gov.