[author: Eric N. Athey]
The Patient Protection and Affordable Care Act (“PPACA”), otherwise known as Health Care Reform, is now 2 ½ years old. It narrowly survived its first major legal challenge with the Supreme Court’s decision in July. Time will tell whether PPACA survives the upcoming elections – although it seems likely that many of PPACA’s pre-2014 requirements will remain in effect regardless of which party wins the presidency. In the meantime, employers and health plans must be mindful of the flurry of compliance requirements that will soon take effect under the Act. Here is a quick look at the PPACA compliance issues that employers and health plans should be focused on now:
Is Your Health Plan Ready to Disclose SBCs?
This new disclosure requirement takes effect for open enrollment periods beginning on or after September 23, 2012 (or plan years beginning on or after that date). In a nutshell, insurers must now provide four-page summaries of benefits and coverage to group health plans (“GHPs”) within 7 days after a plan applies for coverage with the insurer. GHPs must, in turn, provide SBCs to plan participants without charge as part of any written application materials that are distributed for enrollment. Individuals also have the right to request an SBC at any time and must receive it within 7 days of the request. A sample SBC is available on the U.S. Department of Labor’s (“DOL”) website at www.dol.gov/ebsa. Additionally, a 60-day advance notice requirement now applies to “material modifications” affecting the content of an SBC; however, special disclosure rules apply in plan renewal situations. Willful failures to comply with these disclosure requirements may trigger a fine of up to $1000 per violation; however, the DOL has indicated that the agency’s focus will be primarily on compliance assistance, not enforcement, as employers work to comply with this new requirement in the coming months.
Is Your Company Prepared for W-2 Reporting of Health Coverage?
W-2 forms for 2012 (to be issued in early 2013) must report the aggregate cost of applicable employer-sponsored group health plan coverage – this includes both employer and employee cost shares. Employers filing fewer than 250 W-2 forms for the preceding calendar year are currently exempt from this requirement. Ancillary benefits such as long-term care, HIPAA excepted benefits (i.e., certain dental and vision plans), disability and accident benefits, workers’ compensation, fixed indemnity insurance and coverage for a specific illness or disease are excluded from the value to be reported. Similarly, the IRS has issued guidance allowing employers to exclude reporting of contributions to consumer-directed health plans such as HRAs and FSAs in most instances. The value of coverage under an Employee Assistance Program (“EAP”) may also be excluded if the coverage does not qualify as a COBRA benefit. The IRS has issued guidance (Notice 2012-9) approving three methods for calculating the value of coverage: 1) the COBRA applicable premium method (COBRA premium less the 2% administrative charge); 2) the premium charged method (for insured plans); and 3) the modified COBRA method (when an employer subsidizes the COBRA premium).
Which of Your Employees Qualify as “Full-time” Under PPACA?
PPACA defines a full-time employee as one who is employed on average at least 30 hours per week. This definition is significant for several reasons under the Act. First, only employers who employ 50 or more full-time equivalent employees are subject to the “shared responsibility” penalties that take effect in 2014. Secondly, the shared responsibility penalties are only triggered if an employer has a full-time employee who is certified to receive a premium tax credit or cost-sharing reduction due to the employer’s failure to provide affordable coverage that meets minimum value requirements. Finally, the 90-day maximum waiting period for coverage that takes effect in 2014 only applies to full-time employees.
Since so much under PPACA turns on an employee’s “full-time” status, it is critical for employers to understand which of their employees fall under this classification. Employers do not always know whether an employee will regularly work 30 hours per week at the time of hire – particularly in the case of seasonal and variable hour employees. On August 31, 2012, the IRS issued Notice 2012-58 to clarify how these situations should be handled. In brief, an employer may use an “initial measurement period” of between 3 to 12 months to determine whether a newly hired seasonal or variable hour employee has worked an average of 30 hours per week. Upon making this determination, the new employee’s coverage status remains in effect for the duration of a “stability period.” A new employee’s initial stability period may not be more than one month longer than the initial measurement period. Under the guidance, an “ongoing employee’s” full-time status is thereafter subject to redetermination under similar measurement rules. Of course, if an employee is expected to regularly work full-time when hired, the 90-day maximum waiting period that takes effect in 2014 applies.
Is Your Coverage “Affordable” and of “Minimum Value”?
The “shared responsibility” penalties apply to employers with over 50 employees that either do not offer health coverage or offer coverage that is either not “affordable” or does not provide “minimum value” under PPACA. Although these penalties are not scheduled to take effect until 2014, it may take some time for employers to weigh their options and plan accordingly. Coverage that costs an employee over 9.5% of his or her gross household income is not considered affordable under PPACA. One question that remains unanswered at this point is how an employer is to determine an employee’s gross household income since that amount will presumably include income from dependents as well as non-wage income. The DOL has announced that coverage costing an employee no more than 9.5% of his or her wage earnings will fall under an affordability “safe harbor.” This may lead some employers to set employee health care contributions as a percentage of their earnings rather than as a percentage of the premium cost or fixed amount.
In order for a plan to be of “minimum value”, it must offer “minimum essential coverage” and the plan must pay at least 60% of covered expenses. The federal agencies have yet to issue comprehensive guidance on these key concepts; however, as employers consider changes to their health plans, they must keep minimum essential benefits, minimum value and affordability in mind.
Will Your Health FSA Be Ready for 2013 Changes?
Effective for plan years beginning in 2013, health FSA plans may only reimburse up to $2500 in qualifying expenses per participating employee. Employers offering health FSA plans will have until December 31, 2014 to amend their plans to reflect this new limit. This change, in combination with PPACA’s already-effective prohibition on reimbursement for non-prescribed over-the-counter medications, will likely steer more employers away from health FSAs and toward other types of consumer-directed health plans, such as HRAs and HSAs.
PPACA compliance has become a time-consuming responsibility for many HR and benefits professionals. Companies that are ready to tackle these five issues will be well-positioned to take on the major changes that are scheduled to take effect in 2014. For additional information and updates, visit www.palaborandemploymentblog.com.