Frequently Asked Questions
Q. Where can I go to read the full Patient Protection and Affordable Care Act bill?
- Click here to read the full law.
- Webinars - to familiarize our clients with the key components of the bill, Resourcing Edge has held several webinars. To view these webinars, click the links below:
Q. What is the timeframe of the bill rollout?
Click here to view the bill timeline.
Q. Is the PPACA a "sure-thing"?
A. Yes. The reelection of President Obama means that the PPACA will move forward. Repeal or major reform does not have the necessary votes in Congress. Adjustments are possible, but the principal aspects of reform will move forward.
Q. What are the fundamentals of the PPACA?
A. The most important things to know are:
- Virtually all taxpayers will be required to obtain basic health coverage or pay a penalty (the individual mandate) beginning in 2014.
- "Large employers" (employers with 50+ employees) must provide minimum, affordable coverage or pay a tax. This is also known as the "play or pay" requirement.
- State insurance exchanges will be set up by the states or federal government to provide a source for individual and "small business" coverage, with enrollment starting in the fall of 2013.
Q. Will every business be impacted?
A. If you have even ONE employee, you need to know about the PPACA. ALL EMPLOYERS must comply with certain provisions - some now and some in the future. For example:
- Notices: The PPACA requires all employers to provide existing employees with information about the state healthcare exchanges by 3/1/2013. The Department of Labor now expects the timing for distribution of notices to be late summer or fall of 2013, which will coordinate with the open enrollment period for exchanges.
- Information: By 2014, all employers will have to report on health benefits on employee W-2s. The W-2 form has already been redesigned.
- Reporting: 1/2015 brings required reporting of each employee's monthly status and hours (whether or not coverage is offered), cost of coverage, and benefit summary. Tax forms will be revised under the PPACA.
Q. What are the immediate requirements for employers who provide group health?
A. The PPACA has effective dates going back to enactment on March 23, 2010. Your plan must CURRENTLY include:
- Dependent child coverage to age 26 (9/2010)
- No pre-existing condition exclusion for children under 19 (9/2010)
- Coverage of preventive benefits (without co-pay) (9/2010)
- No lifetime limitations on coverage (9/23/2010)
- Recession limited (fraud or serious misrepresentation) (9/2010)
- Phase-out of annual dollar limits (not less than $2 million in 2013, no limits in 2014)
- Summary of Benefits and Coverage, a uniform explanation of coverage with strict standards for information, terminology, and format (9/2012). This is in addition to your Summary Plan Description.
- OTC drugs not covered (FSA, HRA, HSA) (1/2011)
- W-2 reporting of healthcare benefits - value of employer-provided healthcare coverage in 2012 must be on each W-2 for employers filing more than 250 W-2s (1/2013)
- Medical Loss Ratio (MLR) rebates (began in 8/2012)
- FSA limited to $2,500 (1/2013)
- Medicare tax increase (to 2.35% for singles earning over $200,000 and couples over $250,000)
- PCORI tax (Patient-Centered Outcomes Research Institute) (plans ending after 9/2012)
Q: How does a company determine its number of full-time or full-time equivalent employees?
A: Employers can use any period of at least six consecutive months in 2013 to measure the number of full-time employees. Only employees working in the United States are counted. If a business hires seasonal workers and the workforce exceeds 50 full-time employees for 120 days or less during a calendar year, the employer is not considered to have 50 full-time employees.
- Full-time employees average 30 hours of service per week or 130 hours per calendar month, including vacation and paid leaves of absence.
- Part-time employees’ hours are used to determine the number of full-time equivalent employees for purposes of determining whether the employer mandate applies. The total hours worked in a calendar month by all part-time employees are divided by 120 to determine the number of full-time equivalent employees in that month. For example:
- A firm had 35 full-time employees and 20 part-time employees who each worked 24 hours a week (96 hours per month).
- 20 part-time employees x 96 hours per month per employee = 1,920 hours. 1,920 divided by 120 = 16 full-time equivalent employees.
- 35 + 16 = 51 full-time or full-time equivalent employees.
Q. How do I determine if my plan provides “minimum value”?
A: A plan provides “minimum value” if it pays at least 60% of the cost of covered services (considering deductibles, copays and coinsurance). HHS has developed a minimum value calculator that can be used to determine if a plan provides minimum value.
Q: How is “affordable” coverage determined?
A: Coverage is considered “affordable” if employee contributions for employee only coverage do not exceed 9.5% of an
employee’s household income. There are three safe harbor methods for determining affordability:
- 9.5% of an employee’s W-2 wages
- 9.5% of an employee’s monthly wages (hourly rate x 130 hours per month)
- 9.5% of the Federal Poverty Level for a single individual
Q: How are dependents defined?
A: Dependents include children up to age 26. Spouses are not considered dependents per the legislation, so employers
are not required to offer coverage to spouses.
Q: Do employers have to offer coverage to 100% of their full-time employees?
A: Employers will meet the requirement to offer affordable and minimum value coverage to “substantially all” full-time
employees if they offer coverage to 95% of full-time employees and their children (or five full-time employees, if greater). If
any of the remaining 5% of full-time employees who are not offered coverage purchases coverage on an Exchange and
receives a premium subsidy, the employer will pay an annual penalty of $3,000.
Q: What if an employer doesn’t currently offer dependent coverage?
A: If an employer does not currently offer dependent coverage, no penalty is due for the plan year beginning in 2014 if
the employer takes steps to offer dependent coverage during the plan year that begins in 2014. For plan years beginning
in 2015 or later, employers must offer coverage to full-time employees and their dependent children up to age 26 to
Q: When do the penalties begin?
A: The employer mandate is effective beginning January 1, 2014. However, the regulations provide transitional relief for
employers with “fiscal year” plans (plan years that begin on a date other than January 1). The transitional relief allows
employers that had fiscal year plans as of December 27, 2012 to avoid paying penalties as long as they offer affordable
and minimum value coverage as of the first day of their plan year that begins in 2014. Employers cannot change their plan
year now to take advantage of this transitional relief.
- Employers will not pay a penalty for full-time employees who were eligible for coverage on December 27, 2012, if they are offered affordable, minimum value coverage on the first day of the 2014 plan year.
- Employers will not pay a penalty for any full-time employees who were not eligible for coverage on December 27, 2012, if they are offered affordable, minimum value coverage on the first day of the 2014 plan year, AND:
- The plan was offered to at least one-third of all full-time and part-time employees during the most recent open enrollment period prior to December 27, 2012, OR
- The plan covered one-fourth of all full-time and part-time employees as of December 27, 2012.
Q: How will an employer know if a penalty is due?
A: If a full-time employee receives subsidized coverage through an Exchange, the employer will be notified and given an
opportunity to respond before the IRS requires payment of the penalty.
Q. How do penalties apply to companies with common ownership?
A. Companies that have common ownership or are part of a control group are combined for purposes of determining whether they are subject to mandate. However, any penalties would be the responsibility of each individual company.
Q. What are the three sets of guidance?
A. Three sets of guidance, Department of Labor (ERISA and fiduciary duties), HHS (regulation), and IRS (tax consequences). All should be reviewed with benefits counsel.
Q. When must fund distrubution be completed?
A. Fund distribution must be completed within three months of receipt!
Q. What should I determine as an employer?
A. Review plan documents. Employers need to determine if and how the refund will be passed through to plan members. Are they plan assets? If so, were they used/distributed in accordance with fiduciary duties? If not, fiduciary liability may exist. You should also determine if group contracts and plan documents need to be modified to address plan asset issues.
Q. Who is applicable?
- 2012: Optional for 2012 calendar year for employers filing fewer than 250 W-2s for the 2011 tax year
- 2014: Expected to be mandatory for all employers.
- Applies only for employees otherwise due a form W-2.
Q. What actions should be taken?
A. Businesses must report the cost of employer-sponsored healthcare coverage (both employer and employee portions). COBRA rates can be used to determine aggregate cost. Applies to coverage paid with pre-tax and post-tax dollars.
Q. What is included?
- Group health plans, including:
- Major medical
- Certain on-site medical clinics
- Medicare supplemental
- Medicare advantage
- Employer flex credits into a health flexible spending arrangement (HFSA)
May Be In (or at least a portion thereof):
- Employee assistance programs (EAPs)
- Wellness programs
Q. What is excluded?
- Non-integrated dental and vision
- Long-term care
- Salary reduced into HFSAs
- Health savings accounts (HSAs)
- Health reimbursement accounts (HRAs)
- Accident, disability, and AD&D
- Worker's compensation and similar coverage
- Automobile medical payment
- Government-provided military coverage
- Employer contributions to multi-employer plans
- If HIPAA-excepted and pain on after-tax basis:
- Hospital or fixed indemnity insurance
- Specified disease or illness insurance
- Coverage provided by governments primarily for military and their families
Q. What is required?
A. The PPACA requires employers to provide written notice to all employees of the upcoming availability of state insurance exchanges no later than 3/1/2013.
Q. What is the status?
A. 1/24/2013: DOL, IRS, HHS deferred this requirement to a date uncertain in the fall of 2013.
Q. Who is applicable?
A. Carrier or self-insured employer. (Exceptions: HIPAA-excepted policies, certain expatriate plans, stop-loss or idemnity reinsurance, EAPs, disease management, and wellness programs if no "significant" medical benefits.)
Q. What is the fee?
A. Patient-Centered Outcomes Research Institute Fee. First year, $1 per covered life and then $2 per covered life.
Q. When does it go into effect?
A. Assessed for plan years ending after 9/30/2012. Fees end after 9/30/2019. First payment is due 7/31/2013.
Q. Are there any other issues I should be aware of?
A. In addition to the requirements already outlined, each employer needs to:
- Review existing plan documents with a qualified expert
- Ensure that existing plans conform to PPACA requirements
- See that payroll and recordkeeping can generate the required information
- Establish a mechanism to keep up-to-date on new requirements and changes
The Heart of PPACA is Coming in 2014
Q. What are the key elements of PPACA that are becoming effective on 1/1/2014?
A. The key elements of PPACA that are becoming effective on 1/1/2014 are:
- The individual mandate
- State exchanges
- The employer "play or pay" requirement
- Nondiscrimination requirements
- Auto-enrollment for larger employers
- No pre-existing condition exclusions
Shared Responsibility or "Play or Pay"
Q. Who is applicable?
A. Employers with an average of 50 full-time or full-time equivalent employees.
Q. What does it entail?
A. Employers must provide health coverage to employees (including dependent children) that is "affordable" and provides "minimum value" or pay a tax to the federal government if one of their employees secures coverage from a state exchange and receives a federal premium subsidy.
Q. What are the specific IRS notices and proposed regulations?
- IRS Notices: 2011-73 (7 pages); 2011-36 (22 pages); 2012-17 (9 pages); and 2012-58 (18 pages)
- Proposed regulations: 26 CFR Parts 1, 54, and 301 (144 pages)
- FAQs: Currently at 23 questions and answers
Q. I am an employer with more than 50 employees. What should I be aware of?
A. First, you must determine if you have the required number of employees:
- A "full-time employee" for determining if an employer reaches the 50 or more threshold includes both full-time employees and full-time equivalent employees (part-time employees who work a certain number of hours to make them considered full-time).
- A full-time employee is defined as an employee who works on average at least 30 hours per week.
- The 18-page notice (2012-58) covers full-time, variable hour, part-time, newly hired, and seasonal employees. There is a "look back period" of 3 to 12 months that could stretch even longer. There is also a measurement period," a "stability period," and various other "safe-harbors".
- There is discussion in the proposed regulations of "anti-abuse" provisions to prevent employers from manipulating the number of employees.
Q. What is considered "affordable"?
A. Coverage is considered affordable if the employee's contribution for single coverage is not more than 9.5% of the employee's modified adjusted gross household income. Guidance provides three alternative safe harbors for determining affordability:
- W-2: The employee's annual contribution does not exceed 9.5% of the employee's wages from Box 1 of the W-2.
- Rate of pay: The employee's monthly contribution does not exceed 9.5% of the employee's hourly rate of pay multiplied by 130 (or monthly salary for a salaried employee)
- Federal poverty level: Single-employee cost does not exceed 9.5% of the FPL.
Q. What is the minimum value?
A. The PPACA requires plans to provide minimum value to "full-time employees (and their dependents)."
- Proposed regulations require coverage of the employee and the employee's children
- Plans must cover 60% of the total allowed costs under the plan
- Further regulations are expected defining minimum
Q. What are the penalties of not following this requirement?
A. Penalties attach when an employee receives coverage from an exchange and a federal premium subsidy.
- Qualified employer with no offer of coverage: $166.67 times every full-time employee after the first 30
- Qualified employer with coverage that doesn't qualify: In 2014, the monthly penalty assessed on an employer for each full-time employee who receives a premium credit will be 1/12 of $3,000 for any applicable month. However, the total penalty for an employer would be limited to the total number of the company's full-time employees (minus 30), multiplied by 1/12 of $2,000 for any applicable month. After 2014, the penalty amounts will be indexed by the premium adjustment percentage for the calendar year.
Q. I'm a small employer. What should I be aware of?
A. Call your:
- Benefits attorney
- Tax attorney
- Benefits consultant
- Insurance agent
Be sure to read all the regulations and monitor government sites daily.
Q. What are some other resources for small employers?
A. Use a Professional Employer Organization (PEO):
- For decades, PEOs have been instrumental in providing one-stop benefits, HR, and compliance services to small businesses.
- Small companies that would rather focus on growing their businesses instead of understanding the finer points of healthcare reform should consider using a PEO.