This Advisory addresses the requirements of the Patient Protection and Affordable Care Act (commonly referred to as “Health Care Reform”) that become effective in 2013 and require decisions or actions by employers who sponsor group health plans.
W-2 Reporting For 2012 Benefits
As noted in our 2012 Healthcare Reform Advisory, employers with more than 250 employees are required to report the aggregate cost of health benefits provided to each employee on their 2012 W-2 Forms (which are generally due January 31, 2013). Employers must report this amount in Box 12, using Code DD. This requirement does not change the taxation of employer-sponsored health coverage; rather, the reporting is for informational purposes only, intended to help employees understand how much their employer contributes toward the cost of their health care coverage.
Health Care FSA Contributions Limited to $2,500
Effective for plan years beginning on and after January 1, 2013, employer-sponsored cafeteria plans must limit employee annual salary reduction contributions to health flexible spending arrangements (“HCFSAs”) to $2,500. The $2,500 limit applies to individual employee participants on a plan year basis and will be indexed for cost-of-living adjustments for plan years beginning on and after January 1, 2014.
The $2,500 limit generally does not apply to employer non-elective health FSA contributions, health savings accounts (“HSAs”) or health reimbursement arrangements (“HRAs”). It also does not apply to salary reduction contributions to cafeteria plans that are used to pay an employee’s share of health coverage premiums. The new $2,500 limit does not apply to expenses incurred in 2013 but paid from amounts contributed in 2012 when the reimbursement is made pursuant to the IRS’ special grace period provision for HCFSAs.
While HCFSAs must be operated in accordance with the new $2,500 limit beginning with the 2013 plan year, employers have until December 31, 2014 to adopt the required written amendments to HCFSA documents to include the $2,500 limit.
Employers Must Notify Employees About Exchanges
Beginning March 1, 2013, employers are required to provide all current employees and subsequent new hires with a written notice of the existence of the health benefit Exchange in their state (“Notice of Exchange”), which must be operational by July 2014. The Notice of Exchange must provide certain details regarding the Exchange, including the consequences of an employee’s decision to purchase a qualified health plan through the Exchange in lieu of employer-sponsored coverage, and the potential loss of any employer contribution toward the cost of employer-provided coverage, which may be excludable for federal and state income tax purposes. The Department of Labor is expected to issue a model Notice of Exchange.
Additional Medicare Hospital Insurance Tax Withholding Required
Effective January 1, 2013, employers must withhold an additional 0.9% of wages and other compensation (including salaries, vacation allowances, bonuses, commissions, and fringe benefits) paid to an employee earning more than $200,000 in a calendar year.
The additional tax will raise a high-income individual’s Medicare tax rate from 1.45% to 2.35%. The additional Medicare tax is paid solely by employees and does not have to be matched by employers. However, the obligation to withhold the additional tax is imposed on employers. Failure to withhold and deposit the additional Medicare Tax may subject an employer to penalties and interest.
Expanded Coverage for Women’s Preventive Care Services Required
Non-grandfathered plans are required to provide coverage for expanded women’s preventive services rendered by in-network physicians and other health care professionals with no cost sharing. Preventive care services include well-woman visits, screening for gestational diabetes, human papillomavirus testing, counseling for sexually transmitted infections and HIV, contraception, breastfeeding support and supplies, as well as screening and counseling for interpersonal and domestic violence.
A plan may impose cost-sharing requirements for covered services in addition to the recommended preventive services, as well as for services rendered by out-of-network providers.
Patient-Centered Outcomes Research Institute Fee
Health insurers and self-funded group health plan sponsors are required to pay a research fee for each plan year that ends on or after October 1, 2012, and before October 1, 2019, to fund the Patient-Centered Outcomes Research Institute. (The Institute is tasked with conducting research to evaluate and compare health outcomes and clinical effectiveness, risk and benefits of medical strategies that treat, manage, diagnose, or prevent illness or injury so as to assist patients, clinicians, purchasers, and policymakers in making informed health decisions.)
For calendar-year self-insured plans, the first payment will be due by July 31, 2013, for the 2012 plan year. For the first plan year ending between October 1, 2012, and October 1, 2013, the fee equals $1 per covered life, based on the average number of covered lives under the plan, which is determined using one of the calculation methods provided for under the regulations. For the 2013 plan year, the fee is $2 for each covered life. Thereafter, the fee will be based on an increased amount each year.
Summary of Benefits and Coverage
A summary of benefits and coverage (SBC) must be provided by group health plans, including grandfathered plans, to applicants and enrollees before enrollment or re-enrollment. While the first SBC should have been provided to participants during open enrollment periods beginning after September 23, 2012, plan sponsors should be aware that distributing the SBC is not a one-time-only requirement. The SBC will need to be distributed annually, when material changes are made to coverage, and upon individual request.