Employers have plenty to do in preparation for the upcoming changes in the employee healthcare benefit rules, according to the July 20 webinar, “How do LTC Providers Prepare for ACA Employer Healthcare Coverage Requirements?”
The presentation, hosted by AHCA-NCAL, featured Nancy Taylor, JD, co-chair, Health & FDA Business Practice at the global law firm Greenberg Traurig, LLC, and a 20-year veteran of healthcare legislation and regulatory issues.
Although many of the compliance deadlines aren’t until 2014, some of them start as early as this fall, says Taylor, who also serves as legal representation for AHCA.
This is the first year that employers must provide W-2 reporting on the total health insurance premium—showing the portion paid by the employer and the portion paid by the employee. “This was a policy decision by the Senate to inform employees about the total cost of their health coverage,” Taylor explains. “There’s a belief that if people understood the total cost, they might engage themselves in bringing down that cost.” Companies should seek assistance from tax advisors to ensure preparedness to report both sides of the benefit cost on the 2012 W-2, she adds. A detailed chart of employer-reportable coverages is on the IRS website.
Sept. 23, 2012
Mark this calendar date in neon. At the company’s next open enrollment period after Sept. 23, 2012, a host of new rules will activate, starting with the new Uniform Summary of Benefits. This ϋber-important, four-page document must be given to all employees who are eligible for employer-sponsored benefits. The Department of Labor has rules about whether the information can be disseminated electronically or not; be sure to check. If your company already offers a Summary Plan Document, the new Uniform Summary of Benefits must be added at the front of the document. An explanation of the summary of benefits and some template examples have been published in the Federal Register.
Jan. 1, 2013
Starting in 2013, annual Flexible Savings Account (FSA) contributions will be capped at $2,500.
Mar. 1, 2013
The potential impact of this date deserves serious strategic consideration at the corporate level, preferably before the end of 2012. Here’s why: On or before Mar. 1, 2013, all employers must inform their employees of the company’s overall strategy concerning health benefit coverage. Employers are required to tell employees about the availability of state exchanges, the availability of tax subsidies under Medicaid expansion and about the company’s intentions concerning health insurance coverage for its employees. In other words, the corporate decision on whether to “pay or play”—to add, change or drop employee benefits—needs to be made well in advance of March, so the proper materials can be prepared for employees.
“It’s important to start working with someone on these notice requirements,” Taylor says. “The good news is you have an opportunity to educate your employees. The bad news is that we have no guidance yet from the administration on how these notices are supposed to look.”
Jan. 1, 2014
Jan. 1, 2014 constitutes the deadline for compliance on the major employer-sponsored benefit plan rules and on the individual insurance mandate under the Affordable Care Act (ACA).
Employer-sponsored plans must accommodate these elements:
- Employer must pay 60 percent of the benefit plan for full-time employees.
- If you offer benefits for dependents, you must cover adult children until age 26.
- Lifetime limits are no longer allowed; annual limits on essential benefits are no longer allowed.
- Certain preventive services must be offered to the employee with no cost-sharing.
- No limitations on pre-existing conditions allowed on dependent children age 19 and under.
- Plans cannot be rescinded unless fraud is established.
- New appeals process for denied claims
Individuals must have health insurance via one of these ways:
- Private insurance
- Employer-sponsored insurance
- State exchanges
The devilish details
When it comes to implementing the new rules for employee benefit plans, the devil is in the details, Taylor explains. Here are several areas where the exact circumstances of the company will dictate the best strategy for compliance:
On the Medicaid expansion and tax credits
Back in June, the U.S. Supreme Court upheld the Medicaid expansion portion of the ACA, although it struck down the constitutionality of its penalty provision. The split decision leaves some gray areas, Taylor says. “It creates a lot of questions about what the states are going to do, and how the government is going to encourage them to do the expansion.”
- The tax credits are available to those who earn 100-400 percent of the federal poverty level.
- But if a state chooses the Medicaid expansion, then Medicaid covers to 133 percent of the poverty level.
- So, in that state, those who fall between 100-133 percent of the poverty level would get Medicaid instead of the tax subsidy.
Why does the Medicaid expansion matter to companies? As an employer, you will be penalized if you do not offer your full-time employees employer-sponsored coverage that is considered “affordable.” But the penalties are only for the employees who receive the tax subsidies, not for those who are covered by Medicaid, Taylor explains. “If any of your employees leave your plan and get Medicaid coverage, there’s no penalty.”
On full-time employees
Employers must provide all full-time employees an “affordable” plan and provide 60 percent of the plan cost, fulfilling what the Internal Revenue Service calls “minimum value.” The slippery part is what is considered full time.
The definition of a “full-time employee” has been expanded to one who works more than 130 hours per month. But those hours can be calculated over 3 months or up to 12 months, as the employer chooses. This creates an interesting variable for companies that hire large pools of seasonal or temporary workers.
When asked if this formula might entice employers to create predominantly part-time workforces, Taylor commented, “I think in some industries like ours, where it’s too expensive to offer workers coverage, that’s one of the strategies that is likely to be employed.”
But Taylor also says that companies realize the value of attractive benefit plans as recruitment and retention tools. “That’s why evaluating your circumstances and understanding what’s in the best interest of your facility and your workforce recruitment and retention, and then educating your workforce on your strategy is critically important.”
On affordable plans
Paying the penalty
Because of course it’s not a simple formula. The penalty phase is calculated either on the full-time employees themselves or on the entire workforce minus 30, whichever is less.
Let’s say an employer has 200 full-time employees, and the company’s health plan is deemed unaffordable by 20 of the full-timers. Those 20 employees then seek out the state’s health exchange, and the state agrees to provide tax credits.
The resulting fine for the company will be the lesser of the two equations:
$3,000 x 20 = $60,000 -or-
$2,000 x [all 200 employees minus 30] = $340,000
The affordability test is that a full-time employee should not have to pay more than 9.5 percent of his or her W-2 income for an individual premium.
- If the employer doesn’t offer an “affordable” plan, the full-time employee can opt out and receive a tax credit instead. This action will prompt a penalty for the employer.
- For each employee that opts for the tax credit, the employer can be penalized $2,000-$3,000 per full-time employee.
Employers only need to offer one plan that meets the requirements to avoid penalties, Taylor says.
What’s still in flux:
Plenty of finesse details aren’t quite ironed out yet. Lots of discussions are still ongoing concerning how to handle waiting periods, and dependents. Now that a yearly contribution cap has been established for Flexible Spending Accounts, some argue that the “use-it-or-lose-it” model should be changed. And, some parts of the regulations seem to beg for discriminatory business practices, although the rules specify that discrimination among employees on different plans is strictly forbidden.
The two biggest question marks are how much impact the state health exchanges will have and how many businesses may choose to drop coverage altogether and pay the fines. About 24 million individuals are expected to buy coverage through some version of an exchange, the majority of whom will probably get tax credits, Taylor says. “But it’s estimated that 162 million will continue to receive their coverage from their employer, down from 185 million today.”