Small Employers (less than 50 employees)
Click here to read some general tips about the Patient Protection and Affordable Care Act.
PPACA Compliance Checklist for Employers
- W-2 Reporting: W-2 reporting of employer-provided healthcare coverage is now required for all employers filing 250 or more W-2s for the prior calendar year. These employers are required to report the value of employer-sponsored healthcare coverage regardless of whether it is paid by an employer on behalf of the employee (as excludable income), by an employee through a cafeteria plan, or by an employee on an after-tax basis. Employers filing fewer than 250 W-2s may be required to start reporting in January 2014 (for calendar year 2013), depending on whether and when guidance is issued. Specific information about what and how to report is available at www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage.
- Healthcare Exchanges: At some point in 2013, employers will be required to notify all employees of the upcoming availability of exchange-based coverage (whether through an exchange administered by a state or by the federal government on behalf of a state). Administrative guidance has not yet been issued. However, based on the statute, it appears that the notification will need to be in writing and will need to outline certain factors that might be relevant to the employee’s decision to participate in the employer’s plan or seek coverage through an exchange. The notice requirement is expected to apply to any employer that is a “covered enterprise” under the Fair Labor Standards Act (FLSA). The Patient Protection and Affordable Care Act required this notice by March 1, 2013, but regulators have delayed the effective date to an undetermined future date. Specific information is available at www.dol.gov/ebsa/faqs/faqaca11.html.
- Summary of Benefits and Coverage: Enrollees must receive an annual Summary of Benefits and Coverage (SBC), very generally at open enrollment or upon hire. Detailed information about the SBC is available at www.dol.gov/ebsa/healthreform/index.html (scroll down to “Summary of Benefits and Coverage” and “Uniform Glossary”).
- Advance Notification of Certain Benefit Changes: Employers generally must provide notice to employees 60 days in advance of any material change in coverage to the extent the change would need to be reflected on the respective SBC. (See “Final Regulation” in above link.)
- Preventive Care: All non-grandfathered health plans must (for the first plan year beginning on or after August 1, 2012) now cover a variety of preventive care services for women with no participant cost-sharing. These services include contraceptive methods and counseling, well-woman visits, and screening and counseling for interpersonal domestic violence, among others. For additional information, see www.hhs.gov/news/press/2013pres/02/20130201a.html.
- Health FSAs: The limit for employee contributions to medical flexible spending accounts is now $2,500 (employer flex credits are disregarded). Contribution limits for 2014 and beyond will be indexed to cost-of-living adjustments using increments of $50. Information about the limitations on FSAs is available at www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions (Scroll down to “Health Flexible Spending Arrangements”).
- Medicare and FICA: For individuals earning more than $200,000 and joint filers earning more than $250,000, the Medicare Part A (hospital insurance) tax has increased to 2.35 percent. To apply the new tax increase, employers should use $200,000 as a baseline income for each employee because they will not know the total household income for those filing jointly. For additional information, see www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax.
- Medicare Part D Subsidy: The tax deduction for employers who receive Medicare Part D retiree drug subsidies has been eliminated. The tax deduction has also been eliminated for individuals earning $85,000 or more and married couples earning $170,000 or more. For additional information, see www.irs.gov/uac/Newsroom/Frequently-Asked-Questions:-Retiree-Drug-Subsidy.
- Patient-Centered Outcomes Research Institute (PCORI) Fee: Insurance carriers and sponsors of self-insured plans, retiree-only plans, and grandfathered plans are required to fund PCORI through the payment of certain per capita fees. HIPAA-excepted coverages are generally not subject to the fee. For plan or policy years ending on or after October 1, 2012, but before October 1, 2013, the fee is $1.00, multiplied by the average number of covered lives. (For example, for employee+1 coverage, the PCORI fee is $2.00 ($1.00 x 2).) For policy or plan years ending on or after October 1, 2013, the fee will be $2.00, adjusted for inflation, multiplied by the average number of covered lives under the plan or policy. The fee is due by July 31 of the year following the last day of the policy or plan year. Employers will only be directly liable for the fee if they sponsor a self-insured plan, although insurers will seek to pass through the cost of the fee for insured coverage through to employers in the form of higher premiums. The PCORI regulation is available at www.gpo.gov/fdsys/pkg/FR-2012-12-06/pdf/2012-29325.pdf.
- Medical Loss Ratio (MLR) Rebates: The Patient Protection and Affordable Care Act requires issuers of fully insured plans to provide rebates if they do not spend at least 85 percent of the prior year’s health insurance premiums on healthcare services. Issuers should have paid the first round of MLR rebates (to the extent any were due) in August 2012 with respect to 2011. Employers who sponsor insured plans should be prepared to receive an MLR rebate in August 2013 (or thereabouts) if the issuer fails to meet the 85 percent MLR requirement. MLR rebates may constitute Employee Retirement Income Security Act (ERISA) plan assets depending on how the insurance coverage is paid for and what the relevant plan document/policy provides. Employers should be careful to handle any MLR rebates they receive in accordance with any ERISA fiduciary duties (see DOL Technical Release at www.dol.gov/ebsa/newsroom/tr11-04.html) to ensure they do not run afoul of ERISA. The IRS also has issued questions and answers about the MLR. These are available at www.irs.gov/uac/Medical-Loss-Ratio-(MLR)-FAQs.
- Pay-or-Play Provision: On January 1, 2014, all “applicable large employers” (very generally, employers that employed on average at least 50 full-time employees (taking into account full-time equivalents) on business days during the preceding calendar year) must provide qualifying healthcare coverage to their full-time active employees and their children (up to age 26) or be subject to penalties if they do not. To determine the number of employees, businesses have the choice of calculating the head counts by averaging the full 12 months of 2013 or a consecutive six-month period during 2013. A full-time employee is one who is employed (work and paid leave and vacation) an average of at least 30 hours a week, or 130 hours in a month. There are special rules for how to count seasonal employees for purposes of the 50-employee threshold. Full-time equivalent refers to any employee who is not by himself working a fulltime schedule (i.e., 30 hours per week or 130 hours per month). Generally, to calculate the number of full-time equivalents in a given month, an employer will need to add up all the hours worked by non-full-time employees (capped at 120 hours of service per month for any given employee), and divide the total hours by 120. To the extent that an employer fails to offer qualifying coverage to its full-time employees and their children (up to age 26), the employer will be subject to a penalty, generally equal to $2,000 per full-time employee (less the first 30 full-time employees). Even if an employer complies with the requirement to offer coverage, if an employer fails to provide affordable, minimum value, self-only coverage to each full-time employee, the employer generally will be subject to a $3,000 penalty for each employee who then goes and enrolls in exchange-based coverage and receives a federal premium subsidy or cost-sharing reduction. Additional information is available at www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions (scroll to “Employer Shared Responsibility Payment”).
Items for Insured Plans that Will Fall Mainly on the Carrier/Underwriter:
- Stricter limits on Annual Dollar Limits on Essential Health Benefits: Beginning with the 2011 plan year, the PPACA limited the extent of any annual dollar limits that could apply under a plan to benefits that are “essential health benefits.” Additionally, PPACA prohibited the use of any lifetime dollar limits on “essential health benefits.” For plan years beginning on or after September 23, 2013, plans will be subject to a complete bar on the use of not only lifetime limits, but also any annual limits on “essential health benefits.” Employers and plans can continue to impose annual and lifetime dollar limits on non-essential health benefits.
- Cost-Sharing Limitations for Non-Grandfathered Plans: For plan years beginning on or after January 1, 2014, non-grandfathered individual and small group insurance policies cannot impose maximum deductible limits that exceed $2,000 for self-only and $4,000 for family coverage. Large group insurance and self-funded plans are not subject to these maximum deductible limits (as well as small group insured plans if the plan cannot reach the actuarial value of a given level of coverage, such as bronze, silver, gold, or platinum), regardless of whether the plan or policy is grandfathered. Except for the transition relief noted below, for plan years beginning on or after January 1, 2014, all non-grandfathered plans and policies cannot impose a maximum out-of-pocket limit on cost-sharing that exceeds $6,250 for self-only coverage and $12,500 for family coverage (as adjusted for cost of living). The agencies recently issued transition guidance for 2014 and 2015, which provides that a large group or self-funded plan is not required to provide a coordinated out-of-pocket limit on cost-sharing for ancillary or carve-out plan coverage (such as Rx, wellness, behavior health, pediatric dental) if such coverage is not already subject to an out-of-pocket limit and if such coverage is provided by a separate service provider (from that which is responsible for the major medical coverage under the plan or policy). Such plans will be required, however, to impose the out-of-pocket limit on the plan’s major medical coverage
NOTE: This checklist is intended for informational purposes only and does not constitute legal advice. These items are subject to change pending further review and regulation by the state and federal governments.
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