I've heard a lot about the health care reform law over the past few years. When do the reforms go into effect?
President Obama signed the health care reform law, the Affordable Care Act (ACA), into law in March 2010. The changes made by ACA take effect over a period of years. Some of the law's changes are already in effect, such as the prohibition on pre-existing condition exclusions for individuals under age 19. Other changes will become effective in the future. For example, the requirement that large employers provide a certain level of health coverage to full-time employees and their dependents or pay a penalty goes into effect in 2014.
Does health care reform allow people to keep their current health coverage?
Yes. Nothing in the law requires individuals to terminate the coverage that they have. However, due to the law's health care reforms, the coverage provided under a health plan may undergo changes. If an employer's health plan existed on March 23, 2010, and the employer has not made certain changes to the plan, the plan may have grandfathered status. Grandfathered plans are subject to many, but not all, of the health care reform law's requirements.
In addition, beginning in 2014, ACA requires most individuals to obtain acceptable health coverage or pay a penalty. The penalty will start at $95 per person for 2014 and increase each year.
Am I required by law to offer health coverage to my employees?
The health care reform law does not require companies to offer health coverage to their employees. However, beginning in 2014, large employers will subject to ACA's "pay or play" rules. A large employer is one with 50 or more full-time employees, including full-time equivalents (FTEs).
Under the pay or play rules, large employers that do not offer health coverage to full-time employees and their dependents will be subject to a penalty if any of their full-time employees receives a tax credit or cost-sharing reduction for health coverage through an insurance exchange.
Also, large employers will be subject to a penalty under ACA's pay or play rules if they offer health coverage and any full-time employee still receives a tax credit or cost-sharing reduction for coverage through an insurance exchange. This can occur if the employer's coverage is unaffordable or does not provide minimum value.
These penalties will not apply to employers that had fewer than 50 full-time equivalent employees on business days in the prior calendar year.
What are the penalty amounts for large employers that don't offer coverage?
Large employers that do not offer health coverage to full-time employees will be subject to an annual penalty of $2,000 per full-time employee, excluding the first 30 employees, if any of their full-time employees receives a tax credit or cost-sharing reduction for coverage through an insurance exchange.
What are the penalty amounts for large employers that offer coverage and have employees who receive subsidized coverage through an exchange?
These employers are subject to a penalty of $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction for coverage through an exchange. The maximum penalty is the amount equal to $2,000 times the number of full-time employees, excluding the first 30 employees.
What is a "grandfathered plan"?
A grandfathered plan is a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of the health care reform legislation (March 23, 2010). Some of the health care reform provisions affecting health plans do not apply to grandfathered plans. A plan can still be a grandfathered plan if it allows new employees, or family members of current employees, to enroll after the date of enactment.
How does health care reform affect grandfathered plans?
Grandfathered plans are exempt from certain insurance market reforms and coverage mandates included in the health care reform legislation and have delayed compliance dates for other provisions. Grandfathered plans are not required to:
- Cover preventive care services without cost-sharing (for example, deductibles, co-payments or coinsurance)
- Permit selection of any available participating primary care provider
- Comply with limits on preauthorization requirements and cost-sharing for emergency services
- Satisfy nondiscrimination rules for fully-insured plans
- Implement an improved internal appeals process and meet minimum requirements for external review or
- Meet guaranteed issue or renewal of coverage mandates.
However, some of the health coverage reforms apply to grandfathered plans as well as non-grandfathered plans. These reforms include prohibitions on lifetime and annual limits, pre-existing condition exclusions, rescissions of coverage and excessive waiting periods. Grandfathered plans must also comply with the rules regarding coverage of adult children up to age 26 and provision of a Summary of Benefits and Coverage.
Also, grandfathered plans are not exempt from other ACA reforms, such as the requirement to include the value of coverage on each employee's Form W-2 (effective in 2012 for employers that file at least 250 Forms W-2), the pay or play rules that may impose penalties on large employers that do not offer a certain level of health coverage to their full-time employees (effective Jan. 1, 2014), the high-cost health plan excise tax (effective Jan. 1, 2018) and the mandatory automatic enrollment requirement (effective once regulations are issued).
Can a grandfathered plan be amended without losing the grandfathered status?
Plan sponsors can make certain changes to grandfathered plans and maintain their grandfathered status. However, plans will lose their grandfathered status if they make significant changes that reduce benefits or increase costs to consumers. Specifically, making the following changes would cause a plan to lose its grandfathered status:
- Significantly cutting or reducing benefits;
- Raising co-insurance charges;
- Significantly raising co-payment or deductibles;
- Significantly reducing employer contributions; or
- Adding or reducing an annual limit.
The grandfathered plan rules initially provided that changing insurance companies or policies would cause a health plan to lose grandfathered plan status. However, on Nov. 15, 2010, an amended rule was released stating that a group health plan will not lose grandfathered status merely because of a change in the plan’s insurance policy, certificate or contract of insurance, as long as the coverage under the new policy is effective on or after Nov. 15, 2010. Also, to maintain grandfathered status, the plan must provide documentation of the prior plan’s terms to the new issuer.
How does the grandfather rule apply to collectively bargained plans?
The health care reform legislation states that health insurance coverage maintained pursuant to one or more collective bargaining agreements that were ratified before March 23, 2010, is not subject to the insurance market reforms and coverage mandates found in Subtitles A and C of ACA until the date on which the last collective bargaining agreement relating to coverage terminates. Any coverage amendments made pursuant to a collective bargaining agreement that amends the coverage to conform to Subtitles A or C will not cause the plan to lose its grandfathered status.
What is the small business tax credit and how do I know if I am eligible?
Beginning with the 2010 tax year, tax credits are available to qualifying small businesses that offer health insurance to their employees. In general, your business qualifies for the credit if you cover at least 50 percent of the cost of health care coverage for your workers, pay average annual wages below $50,000 and have less than the equivalent of 25 full-time workers (for example, a firm with fewer than 50 half-time workers would be eligible). The size of the credit depends on your average wages and the number of employees you have. For tax years beginning in 2010 through 2013, the maximum credit is 35 percent of the employer’s premium expenses that count toward the credit. The full credit is available to firms with average wages below $25,000 and less than 10 full-time equivalent workers. It phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
What if my small business doesn't offer insurance today, but I choose to start offering insurance this year? Will I be eligible for these tax credits?
Yes. The tax credit is designed to both support those small businesses that provide coverage today as well as those that newly offer such coverage. Beginning in 2014, the amount of the maximum tax credit will increase, and the credit will only be available for employers purchasing insurance coverage through an exchange.
What is a health insurance exchange?
Beginning in 2014, each state will have a health benefits exchange. Each state can decide whether to operate its own exchange or have the federal government run the exchange for its residents. Individuals and small businesses will be able to purchase health insurance through the exchanges. The intent of the health insurance exchanges is to provide increased purchasing power by pooling a number of insurance buyers together. Beginning in 2017, states may allow employers of any size to purchase coverage through the exchange.
Does the health care reform law affect dependent care flex accounts and health flexible spending accounts?
Dependent care flex accounts are capped at $5,000 annually. Prior to 2013, health flexible spending accounts (health FSAs) had no cap (although many employers implemented their own caps, typically at the $5,000-$6,000 level or less). The health care reform law does not change the limits on dependent care flex accounts, which remain capped at $5,000. However, the law does establish an annual cap of $2,500 on employee pre-tax contributions to health FSAs. This change is effective for plan years beginning on or after Jan. 1, 2013.
What is the Form W-2 reporting requirement and when do I need to comply?
ACA requires employers to disclose the value of the health coverage provided by the employer to each employee on the employee’s annual Form W-2. This reporting was optional for the 2011 tax year. It remains optional for small employers (those filing fewer than 250 Form W-2s) until further guidance is issued. Employers that file at least 250 Forms W-2 must comply with this reporting requirement for 2012 (for W-2 Forms that must be issued by the end of January 2013) and future years.
What is a Summary of Benefits and Coverage?
ACA requires employer-sponsored health plans and health insurance issuers to provide a Summary of Benefits and Coverage (SBC) to applicants and enrollees. Both non-grandfathered and grandfathered plans need to provide the SBC.
The SBC is a concise document providing simple and consistent information about health plan benefits and coverage. It must be provided free of charge. Its purpose is to help health plan consumers better understand the coverage they have and to help them make easy comparisons of different options when shopping for new coverage.
Federal agencies have provided a template for health plans and issuers to use. Health insurance issuers must provide the SBC to health plan sponsors at certain times, including at renewal and upon request, beginning Sept. 23, 2012. In addition, health plans must provide the SBC to participants and beneficiaries at specific times, including at enrollment, before the start of each plan year and upon request. If the issuer of a fully-insured plan provides a timely and complete SBC to plan participants and beneficiaries, the employer sponsoring the plan is not required to provide the SBC to those individuals.
The SBC requirement becomes effective as follows:
- Plans and issuers must provide the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period beginning with the first open enrollment period that begins on or after Sept. 23, 2012.
- For participants who enroll in coverage other than through an open enrollment period (for example, newly eligible individuals and special enrollees), plans and issuers must provide the SBC beginning with the first plan year that begins on or after Sept. 23, 2012.
How does the additional Medicare tax for high wage earners work?
Effective Jan. 1, 2013, ACA increased the Medicare hospital insurance tax rate by 0.9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly). An employer must withhold the additional Medicare tax from wages it pays to an employee in excess of $200,000 in a calendar year, regardless of the individual's filing status or wages paid by another employer. There is no employer portion corresponding to the amount payable by the employee. All wages that are currently subject to Medicare Tax are also subject to the additional Medicare tax, including noncash fringe benefits, tips and other noncash wages.