Now that the U.S. Supreme Court has ruled the "individual
mandate" component of the Patient Protection and Affordable
Care Act (the "Act") is constitutional, employers that
sponsor health plans must prepare to comply with several important
Act requirements. Although some of these rules will not go into
effect until January, 2014, others become effective much sooner.
The following summarizes a number of the Act's most pressing
requirements for employers.
Summary of Benefits and Coverage
One of the most urgent health plan compliance issues for
employers is the Act's "summary of benefits and
coverage" ("SBC") requirement. The SBC must
summarize the benefits and coverage available under a group health
plan. It is intended to provide straightforward factual information
to participants and beneficiaries so they can compare and
understand the costs and benefits of health coverage options. The
Department of Labor has issued a model SBC template located here. Please be aware that the SBC
requirement does not alter or replace the requirement to issue a
timely summary plan description.
The SBC must be provided at various times (e.g., at initial, open,
and special enrollment; upon a participant's request) by plan
administrators (usually, the employers themselves) for self-insured
plans, and plan administrators or insurers for insured plans. Plan
administrators generally must distribute SBCs to health plan
participants and beneficiaries no later than the first day of the
first open enrollment period beginning on or after September 23,
2012. For individuals enrolling other than via open enrollment, the
requirement applies as of the first day of the first plan year that
begins on or after September 23, 2012. All plans (whether insured
or self-insured) must comply with the SBC requirement, regardless
of whether the plan is grandfathered from other requirements of the
Act. Although the SBC requirement does not apply to retiree-only
plans, health savings accounts, or stand-alone dental or vision
plans, it does apply to certain health flexible spending
arrangements ("FSAs") and stand-alone health
reimbursement arrangements ("HRAs"). Additionally, the
SBC requirement could apply to wellness programs and employee
assistance plans ("EAPs") if they pay for or provide
health care services.
An SBC must be provided in a uniform format with specified content.
It may be provided to participants and beneficiaries in paper form,
but it also may be delivered electronically in some circumstances.
An SBC must be provided in a "culturally and linguistically
appropriate manner." Specifically, if an SBC is mailed to an
address in a county where 10% or more of the population is literate
in the same non-English language, then it must include a
one-sentence statement indicating how the reader can access certain
language services (e.g., written translations of the SBC) provided
by the plan.
The SBC requirement is very complicated, so employers should review
the rules as soon as possible to avoid any compliance concerns. The
Departments of Labor, Health and Human Services, and the Treasury
will not impose any penalties for the first year of the SBC's
requirement, as long as employers are attempting to comply in good
faith. Otherwise, each failure to provide an SBC will trigger a
penalty of up to $1,000 per participant.
W-2 Health Plan Cost Reporting
Beginning in 2013 (for health plan coverage provided in 2012),
employers must include the aggregate value of their annual health
plan coverage on employees' W-2s. This is an informational
reporting requirement only, so the reporting of the amount on an
employee's W-2 does not make it taxable. For
additional information regarding W-2 reporting for health plan
costs, please see our prior alert on the topic located here.
Health Care FSAs
For tax years beginning on and after January 1, 2013, a $2,500
cap will be placed on employees' annual health care FSA
elections. (The limit does not impact dependent care FSA
elections.) The new limit will be indexed for inflation for future
years. As long as plans are in operational compliance with the
limit, employers will have until December 31, 2014 to amend their
cafeteria plans to reflect the new requirement.
Outcomes Research Fee
Starting with plan years ending after September 30, 2012, the
Act requires employers that sponsor self-insured health plans (and
insurers of insured plans) to pay an annual fee based on the number
of the covered lives. The annual fee will be used to fund the
Patient-Centered Outcomes Research Institute, a non-profit entity
created by the Act to focus on medical research. In addition to
major medical plans, the annual fee applies to certain health care
FSAs and stand-alone HRAs. If the same employer maintains more than
one self-insured arrangement (e.g., a major medical plan and an
HRA), the arrangements can be treated as a single plan for this
purpose if the arrangements have the same plan year. If an FSA or
HRA is integrated with an insured plan, the employer (not the
insurer) must pay the fee attributable to the FSA or HRA. The fee
generally does not apply to stand-alone dental or vision
coverage.
For plan years ending on or after October 1, 2012 but before
October 1, 2013, the annual fee is $1 times the average number of
covered lives under the plan. For plan years ending after September
30, 2013, the annual fee increases to $2 times the average number
of covered lives under the plan, and is then subject to
cost-of-living adjustments for future years. Proposed regulations
offer a few alternatives for employers to use to calculate the
average number of covered lives for any given year. The fees will
be paid once a year, but must be reported quarterly on IRS Form
720.
Annual Limits
All employer health plans (including grandfathered plans) with
plan years beginning on or after September 23, 2012, and before
January 1, 2014, must not have an annual dollar limit on the value
of "essential health benefits" that is less than $2
million. Essential health benefits generally include items and
services within the following categories: ambulatory patient
services; emergency services; hospitalization; maternity and
newborn care; mental health and substance use disorder services,
including behavioral health treatment; prescription drugs;
rehabilitative and habilitative services and devices; laboratory
services; preventive and wellness services and chronic disease
management; and pediatric services, including oral and vision
care.
For plan years beginning on or after January 1, 2014, no annual
limit may apply to essential health benefits.
Wellness Programs
Starting in 2014, employers may increase the reward or penalty
they impose on employees with respect to satisfaction of certain
health-related standards (e.g., weight loss, tobacco use, blood
pressure reduction) under wellness programs. The Act increases the
maximum reward or penalty to 30% of the applicable cost of coverage
(including both the employer and employee shares) with the
potential to go as high as 50%. (The maximum reward or penalty was
previously 20%.) This change allows employers to put more teeth
into their wellness initiatives. However, employers must remain
cognizant of other legal requirements associated with wellness
programs (e.g., the Americans with Disabilities Act general
prohibition on involuntary medical examinations).
Nondiscrimination Rules
Another significant concern for some employers will be the
application of new nondiscrimination testing requirements to
non-grandfathered insured health plans. Similar to the
nondiscrimination testing requirements currently applicable to
self-insured health plans, these 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
Departments of Labor, Health and Human Services, and the Treasury,
which are responsible for implementing this mandate, have
recognized there are a significant number of open issues
surrounding it. Consequently, these Departments have agreed not to
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.
Shared Responsibility
Beginning in 2014, the Act requires that an employer with 50 or
more full-time employee equivalents during the prior calendar year
must provide "minimum essential" health plan coverage to
full-time employees. Otherwise, the employer must pay a penalty
if any full-time employee receives federal premium assistance under
a health insurance exchange during any month. The monthly
penalty equals $166.67 times the number of the employer's
full-time employees (minus 30 employees). A full-time employee
generally is one who works an average of at least 30 hours per
week, and the full-time employees of certain affiliated employers
must be aggregated.
Furthermore, even if an employer does offer minimum
essential coverage to its 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. Under this circumstance, the monthly
penalty will be $250 times the number of employees who receive the
premium assistance for that month. Coverage is considered
"unaffordable" if the employee's share of the premium
exceeds 9.5% of his or her household income or the plan's share
of the total allowed costs provided under the plan is less than
60%. However, this penalty will not exceed the amount calculated in
the immediately preceding paragraph (i.e., the penalty that would
have applied if the employer did not provide minimum essential
health plan coverage).
Next Steps
Given that most, if not all, of the Act is here to stay,
employers should actimmediately to understand
their obligations and analyze their options to avoid any compliance
problems. The Act is complicated and appropriate planning is
essential.
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.