Health Care Reform Upheld: What Now For Employers?

Now that the question of the Act's constitutionality has been decided, employers that sponsor health plans should move immediately to comply with the Act's health insurance requirements. Although the Act's most significant pending provisions will go into effect on Jan. 1, 2014, other burdensome rules will become effective before then. This article summarizes several of the most pressing Act requirements for employers.

July 5, 2012 – On June 28, the U.S. Supreme Court held that the "individual mandate" component of the Affordable Care Act (the "Act") is constitutional. Republican lawmakers have threatened to repeal the Act, but they are unlikely to succeed even if Mitt Romney wins the presidency. As a result, Wisconsin employers that sponsor health plans should move immediately to comply with the Act's health insurance requirements.

Although the most significant pending provisions of the Act will go into effect on Jan. 1, 2014, other burdensome rules will become effective before then. This article summarizes several of the most pressing Act requirements that employers must consider. For further information regarding the Act's mandates on employer-sponsored health plans, including many requirements that have already taken effect, please see Health-care Reform: What You Should Know, published in the December 2011 Wisconsin Lawyer magazine.

Act Now On These Requirements

1. Summary of Benefits and Coverage. The most immediate health plan compliance issue for employers relates to the Act's "summary of benefits and coverage" ("SBC") requirement. The SBC must describe the benefits and coverage rules for each benefit package that employers offer. Employers generally must distribute SBCs to health plan participants and beneficiaries no later than the first day of the first open enrollment period that begins on or after Sept. 23, 2012. The SBC mandate is very complicated, so employers should begin to review the rules as soon as possible to ensure ample time exists for preparation and distribution. Each failure to provide an SBC will trigger a penalty of up to $1,000 per participant.
2. W-2 Reporting. Starting in 2013 (for coverage in 2012), employers must include the aggregate value of their annual health plan coverage on employees' W-2s. This reporting requirement is for informational purposes only; the reporting of an amount on the W-2 under this requirement does not make it taxable.
3. Nondiscrimination. Another significant concern for many employers is the application of nondiscrimination testing requirements to non-grandfathered insured health plans. Generally, those rules are designed to prevent insured plans from discriminating in favor of certain highly paid employees with respect to the plans' eligibility requirements and benefits. Failure to satisfy these tests will trigger excise taxes of $100 per day per person discriminated against, so the consequences of noncompliance can be staggering. The federal agencies that must implement this mandate have recognized that there are a significant number of open questions surrounding it. Consequently, they have indicated they will not impose the excise tax until additional guidance is issued. Although there is no guarantee, we expect to see that guidance within the next six to nine months.
4. Health Care Flexible Spending Accounts. For tax years beginning on and after Jan. 1, 2013, a $2,500 cap will be placed on employees' annual elections to health care flexible spending accounts. This limit will be indexed for inflation for future years. Employers do not need to amend their cafeteria plan documents to reflect the new requirement until Dec. 31, 2014, as long as the plans are operated in compliance with the rule prior to that date. The limit does not apply to dependent care flexible spending account elections.
5. Wellness Programs. Effective in 2014, employers may increase the reward or penalty they impose on employees with respect to satisfaction of health-related standards (e.g., tobacco use, weight loss, blood pressure, or cholesterol reduction) under wellness programs. Historically, the maximum reward or penalty was 20 percent of the applicable cost of coverage (including both the employer and employee shares). The Act increases this percentage to 30 percent, and the applicable regulatory agencies have the authority to increase it as high as 50 percent. This Act provision is popular with employers because it will allow them to put more teeth into their wellness initiatives. While that may be true, employers must remain cognizant of other legal landmines associated with wellness programs (e.g., the Americans with Disabilities Act general prohibition on involuntary medical examinations).
6. Shared Responsibility. Starting in 2014, an employer with 50 or more full-time employee equivalents during the preceding calendar year must (a) provide "minimum essential" health plan coverage to full-time employees, or (b) pay a penalty if any full-time employee receives federal premium assistance under a health insurance exchange during any month. The monthly penalty will be $166.67 times the number of the employer's full-time employees (minus 30 employees). For these purposes, a full-time employee generally is one who works an average of at least 30 hours per week. The employees of certain affiliated employers must be aggregated when determining the number of full-time employees.

Even if an employer subject to the shared responsibility rules does offer minimum essential coverage to full-time employees, it will be subject to a penalty for a month if the coverage is unaffordable and at least one full-time employee declines the coverage and receives federal premium assistance for coverage under an exchange. In that case, the monthly penalty will be $250 times the number of employees who receive the premium assistance for that month. For this purpose, coverage will be considered unaffordable if an employee's share of the premium exceeds 9.5 percent of household income or the plan's share of the total allowed costs provided under the plan is less than 60 percent. However, the penalty will not exceed the amount calculated in the preceding paragraph (i.e., the penalty that would have applied if the employer did not provide minimum essential coverage).

If they have not already done so, employers should work with their legal and insurance professionals to determine what impact the shared responsibility rules will have on them. The decision whether to provide or drop coverage is complicated and should not be taken lightly. The financial calculations are difficult and require deeper analysis than a simple comparison of the potential penalty and the cost of coverage. Other intangible factors (e.g., the recruitment value of health insurance, the ability of an employer to pair health plan coverage with wellness initiatives to increase the health of employees) should be considered.

Now that the question of the Act's constitutionality has been decided, employers should act immediately to analyze their options and understand their obligations related to the Act. Time is running out.

Previously published on www.wisbar.org, Inside Track

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