With the Affordable Care Act ("ACA") being implemented in phases, which began in June 2010 and shall continue through January 2019, employers need to know how to make educated decisions regarding whether the new healthcare reform ultimately produces affordable healthcare options.
The easiest year for compliance and management under ACA will be 2013 because it largely achieves compliance through taxation.
The first step is to ensure that the payroll department coordinates with an employer's payroll provider.
Secondly, a company would be wise to create an employee communication explaining how the ACA will impact employees' take-home pay, as well as the employer's cost of doing business. In 2013, employers can anticipate the following: (1) Flexible Spending Account contributions are capped at $2500, resulting in a higher payroll withholding obligation on employers, (2) Per capita fees will increase to $2 per month, for each of the employees covered under a company's medical plan, and (3) Loss of tax-deductibility of the Medicare Part D subsidy.
Also this year, employers must advise employees of the existence of State Exchanges and premium assistance availability. If the Exchange becomes a more affordable option for employees, and they withdraw from the Employer Group Plan in favor of an Exchange, the Employer could face penalty taxes. This could lead to a one payer system where healthcare is limited to government-provided healthcare.
What Changes Will Happen in 2013?
The easiest year for compliance and management under ACA is 2013 because it largely achieves compliance through taxation. The first step is to ensure that the payroll department coordinates with an employer's payroll provider. Companies should create an employee communication explaining how the ACA will impact employees' take-home pay, as well as the employer's cost of doing business.
In 2013, employers can anticipate the following: (1) Flexible Spending Account contributions are capped at $2500, resulting in a higher payroll withholding obligation on employers, (2) Per capita fees will increase to $2 per month, for each of the employees covered under a company's medical plan, and (3) Loss of tax-deductibility of the Medicare Part D subsidy.
Also this year, employers must advise employees of the existence of State Exchanges and premium assistance availability. If the Exchange becomes a more affordable option for employees, and they withdraw from the Employer Group Plan in favor of an Exchange, the Employer could face penalty taxes. This could lead to a one payer system where healthcare is limited to government-provided healthcare.
These 2013 requirements raise several issues for employers. It may be awkward to provide employees with notices regarding the exchange in 2013 although an employer's decision to continue employer-sponsored health insurance isn’t due until 2014. It is anticipated that these notices regarding the Exchanges will lead to several questions from employees about their employer's intention to provide healthcare in the following year. Unfortunately, most employers will find it impossible to respond to the myriad inquiries resulting from these mandatory notices.
The notices must:
- advise employees of the availability of coverage from a State Exchange and describe services provided with the Exchange;
- provide Exchange access information;
- instruct employees regarding eligibility for premium tax credits or cost-sharing reductions through the Exchange;
- advise that an employee electing Exchange coverage may not be entitled to any employer contribution towards cost;
- delineate that all or a portion of employer contributions to employer-provided coverage may be excludable for federal income tax purposes; and
- advise that any employee eligible for public coverage (Medicaid) would be ineligible for Exchange premium subsidies, and in states without expanded Medicaid Coverage, employees with incomes less than 100% of poverty level will not be eligible for Exchange subsidies, although those with incomes at or above poverty will be qualified.
Therefore, it is beneficial for an employer to determine whether to "pay or play" in 2013 prior to disseminating the notices although that determination is not due until 2014.
What Will Compliance Look Like in 2014?
2014 is the seminal year for ACA compliance. Highlights of new requirements are: First, each employer's decision regarding whether to "pay or play" is due, as its employees must be covered under a health plan, whether employer-sponsored or otherwise. In order to facilitate the mandate, the ACA has an automatic enrollment required for employers with 200 or more employees.
Second, employer-sponsored plans must comply with coverage mandates which include: extending dependent care coverage to age 26; eliminating lifetime and annual dollar limits for essential benefits; and eliminating coverage waiting periods that exceed 90 days.
Third, pre-existing condition exclusions are prohibited in group and individual plans.
Fourth, "full-time employee," for purposes of healthcare eligibility, is an employee working 30 hours/week, instead of 35 or 40 hours as is currently permitted under certain health plans and applicable state law. Fifth, employers must report to the IRS on each employee's W-2 regarding healthcare coverage.
The pivotal question for each employer is whether to offer an employer-sponsored health plan or to direct employees to a State Exchange. Responses to the following questions will facilitate this decision:
- What are the current and future costs of providing healthcare, and how do those costs compare to the annual penalties (which will begin at $2,000 per employee excluding the first 30 employees)) if an employer fails to offer healthcare, or $3,000 per employee if an employer offers healthcare deemed to be "unaffordable" under the ACA because its cost is greater than that provided by the Exchange?
- Is there is a cost-savings and, if so, can the employer re-invest those funds in its company for the benefit of equity owners, shareholders and employees?
- How, if at all, does coverage discontinuation impact an employer's competitive advantage either in the marketplace or in future employee recruitment efforts?
- How, if at all, does coverage discontinuation affect existing employee relations?
- Are the Exchanges viable alternatives to employer-sponsored plans?
- If the Exchanges are viable, will employees value a higher match in their defined contribution plans or an alternative benefit rather than an employer-sponsored health plan?
- How many of the employees are married and are they covered by their spouse’s employer-sponsored plan?
- What impact, if any, does healthcare have on an employees' productivity and peace of mind?
- Is protecting employees from catastrophic loss an important goal of each employer?
- Does the state(s) in which an employer’s employees reside offer an Exchange?
Whether affordability has been achieved by the ACA is a matter for individual evaluation of a myriad of factors, not simply financial considerations. The success of the reforms underlying the ACA, therefore, is truly in the eyes of the beholder.
Rania V. Sedhom chairs Bressler, Amery & Ross P.C.'s Executive Compensation and Employee Benefits practice group and is a Member of the Labor and Employment Law practice group.
