Following the election and with the end of the year approaching, employers should evaluate the requirements under the Affordable Care Act that apply to their group health plans. This alert provides a brief overview of year-end requirements as well as considerations for next year.
- Summary of Benefits and Coverage (SBC). The SBC is a new benefits summary that must be provided to participants and beneficiaries in group health plans. The SBC requirements apply to group health plans as of (1) the first day of the first open enrollment period beginning on or after September 23, 2012, with respect to participants and beneficiaries who enroll or re-enroll through an open enrollment period, and (2) the first day of the first plan year beginning on or after September 23, 2012 (that is, January 1, 2013, for calendar-year plans), with respect to participants and beneficiaries who enroll outside the open enrollment period.
- $2,500 Health Flexible Spending Account (Health FSA) Limit. Health FSAs reimburse participants for eligible medical expenses from contributions made to their accounts. Under the Affordable Care Act, employers must now limit employee salary reduction contributions to a Health FSA to $2,500, generally beginning January 1, 2013. Employers have until December 31, 2014, to amend their plans to reflect the limit, but plan operations should reflect the limit beginning in 2013.
- 0.9% Additional Medicare Tax. Employers and employees currently each pay a Medicare tax of 1.45% on wages. Beginning in 2013, employers must withhold an additional 0.9% payroll tax as part of the employee portion of the Medicare tax for certain higher income employees. Although the additional tax is imposed on wages in excess of $200,000 for single filers ($125,000 for married individuals filing separately and $250,000 for joint filers), employers must nevertheless withhold the additional tax on behalf of all employees who have annual wages in excess of $200,000, regardless of their marital or tax return filing status.
- Form W-2 Reporting For Health Coverage. The Affordable Care Act has added a new reporting requirement for the IRS Form W-2. Now, the cost of employer-sponsored health coverage must generally be reported on an employee's Form W-2 beginning with the 2012 Form W-2 issued in January 2013, subject to certain exceptions for small employers.
- Patient Centered Outcome Research Fee. Beginning in 2012 and through 2018, a new fee will be imposed on employers that sponsor self-funded group health plans and on the insurers of fully-insured group health plans. The amount of the fee is $1 per covered individual for the first plan year ending on or after September 30, 2012; $2 per covered individual for the following plan year; and an amount increased for inflation thereafter. For self-funded plans, employers will need to pay the fee using IRS Form 720 by the July 31 coinciding with or next following the end of each plan year.
- Elimination of Tax Deduction for Retiree Drug Expenses. Currently, an employer sponsoring retiree prescription drug coverage may be entitled to the tax-free treatment of the Medicare Part D subsidy received by the employer for a portion of its expenses incurred in sponsoring the coverage as well as a tax deduction for the full amount of those expenses. Beginning in 2013, employers may no longer be able to claim the tax deduction.
- Notice Regarding Exchanges. The Affordable Care Act requires employers to notify employees about the health insurance exchanges and the availability of federal tax credits to purchase health insurance coverage. This notice requirement is effective March 1, 2013 (or the date of hire thereafter for new employees), although no guidance has yet been issued on the notice. Employers should be prepared to provide the required notice in early 2013 and look for any guidance that may be issued in the meantime.
2013 will also be the year for employers to evaluate generally whether they will provide coverage in 2014 that will meet the minimum essential coverage and related affordability requirements under the Affordable Care Act to avoid the imposition of the penalty tax.