HEALTH CARE REFORM, NOW WHAT?
"The Affordable Care Act requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass on its wisdom or fairness." Chief Justice Roberts writing for the majority in National Federation of Business, et al. v. Sebelius, Secretary of Health and Human Services, et al.
With that, the individual mandate and, as a result, the balance of the Patient Protection and Affordable Care Act ("PPACA"), other than certain provisions related to Medicaid, withstood the challenge of various states, interest groups and individuals and remains the law of the land. Following is summary of the more important provisions of PPACA that should be back on employers' radars following the Supreme Court ruling.
Flexible spending account contributions. PPACA imposes a cap on annual contributions to health-related flexible spending accounts ("FSA") of $2,500 for plan years beginning on or after January 1, 2013. Employers who sponsor calendar year plans should be revising FSA open enrollment materials and election forms to reflect this cap and should consider advising employees of the cap in advance of open enrollment. The earlier employees are aware of the cap, the earlier they may begin planning for its implementation. The cap should be incorporated in employer payroll systems, FSA plan documents and summary plan descriptions. Plan amendments for calendar year plans must be effective January 1, 2013. Recent guidance provides that employers have until December 31, 2014, to retroactively amend FSA plans.
Summary of Benefits and Coverage. PPACA requires that group health plans, including "grandfathered plans," must provide participants with a summary of benefits and coverage ("SBC") that accurately describes the benefits and coverage available under the plan. The SBC must be no longer than four doubled-sided pages. The SBC must be provided to participants (i) annually during open enrollment; (ii) upon initial or special enrollment; (iii) upon request; and (iv) 60-days prior to the date a material modification to plan coverage or benefits becomes effective. Provision of the SBC is in addition to other applicable plan related disclosure requirements, such as the summary plan description and summaries of material modifications.
Initial distribution of SBC's must be made by the first day of the open enrollment period for a plan year beginning on or after September 23, 2012. For calendar year plans that have a traditional month-long open enrollment period, SBC's must be distributed to plan participants by December 1, 2012.
Following are links to a SBC template made available by the Department of Labor and related instruction for completing the template:
For insured plans, we anticipate that the insurance company will undertake much of the compliance effort associated with SBC's. Regardless, employers bear the ultimate responsibility for compliance and must ensure that all plan participants receive a timely and compliant SBC or risk penalties of up to $1,000 for each failure. For self-insured plans, the burden of compliance falls squarely on the shoulders of the employer. Assistance from the employer's third party administrator will be critical to ensuring that the employer complies with the SBC requirements.
Large employer Form W-2 reporting. Employers that file more than 250 Form W-2's must begin reporting the cost of employer provided health coverage on employee Form W-2's beginning with the 2012 reporting year, i.e. the 2012 Form W-2 that must be distributed to employees in January, 2013. If an employer has not already done so, it should immediately begin coordinating the payroll system changes and data collection efforts necessary to meet the reporting requirement with their payroll service providers in order to be fully prepared to comply with this requirement in January, 2013. The cost of coverage for reporting purposes is based on methodologies similar to those related to establishing the premium charged to former employees for COBRA coverage. Employers should seek the assistance of their insurance companies, brokers and third party administrators for assistance with calculating the cost of coverage for reporting purposes.
Comparative effectiveness fee for self-insured plans. For plan years ending after September 30, 2012, self-insured plans are required to pay an annual fee equivalent to $1 for each life covered by the plan. The number of covered lives for this purpose is based on the average number of individuals covered by the plan, including covered employees, dependents and retirees. This fee rises to $2 per covered life for plan years ending after September 30, 2013, and is indexed for inflation in later years. The fee also applies to insured plans, but the burden of payment falls on the insurer. In accordance with proposed Regulations, the fee is due by July 31 of the calendar year immediately following the end of the plan year. The fee is reported on IRS Form 720.
First dollar coverage for women's preventive services. Non-grandfathered employer plans must provide first dollar coverage (i.e. no co-pay, co-insurance or deductible) for certain women's preventive services effective for plan years beginning on or after August 1, 2012. These services include well-woman visits, breast feeding support, supplies and counseling, domestic violence screening and counseling, STD counseling, screening for gestational diabetes, HPV testing, counseling and screening for human immune-deficiency virus, and subject to an exemption and transition period for religious institutions, all FDA-approved contraceptive methods, sterilization procedures and education and counseling for women with reproductive capacity.
For calendar year plans, these services must be provided at no cost beginning January 1, 2013. Sponsors of non-grandfathered plans should be coordinating the addition of these no cost preventive services to their plans with their insurance companies, brokers and third party administrators. Plan documents and summary plan descriptions must be amended accordingly.
Information regarding State Insurance Exchanges. Employers must begin providing employees with information regarding State health insurance exchanges beginning March 1, 2013. Notice regarding the exchanges must be provided to all current employees on or before this date. For employees hired after this date, the notice must be provided as of the date of hire. The notice must contain information regarding the State exchange, an employee's eligibility for tax credits or cost sharing associated with the purchase of insurance through an exchange and the consequences associated with such a purchase, including loss of any tax-free employer contributions toward the cost of employer-provided coverage.
Individual tax changes. The tax associated with the failure to maintain health insurance under the individual mandate is not the only tax associated with PPACA. Beginning in 2013, wages and self-employment income in excess of $250,000 for joint filers, $200,000 for single and head of household taxpayers and $125,000 for individuals who are married and file separately are subject to an additional hospital insurance tax (commonly known as Medicare tax) of 0.9%. Employers are not subject to this additional Medicare tax but are required to withhold the additional tax from employee wages. Self-employed individuals may not deduct the additional tax when computing taxable income or net self-employment earnings for purposes of the self-employment tax.
Also beginning in 2013, an additional Medicare surtax is imposed on the unearned income of high income individuals. An individual will be subject to a surtax of 3.8% on the lesser of (i) net investment income; or (ii) modified adjusted gross income in excess of the threshold amounts described above with respect to the additional Medicare tax. Modified gross income for this purpose is adjusted gross income increased by otherwise excluded foreign earned income and housing costs and reduced by deductions attributable to excluded income. Investment income includes dividends, interest, annuities, passive royalties and rents and investment-related capital gains. Investment income does not include distributions from qualified retirement plans or IRA's. Individuals can be subject to both the additional Medicare tax described above and the Medicare surtax on investment income.
Finally, beginning in 2013, the adjusted gross income threshold for deducting unreimbursed medical expenses for taxpayers under age 65 is increased to 10%. Currently, this threshold is 7.5% for all taxpayers.