Healthcare reform legislation has brought great changes to the U.S. healthcare system. The legislation constitutes sweeping reform, with far reaching implications for employers, individuals, insurance companies and healthcare providers. The legislation, in addition to imposing new taxes and fees, imposes additional recordkeeping and reporting requirements on employers. Employers will have to determine whether their health plans satisfy the new minimum essential health coverage and affordability rules. They’ll be relying on their insurance brokers and/or heathcare consultants for assistance. Here’s an overview of key provisions (with effective dates through 2014—other provisions have effective dates stretching to 2018) of the legislation.
Took Effect in 2012
Reporting aggregate healthcare costs. Employers who issued 250 or more Forms W-2 in the preceding calendar year are required to report the total aggregate cost of employer-provided health coverage on Forms W-2. The aggregate cost includes both the employer and the employee share of the cost (Notice 2012-9 and Notice 2011-28) .
Medical loss ratio rebate.Employers who receive rebates from insurance companies who didn’t spend a specified percentage (80 percent to 85 percent) of premiums earned in 2011 on healthcare costs must determine whether the rebates constitute plan assets or must otherwise be used, in whole or in part, for the benefit of plan participants and the income tax treatment thereof.
Uniform summary of benefits and coverage: For open enrollments after Sept. 23, 2012, employers are required to provide employees with a summary of benefits and coverage. The purpose is to assist employees in understanding and evaluating their health insurance options.
Patient centered outcome research trust fund.Fully insured and self-insured health plans are required to pay a $1 per participant fee to this trust fund. In case of a fully insured plan, the insurance company pays the fee. For self-insured plans, the employer pays the fee. The annual fee is increased to $2 per employee for 2013 through 2018.
Additional preventive care services.Non-grandfathered health plans must cover additional preventive care services for women, effective for plan years beginning after Aug. 1, 2012.
Fully insured group health plan non-discrimination requirement.Fully insured non-grandfathered group health plans are subject to new non-discrimination rules. Even though the rules were effective in 2011, fully insured group health plans don’t have to satisfy the non-discrimination rules until guidance is provided. Once the rules are effective, an employer operating a discriminatory fully insured group health plan, in addition to civil penalties, is subject to an excise tax equal to $100 per day for each individual discriminated against until the plan comes into compliance (Notice 2010-63 and Notice 2011-1).
Effective in 2013
Medicare tax on wages. A new 0.9 percent Medicare tax is imposed on individuals who have wages or self-employment income in excess of $200,000 ($250,000 for married individuals filing a joint return). Employers will be required to withhold this additional Medicare tax (IRS Q&As) .
Medicare tax on investment income.A new Medicare tax of 3.8 percent is imposed on individuals who have investment income. The tax is imposed on the lesser of the individual’s investment income or his adjusted gross income in excess of $200,000 ($250,000 for individuals filing jointly) (IRS FAQs).
Flexible spending accounts. The maximum amount that employees may contribute pre-tax to a flexible spending account is $2,500 (Notice 2012-40) .
Notice regarding health insurance exchanges. By March 1, 2013, employers are required to provide employees with a notice regarding health insurance exchanges.
Elimination of Medicare Part D subsidy. Employers that currently provide retiree prescription drug coverage may be entitled to a tax-free federal subsidy equal to 28 percent of allowable prescription drug costs incurred for Medicare-eligible retirees. The employer is also entitled to a tax deduction for the retiree prescription drug costs. Under the new legislation, an employer will have to reduce its tax deduction for retiree prescription drugs by the amount of the federal subsidy.
Effective in 2014
Pay or play.Employers with more than 50 full-time equivalent employees must provide minimum essential health coverage (Notice 2012-31) or pay a penalty. Entities that are considered a controlled group are combined. A full-time employee is an employee working, on average, 30 or more hours per week (Notice 2012-58). If at least one of the full-time employees is certified as having enrolled in a health insurance exchange with respect to which a premium tax credit or cost-sharing reduction is allowed, the employer is subject to an annual $2,000 penalty (computed on a monthly basis) for all full-time employees less the amount for 30 full-time employees. If the minimum essential health coverage is unaffordable (the employee’s share of the cost of self-only for the lowest cost coverage exceeds 9.5 percent of the employee’s household income –the Internal Revenue Service proposes to use Form W-2 wages (Notice 2011-73)) or doesn’t have sufficient value (plan pays less than 60 percent of covered health care expenses), then the employer is subject to a penalty. The amount of the penalty is $3,000 per year (computed on a monthly basis) for each employee who received a premium tax credit or a cost-sharing reduction. The total penalty, however, is capped at an amount equal to $2,000 times the number of the employer’s full-time employees. Premium tax credit is generally available to individuals with incomes between 100 percent and 400 percent of the federal poverty level who aren’t eligible for Medicare or other government sponsored healthcare or employer-sponsored healthcare meeting the affordability and minimum value requirements. Those who qualify for premium assistance tax credit will be eligible for cost sharing assistance if they enroll in a silver plan offered under one of the exchanges. No penalty applies for failure to offer coverage to part-time employees (that is, those working fewer than 30 hours per week).
Annual limits. A health plan can’t impose an annual limit on the amount of benefits.
Provide IRS coverage information. Each employer subject to the mandate rules must provide the IRS with detailed information regarding full time employees’ coverage under the health plans and information with respect to the cost of benefits provided (Notice 2012-33) .
Health insurance exchanges. Health insurance exchanges are open for individuals and small group employers.
Waiting period. A health plan may not impose a waiting period of more than 90 days. The IRS has provided temporary guidance through at least 2014. (Notice 2012-59.)
Pre-existing conditions. A health plan may not impose any restrictions on a pre-existing condition.
Automatic enrollment. An employer subject to the Fair Labor Standards Act that has more than 200 full-time employees is required to automatically enroll new full-time employees in one of the employer’s health benefits plans and to continue the enrollment of current employees in a health benefits plan offered through the employer. The employer must provide adequate notice and give the employee the opportunity to opt out of any coverage in which the employee was automatically enrolled. Until regulations are issued, employers aren’t required to comply with this rule. The Department of Labor doesn’t anticipate issuing guidance until after 2014 (Technical Release No. 2012-01).