For employers and plan sponsors that have been adopting a “wait and see” approach before focusing on compliance with the Patient Protection and Affordable Care Act (PPACA), the wait is over. PPACA’s insurance mandates, market reforms, and employer requirements will move ahead as scheduled, with most of PPACA becoming fully effective in 2014. That is just one short year from now. Since the law left the task of working out specific details to the regulatory agencies (Department of Labor, IRS, and Department of Health and Human Services), employers can expect to see significant guidance between now and the end of 2013. We created this UPDATE to assist our clients with the complexities of PPACA, but must also give credit our legal partner, Proskeaur Rose, LLP for its preparation as several points come from a similar briefing prepared by their office on this topic.
THE NEW YEAR IS HERE, WHAT DO EMPLOYERS NEED TO KNOW AND DO FOR 2013?
For most employers, 2013 will be a critical “planning year” to prepare for the most notable PPACA provisions which impact plans in 2014. However, several important elements of the law were effective inlate 2012, or will become effective during 2013, including:
- Expanded 100% coverage for women’s preventive care services, including certain contraceptives. (effective August 2012)
- Mandatory W2 reporting on the aggregate cost of “applicable health coverage” for employers who issued more than 250 W2s for the 2011 tax year. The requirement will apply to all employers, regardless of size, when issuing W2s for 2013.
- Issuance of Summaries of Benefits and Coverage (SBCs) to all eligible enrollees for open enrollment periods and plan years beginning on or after September 23, 2012.
- $2,500 limit on pre-tax contributions to healthcare flexible spending accounts (FSAs) as of the first day of the 2013 plan year
- Requirement to notify employees of the availability of health insurance exchanges (guidance pending; intended to be effective March 2013)
- Increase in the Comparative Effective Research Fee (from $1 to $2 per participant per year) for the 2013 plan year
- 0.9% Medicare payroll tax increase for individuals earning over $200,000 effective with the 2013 tax year
PREPARING FOR 2014
As noted above, the majority of PPACA’s most impactful provisions will arrive in 2014. Employers must start now and develop an action plan to prepare for the following legislative provisions and market reforms:
- Maximum 90-day limit on eligibility waiting periods
- Complete prohibition on preexisting condition exclusions for all individuals
- Elimination on annual dollar limits for “essential health benefits”
- Deductible limits of $2,000 single / $4,000 family for groups under 100 (clarification pending for larger employers)
- Maximum Out-of-Pocket limits capped at the level set for HSA-compatible high-deductible plans ($6,250 single / $12,500 family) for groups under 100 (clarification pending for larger employers)
- Coverage under non-grandfathered plans for certain approved clinical trials
- Guaranteed availability and renewability of insured group health plans
- Requirement for employers to certify to the Department of Health and Human Services regarding whether its group health plan provides “minimum essential coverage” (reports are actually due in 2015 based on 2014 benefits)
- Fees commence under the Transitional Reinsurance Program. This assessment will be imposed from 2014-2016 in order to stabilize premiums in individual markets. Fees for the 2014 plan year are expected to be $5.25 per employee per month
- Increase in allowable “outcome-based” wellness incentives from 20% to 30%
- Initial phase of the Medicare Part D “donut hole” fix, which will eliminate the Medicare Part D coverage gap by 2020
PAY OR PLAY & THE EXCHANGE
Perhaps the most anticipated PPACA provision in 2014 is the “Pay or Play Penalty” and its impact on large employers. For purposes of this provision, large employers are defined as having 50 or more “full-time equivalent” employees. Full-time employees are those who work a minimum of 30 hours per week and there is an equivalency test for employers with significant numbers of part time employees. The determination of the number of full-time employees is based on the prior year. Further, an employer may take any consecutive six-month time frame during 2013 to determine if they will be subject to the large employer requirements in 2014.
The term “Pay or Play” refers to the requirement for large employers to offer full-time employees “adequate” and “affordable” coverage; or pay excise tax penalties for failing to do so. IRC §4980H & IRC §4980H (b) outline the applicable excise tax penalties for such employers. The penalties will be imposed when employees who do not have access to “adequate” and “affordable” coverage receive a tax credit for exchange-based coverage. Only citizens and legal U.S. residents who are not eligible for Medicaid and whose household income does not exceed 400% of the federal poverty level are eligible for exchange based tax credits.
The potential tax penalties foremployers are as follows:
Employers who do not offer coverage: An assessment of $2,000 per full-time employee per year will be charged to groups provided that at least one employee obtained a tax credit for coverage through the state or federal exchange. This fee will not apply to the first 30 full-time employees.
Employers who offer coverage that is “inadequate” or “unaffordable”: $3,000 per employee per year for each employee who obtains a tax credit for coverage through the state or federal exchange. Affordable means that the employee contribution for the lowest cost qualified plan does not exceed 9.5% of the employee’s prior year or annualized W2 wages as per the proposed IRS Safe Harbor rules. WWW can provide a pay or play analysis for you if you believe you may have an issue with a lower paid portion of your workforce.
Transitional relief will be provided for large employers who currently offer a non-calendar year plan. Such employers will not be liable for tax penalties under §4980H(b) for any months prior to the first day of their plan year beginning in 2014, so long as the 2014 plan is both “adequate” and “affordable”.
In the coming weeks, plan sponsors should anticipate a flood of regulations which are expected to provide clarity on the above and other long-awaited topics such as the non-discrimination rules, testing framework to ensure that benefit plans do not discriminate in favor of highly compensated employees, and further clarification on the look forward/look back eligibility requirements to determine whether an organization is a large employer.
Amidst the uncertainty, it is clear that employers will see premium increases in 2014 when PPACA is fully implemented. While there are a variety of options to mitigate PPACA’s cost impact, employers must be mindful of employment law and ERISA implications when making such changes. Preplanning is essential. Employers considering workforce realignment, reduction in work-force, or benefit modifications should be discussing approaches with their consultants and advisors now. Proper compliance will likely require implementing certain changes in 2013 in order to satisfy any applicable “look-back” period requirement for 2014.
Wallace Welch & Willingham remains your committed partner
in PPACA compliance and looks forward to working with
each client on proper PPACA planning and strategy.