HEALTH CARE REFORM: IMPACTS ON EMPLOYERS

The newly enacted federal Patient Protection and Affordable Care Act (the "Act") makes significant changes to the health and other benefits that employers offer to their employees. Additionally, there are administrative requirements in the act with which an employer will need to comply. It is imperative that employers have a detailed understanding of what changes are on the immediate horizon, as well as what changes will be required in the future, so that they may adequately plan and account for the administrative and financial impact of these changes to their business and on their workforce.

Changes required in 2010

There are numerous changes that the act makes effective this year.

Grandfathering

The act does explicitly permit the employer to maintain current health coverage for individuals already enrolled, subsequently enrolled family members and new hires.

Adult children up to age 26 are eligible to receive coverage from their parent's plan, regardless of students status or marital status. These children need not be supported by or living with their parents. This provision also applies to "grandfathered" plans.

No lifetime maximum benefit limits may be imposed. This provision also applies to "grandfathered" plans.

Employers' plans must provide preventive care without cost sharing, and must cover certain child preventive services.

Changes required in 2011

Beginning in 2011, the act will require several changes to FSAs, HRAs HSAs. Employees will not be able to receive pre-tax reimbursements from the FSA, HRA or HAS for non-prescribed over-the counter medications. Nonqualified HAS withdrawals is increased from 10 percent to 20 percent.

The requirement that employers report the value of employer-provided health coverage on each employee's W-2 is effective in 2011.

The act also establishes a new, government-run voluntary long-term care program called the CLASS Act.3

Employers must automatically enroll employees into the program and make payroll deductions for the premiums, although employees can elect not to participate. Employers may choose not to participate in the program.

Changes required in 2012

One important change made by the act unrelated to health benefits requires employers beginning in 2012 to provide an IRS Form 1099 to all corporate service providers receiving more than $600 per year for services or property.

Changes required in 2013

Effective in 2013, employee contributions to FSAs will be capped at $2,500 annually, with the cap adjusted annually to the Consumer Price Index.

New employee notice required

Effective March 1, 2013 the act requires employers to issue a new notice to employees containing information about state exchanges, the availability of premium assistance if the actuarial value of the employer's plan is below 60 percent, and the availability of free choice vouchers in the upcoming plan year (2014).

The exchanges

Beginning in 2014, states will begin to operate what are called "exchanges", which are marketplaces for individuals and some employer groups to obtain private health insurance choices. In 2014, small group employers with fewer than 100 employees are eligible to purchase health insurance coverage in the exchange; while beginning in 2017, states may choose to open the exchanges to employers with more than 100 employees.

Individual and employer responsibilities about health care coverage

Beginning in 2014, individuals also have the personal responsibility to obtain qualifying health coverage. They can do this by enrolling in an employer-sponsored health plan, a government-sponsored health plan or a health plan in the exchange, if they meet the criteria to qualify to buy in the exchange. Prior to 2014, each employer will need to calculate how many full-time (or full-time equivalent) employees it employs to determine whether or not it must comply with the act's 2014 provision.

The employer must count all full-time employees (defined as those working 30 or more hours per week, determined on a monthly basis) and must also take into account part-time employees on a full-time equivalency basis.

New employer penalties

If an employer has 50 or more full-time employees, then the employer may be subject to penalties under the act if it provides either no health coverage to full-time employees, or provides coverage to full-time employees that is not affordable.

Changes in benefits

Waiting period changes: An employer may not impose a waiting period greater than 90 days for the employee to satisfy before getting health coverage.

New Employer Administrative Reporting

Finally, the act will require employers to annually report to the IRS a number of pieces of data, including the following:

• Whether the employer offers minimum essential coverage to full-time employees;
  
• Any waiting period for health coverage;
  
• The monthly premium for the lowest cost option in each enrollment category under the plan;
  
• The employer's share of the total allowed cost of benefits provided under the plan;
  
• The number of full-time employees during each month;
  
• The name, address and taxpayer identification number (or Social Security number) of each full-time employee, and the months each employees was covered under the employer's plan, and
  
• "Such other information as the (HHS) Secretary may require."
  

Changes Required in 2018

Finally, in 2018 a 490 percent excise tax on high-cost plans will be applied to plans costing more than $10,200 for individual coverage, or $27,500 for family coverage. The thresholds are adjusted to $11,850 and $30,950 for retirees over age 55 and individuals in high-risk professions.

Thresholds will be indexed to the Consumer Price Index (CPI) plus 1 percent in 2019.