United States: Patient Protection And Affordable Care Act: What Employers Need To Know

When President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) in 2010, it was met with much resistance. Even after the U.S. Supreme Court upheld the PPACA in the face of challenges to its constitutionality, repeal of PPACA still remained a possibility in the event of the election of Republican presidential candidate Mitt Romney. Although opposition to the PPACA continues to abound, President Obama's re-election to a second term has established the PPACA as a permanent fixture in this nation's health care landscape. Thus, employers need to be prepared to comply with the PPACA. This article provides a brief synopsis of the provisions of the PPACA that will be implemented in the years to come most relevant to employers.

W-2 REPORTING

Beginning with the 2012 tax year, employers will be required to report the aggregate cost of employer-sponsored health coverage on their employees' W-2 Forms. While reporting was voluntary for the 2011 tax year, it is mandatory for the 2012 tax year. Pending further notice by the Internal Revenue Service, this requirement only applies to those employers who had to file 250 or more Form W-2s in the previous tax year. W-2 reporting is for informational purposes only and does not render an employee's health coverage taxable.

LIMITS ON HEALTH FLEXIBLE SPENDING ACCOUNTS

Effective for plan years beginning after December 31, 2012, the PPACA will impose a $2,500 limit on salary reduction contributions to an employee's health flexible spending account. This limit will be indexed for cost-of-living adjustments beginning in 2014.

EMPLOYER NOTICE REQUIREMENTS

By March 1, 2013, employers subject to the Fair Labor Standards Act (FLSA) must provide notice to their employees of: (1) the existence of state health insurance exchanges and a description of their services; (2) the employee's eligibility for premium tax credits or cost-sharing reductions, if applicable; and (3) loss of excludable employer contributions if the employee purchases health insurance on the exchange. For new employees hired after March 1, 2013, notice must be provided at the time of hire.

HEALTH INSURANCE EXCHANGES

Beginning on January 1, 2014, each state will be tasked with implementing state health insurance exchanges, which will be government agencies or nonprofit entities through which states will make available qualified health plans to individuals and small employers. Small employers are defined as those employers that employed 100 employees or less in the preceding calendar year. However, for plan years beginning before January 1, 2016, states may choose to limit exchange participation to employers with 50 employees or less. States will have the option of opening their exchanges to large employers, defined as those employers that employed at least 101 employees in the preceding calendar year. For plan years beginning before January 1, 2016, states may choose to define large employers as those with 51 or more employees.

Individuals who purchase insurance on an exchange may be eligible for health insurance subsidies. The premium tax credit will generally be available to individuals earning between 100 percent and 400 percent of the federal poverty level. Additional cost-sharing reductions will generally be available to individuals with household incomes between 100 percent and 400 percent of the federal poverty level, and who purchase a certain level of coverage on the exchange.

EMPLOYER MANDATE

The employer mandate takes effect January 1, 2014. The mandate will be applicable to large employers, defined, for purposes of the mandate, as employers who employed at least 50 full-time employees during the prior calendar year. Full-time employees are those who work an average of 30 hours per work week. The number of full-time employees also includes "full-time equivalents." That is, 120 hours per month of part time labor equals one full-time employee. The employer mandate imposes two types of penalties upon large employers, both of which are listed below.

Failure to Offer Employer Sponsored Health Coverage

For an employer failing to offer employer-sponsored health insurance at all, if: (1) even one of its employees purchases insurance on the exchange; and (2) the employee is eligible for and receives a premium tax credit or cost-sharing reduction, that employer will be assessed a payment of $2,000 multiplied by the number of full-time employees in excess of 30.

Failure to Offer Adequate Coverage

A separate fine will be assessed against employers who offer inadequate coverage, or coverage that is either unaffordable or fails to provide minimum essential value. Unaffordable coverage is coverage for which the employee's share of the premium exceeds 9.5 percent of his or her household income, or, if the employer is unable to ascertain the employee's household income, 9.5 percent of the employee's W-2 wages. Coverage that fails to provide minimum essential value is coverage that does not cover at least 60 percent of the employee's medical expenses.

If an employer offers inadequate coverage and: (1) at least one employee purchases insurance on the exchange; and (2) the employee is eligible for and receives a premium tax credit or cost-sharing reduction, that employer will be assessed a fine of $3,000 per each employee meeting these two requirements. The assessable payment for offering inadequate coverage is capped at the amount an employer would have had to pay if it failed to offer coverage at all.

Employer Reporting

Employers subject to the employer mandate will be required to submit a form certifying whether they offer employer-sponsored health care to their full-time employees and their dependents.

AUTOMATIC ENROLLMENT

Employers subject to the FLSA with more than 200 employees will be required to automatically enroll new full-time employees in their employer-sponsored health coverage. An employee must affirmatively opt out of employer-sponsored coverage in order for an employer to cease covering that employee. This provision will likely be implemented at some point after 2014.

SMALL BUSINESS TAX CREDIT

In 2014, the tax credit for small businesses providing health care coverage to their employees will increase from 35 percent to 50 percent for businesses, and from 25 percent to 35 percent for tax-exempt organizations. In order to be eligible for the small business tax credit, an employer must employ less than 25 full-time equivalent employees for the taxable year, pay average annual wages of less than $50,000 per full-time equivalent employee, and provide employer-sponsored coverage covering at least 50 percent of the cost of medical expenses under a plan.

CONCLUSION

The re-election of President Obama signals that the Patient Protection and Affordable Care Act is here to stay. The PPACA will significantly change the nation's health care system. A recent study by the International Foundation of Employee Benefit Plans indicated that 84 percent of employers surveyed intended to continue health care coverage under the PPACA. This means that employers must be ready to fulfill their responsibilities under provisions of the Act already in effect, and they must also begin making preparations to comply with those provisions taking effect in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.