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Critical Issues for Employers in the Wake of the Supreme Court Decision Upholding the Affordable Care Act, by David A. McClurg
Now that the dust has settled on the Supreme Court’s decision largely upholding the constitutionality of the “Affordable Care Act,” or “Obamacare” as most Republican candidates are calling it, some of the important factors that employers should keep in mind for the remainder of 2012 and 2013 include:
1. Small businesses with 25 or less employees that pay average annual wages below $50,000 and pay at least 50% of the total premium for their employee’s health insurance may qualify for a small business tax credit of up to 35% (25% for non-profits) to offset the cost of insurance. This credit increases to 50% in 2014 (35% for non-profits).
2. Employer based plans that provide coverage for retirees between the ages of 55 – 64 can receive financial assistance from the Early Retirement Reinsurance Program.
3. Employers providing group health coverage must provide a “Summary of Benefits and Coverage” (“SBC”) to participants no later than the first day of any open enrollment period that begins on or after September 23, 2012. The SBC must describe the benefits and coverage rules for each benefit package that the employer offers. The rules governing the substance of these SBSs are complicated, and each failure to provide a complying SBC will trigger a penalty of up to $1,000 per participant. Thus, employers providing insurance benefits should be sure that their summary plan descriptions are updated to comply with the new SBC requirements.
4. For tax years beginning on and after January 1, 2013, the cap on employees’ annual elections to Health Care Flexible Spending Accounts will be reduced to $2,500. This limit will be indexed for inflation in subsequent years.
5. W-2 forms issued in 2013 for work performed in 2012 must include the aggregate value of any health plan coverage the employee may have had in 2012. This value is included for informational purposes only, and is not currently taxable, though many fear that this benefit could be taxed in future years to cover revenue shortfalls that may be encountered in implementing the Affordable Care Act.
6. Medicare payroll withholding tax will increase from 1.45% to 2.35% for individuals earning over $200,000, joint filers with combined income in excess of $250,000 and married individuals filing separately that earn over $125,000.
If the Republicans are unable to overturn the Affordable Care Act in 2013, additional issues will confront employers in 2014:
1. Employers with 50 or more full-time employee equivalents will be required to offer their employees “affordable” health plans providing “minimum essential” coverage through either private carriers or health insurance “exchanges” or face penalties described below. The “exchanges” are new markets to be established by the states by January 1, 2014 to offer individuals and businesses with less than 100 employees with “affordable” health plans. (Individual states can choose to limit participation in their exchanges to businesses with less than 50 employees in 2014 and 2015.)
2 Penalties will be imposed on companies with 50 or more full-time employee equivalents that fail to provide “minimum essential” health plan coverage if any full-time employee receives federal premium assistance under a health insurance “exchange” during any month. The penalties, assessed on a monthly basis, will be equal $166.67 times the number of “full time employees” less 30 employees. The “exchanges” are new markets to be established by the states by January 1, 2014 to offer individuals and small businesses with less than 50 employees with “affordable” health plans.
3. Even if employers with 50 or more employees offer plans with “minimum essential coverage,” penalties can be assessed if that coverage is not deemed “affordable,” and at least one employee declines the coverage and receives federal premium assistance for insurance through an exchange. The monthly penalty under these circumstances will be equal to $250 times the number of employees who receive the federal premium assistance for the month. Under the Act, coverage is deemed “unaffordable” if the employee’s share of the premium exceeds 9.5% of the employee’s household income, or if the employer’s premium contribution is less than 60% of total premium cost for the coverage. According to a technical release issued by the DOL earlier this year, employers may use an employee's W-2 wages (as opposed to household income) in determining the “affordability” of employee-only contributions required to purchase employer-sponsored coverage. That technical release also indicates that anticipated regulations will allow employers to use a look-back/stability period (likely not exceeding 12 months) as a safe harbor to determine whether an employee is a full-time employee. The technical release is available at: http://www.dol.gov/ebsa/pdf/tr12-01.pdf.
4. The Affordable Care Act includes an automatic enrollment provision directing that employers with more than 200 full-time employees must automatically enroll new full-time employees in one of the employer’s health plans. Information released by the DOL in December 2010 indicated that employer compliance with the provision would not be required until final regulations were issued, which were anticipated by 2014. The DOL has since concluded that its guidance on the matter will not be ready to take effect by 2014. Thus, employers won’t be required to comply until the final regulations are issued and become applicable.
5. The Affordable Care Act also provides that, in plan years beginning on or after January 1, 2014, a plan may not apply an eligibility waiting period greater than 90 days. The DOL technical release referenced above indicates that this provision will not require an employer to offer coverage to part-time employees or to any other particular category of employees. It merely prohibits requiring an otherwise eligible employee to wait more than 90 days before coverage is effective. The technical release uses various scenarios to explain which waiting period provisions and employee situations require compliance with the regulations. Additionally, the release indicates that proposed guidance is expected to address situations in which employees (or certain classes of employees) are eligible for coverage only after they complete a specified cumulative number of hours of service within a particular period (such as 12 months). It is expected that eligibility conditions won't be treated as being “designed to avoid compliance with the 90-day waiting period limitation” as long as the required cumulative hours of service do not exceed a number of hours to be outlined in that guidance.