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Health Care Reform: The Basics for Small and Large Employers

Health Care Reform: The Basics for Small and Large Employers

As more provisions of the Affordable Care Act (ACA) become reality, employers should be increasingly aware of the law’s impact on their organization and on employees. Health care reform law will affect U.S. organizations of all sizes, whether or not they offer health insurance benefits to employees. The key provisions of health care reform and implications for small, medium and large employers have been outlined below to help assist you.


If your full-time workforce has average wages of less than $50,000, your business may be eligible for the Small Business Health Care Tax Credit for the 2014 and 2015 calendar years. The tax credit will be equal to 50% of your health insurance premium costs.1 The credit is available only to employers who purchase insurance through the SHOP Marketplace. SMALL BUSINESS HEALTH OPTION PROGRAM (SHOP)


Employers with up to 50 workers (in some states, up to 100) may choose to offer health insurance to all full-time employees through the SHOP Marketplace. The SHOP employer-choice model is available for 2014. Employers can select one or more plans, and employees can choose their coverage from those options. Beginning in 2015, the employee-choice SHOP model will be available. The employer will select an actuarial value level from four options: bronze, silver, gold and platinum. Employees then can select any of the plans offered at that level in their state. Also in 2015, the SHOP Marketplace will provide a group billing service to combine employees’ premium costs and prepare a single invoice for the employer.


The employer mandate is being delayed until 2015. At that time, large employers must either offer affordable, minimum value coverage to full-time employees and their dependents,1 or pay a “shared responsibility payment” if one or more employees receives a premium tax credit or subsidy through the Health Insurance Marketplace.


A new additional Medicare tax of 0.9% took effect in 2013, raising the Medicare tax rate for the highest wage earners from 1.45% to 2.35%. This rate applies to the individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceed $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for most others. Employers are responsible for withholding the full Medicare tax amount from employee wages and compensation.


Beginning in 2013, a new 3.8% net investment income tax applies to individuals, estates and trusts with net investment income and modified adjusted gross income that combine to exceed $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for most others. The rate applies to all types of investment income, including interest, dividends, capital gains, rental and royalty income, nonqualified annuities, proceeds from trading financial instruments or commodities, and other types of passive income.


Beginning on January 1, 2014, the maximum permissible waiting period under an employer group health plan is 90 days.


From 2014 through 2016, all group health plans are required to contribute a per-capita amount toward the individual insurance market’s transitional reinsurance program. The amount is paid by the insurer or, for self-funded plans, by the third-party administrator.


Depending upon a group’s size, the insurance company must use 80% or 85% of premium dollars to pay medical claims or otherwise improve healthcare quality. An insurer that misses the target must provide a rebate to the employer, who then will rebate a share to each employee.


Large employers—i.e., those issuing 250 or more W-2 forms in a calendar year—must report the total cost of group health plan coverage and certain pretax-funded supplemental health benefits on each employee’s annual W-2. Reporting is optional for employers who file fewer than 250 W-2s. The purpose is to provide employees with information on the costs of their health plan coverage.


The maximum annual pretax amount an employee may contribute to an employer-sponsored medical FSA is $2,500. The maximum will be indexed for cost-of-living adjustments in future plan years.


Health care reform increases the level of permissible rewards for health-contingent wellness incentives. These types of incentives generally require employees to meet a health standard (e.g., a normal BMI) to earn a reward. The maximum reward is now 30% of the total cost of health coverage. A higher reward—up to 50%—can be offered for programs that help employees reduce or quit tobacco use.


Beginning with the 2015 plan year, all self-insured employers and all large employers subject to the employer mandate must report certain coverage information to the Internal Revenue Service. Reporting details include the names of covered employees, coverage dates and employer-paid premium amounts. On January 31 of each year, employers will be required to provide an individual statement with these details for each employee.


Top 10 facts about health care reform for employers

1. EMPLOYER MANDATE PENALTIES ARE BEING DELAYED UNTIL 2015. Even with the delay, all employers should take time now to evaluate their plan’s affordability and minimum value. Employers are required by law to provide these details to employees in 2013 to help them understand

2. EMPLOYEE COST-SHARING CAPS ARE DELAYED UNTIL 2015. Per ACA, group health plans will have to limit the total amount an employee pays out-of-pocket for covered health care services to no more than the annual out-of-pocket maximum for high-deductible health plans. The employee’s total cost includes all deductibles, copays and coinsurance charged for essential health benefits.

3.  MANY COVERAGE REQUIREMENTS TAKE EFFECT IN 2014. While the employer mandate is delayed until 2015, other ACA requirements take effect sooner. These health plan requirements take effect in 2014: • The waiting period for coverage to take effect cannot exceed 90 days. • The plan cannot limit or exclude coverage for pre-existing conditions. • Coverage cannot have annual or lifetime benefit limits.

4.  EMPLOYERS ARE NOT REQUIRED TO PROVIDE COVERAGE FOR SPOUSES. Beginning in 2015, employers will face penalties for not offering insurance to any full-time employee—but employers are not required to extend coverage to spouses.

5.  YOUR COMPANY COULD RECEIVE A MEDICAL-LOSS REBATE. Insurance companies are required to use 80% or 85% (depending on group size) of premium dollars to pay medical claims or otherwise improve healthcare quality. If an insurer misses that target, the insurer must issue a rebate to the employer, and the employer will rebate a share to each participating employee.

6.  SMALL BUSINESSES MAY QUALIFY FOR TAX CREDITS. If the employer has fewer than 25 full-time-equivalent employees with average annual wages of less than $50,000, the employer may be eligible for a tax credit. The credit may be claimed in two consecutive years when the employer subsidizes at least half of employees’ premium costs. For 2014 and beyond, this credit is available only for insurance coverage purchased through the SHOP Marketplace (the exchange for small employers).

7.  WELLNESS INCENTIVES LIMITS HAVE BEEN INCREASED. Be sure to review your existing wellness incentive and reward program to ensure compliance with ACA. The law defines two types of wellness programs: • Participatory programs are available to individuals regardless of their health status. • Health-contingent programs require employees to meet a health-related objective to earn an incentive or avoid a penalty. The ACA creates a limited program of small business wellness grants funded by the federal government. If an employer applies for and receives a grant, the organization can use the grant money to create a comprehensive wellness program for employees.

8.  EMPLOYERS MUST INFORM EMPLOYEES IN WRITING OF THEIR INSURANCE OPTIONS. This notice must indicate whether group health coverage is available to employees of your organization and whether the coverage meets certain minimum standards. The employer must notify employees in writing by October 1, 2013. The notice must also inform employees how they may access and enroll in coverage through the Health Insurance Marketplace (also called an “exchange”).

9.  SMALL EMPLOYERS AND INDIVIDUALS CAN CHOOSE PLANS FROM FOUR COVERAGE TIERS WITHIN THE HEALTH INSURANCE MARKETPLACE. Coverage options available through health insurance exchanges fall into four tiers: bronze, silver, gold and platinum. Individuals and small businesses can compare plans within each tier to evaluate costs and coverages. The level indicates a plan’s “actuarial value”—that is, an actuarial estimate of the percentage of an enrollee’s overall expected covered medical costs that the plan will pay.

10. THE INDIVIDUAL MANDATE AND PENALTY BEGIN IN 2014. Open enrollment for individual insurance begins October 1, 2013. Individuals who do not have coverage in effect on January 1, 2014, will face a penalty, with a few exceptions. The penalty for 2014 is $95 per person or 1% of annual income, whichever is greater. For uninsured children, the 2014 fee is $47.50, with an annual family cap of $285. The penalty amount increases annually.