What are the major health-care reform changes that are affecting employers?
The 2010 Patient Protection and Affordable Care Act (ACA) includes provisions that directly affect employers and business owners. The following is a brief overview of some of the ACA provisions that employers should be aware of.
The ACA created the Small Business Health Options Program (SHOPs) to help small businesses provide health coverage to their employees. The SHOP Marketplace is available to employers with 50 or fewer full-time equivalent employees and provides a forum for employers to compare health insurance coverage based on price and benefits offered, and purchase suitable insurance for employees.
Small employer tax credit
If you employ fewer than 25 full-time equivalent employees (FTEs) with average annual wages of less than $50,000, and you contribute at least 50 percent toward the cost of your employees' health insurance that is purchased through a Marketplace, you may qualify for a small employer tax credit. The credit is up to 50 percent (35 percent for qualified charitable employers) of the lesser of your actual cost for health insurance coverage, or the amount of contributions you would have made during the taxable year if each employee had enrolled in coverage based on a benchmark premium.
The full credit is available if you have 10 or fewer FTEs with average annual wages below $25,000. The credit is reduced if you have more than 10 FTEs (but less than 25 FTEs) and/or pay average annual wages greater than $25,000 (but less than $50,000). In any case, the credit is only available for two consecutive years.
Play or pay
Employers are generally not required to offer coverage, but those that don't may be subject to a penalty tax. In 2015, the penalty tax applies only to employers with 100 or more full-time equivalent employees (FTE) who do not offer qualifying health coverage to at least 70 percent of their FTEs. In 2016, in order to avoid the penalty tax, qualifying coverage must be offered to 95 percent of FTEs, and extends to employers with 50 or more FTEs. The penalty is assessed to eligible employers that do not offer coverage if at least one FTE receives a federal premium subsidy for coverage purchased through a health insurance Marketplace. In 2015, the employer penalty is $2,000 per FTE excluding the first 80 FTEs. Beginning in 2016, the same penalty applies but after excluding the first 30 FTEs.
In addition, if an eligible employer offers health insurance that is not considered affordable or does not provide minimum value, the penalty is the lesser of $3,000 per FTE receiving a federal subsidy, or $2,000 per FTE, minus the first 30 FTEs. Health insurance provides minimum value if it pays for at least 60 percent of covered health care expenses. Health insurance is affordable when the cost of coverage is no more than 9.5 percent of an employee's family income.
Employers with more than 200 full-time employees that offer health insurance must automatically enroll new full-time employees, subject to a waiting period of no longer than 90 days.
Other employer incentives
In an effort to promote wellness and decrease health insurance costs, employers may offer employees rewards, such as premium discounts and added benefits, for participating in wellness programs and meeting certain health-related standards. The value of the rewards can equal as much as 30 percent of the cost of coverage and may even reach 50 percent in some cases.
Group health plan coverage requirements
Group health plan requirements under the health-care legislation directly apply to insurers. However, most of these provisions are incorporated by reference into ERISA and the Internal Revenue Code, extending their application to employers offering group health insurance. Beginning in 2010, some important group health plan requirements include:
- Group plans that offer coverage for dependent children must extend the age for dependent coverage to age 26. For plans in existence prior to March 23, 2010 (the date of legislative enactment), the extension of dependent coverage applies only if an adult child is not eligible to enroll in any other eligible employer-sponsored health plan.
- Coverage for a plan participant cannot be rescinded except for fraud or intentional misrepresentation, and plans may not impose pre-existing condition exclusions on any plan participant or beneficiary.
- Plans may not impose lifetime limits on the dollar value of essential health benefits for plan participants and beneficiaries. Essential health benefits are intended to include those benefits customarily provided under a typical employer health plan, as defined by the Secretary of Health and Human Services. Also, plans cannot impose annual coverage limits for essential health benefits.
- Most preventive care services and immunizations recommended by the U.S. Preventive Services Task Force will not be subject to deductibles, co-pays and co-insurance. (Plans in existence on or before March 23, 2010, are exempt from this provision.)
- Most employers must meet certain reporting and disclosure requirements, which include providing a summary of plan benefits and annual reports to participants; reporting annual enrollment and claims practices to the Secretary of Health and Human Services; and providing premium and coverage information to the IRS.
Employers must include the aggregate cost of group health plan benefits (with some exclusions) provided to employees on Form W-2. And, employers are responsible for collecting and reporting an increase of 0.9 percent in FICA taxes on wages above $200,000. The increase applies only to the employee-paid portion of FICA taxes.
Group health plan sponsors may be assessed a tax of two dollars or more per average number of insured lives beginning _____. The tax is intended to finance a comparative effectiveness research program measuring the value of various medical interventions. The tax is scheduled to sunset after September 30, 2019.
Health-care legislation makes changes to health savings accounts (HSAs), Archer medical savings accounts (MSAs), flexible spending accounts (FSAs) and health reimbursement accounts (HRAs) that affect both plan participants and employers.
Over-the-counter drugs no longer qualify for distributions/reimbursements under HSAs, Archer MSAs, health FSAs and HRAs. In addition, the tax on nonqualified distributions from HSAs or Archer MSAs is 20 percent. Also, contributions to health FSAs are limited to $2,500 per year.
In 2018, a 40 percent excise tax is imposed on certain group health plans (excluding long-term care, vision and dental plans) if the annual cost exceeds $10,200 for single coverage and $27,500 for family coverage, indexed for inflation.
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For more information, contact Erik Lawser, financial advisor, Investment Planning and Management Group, Raymond James & Associates, Inc.: email@example.com or (770) 673-2133.