Supreme Court Upholds Health Care Law: Now What?

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Last week, the United States Supreme Court upheld the Affordable Care Act, the sweeping new health care law enacted by Congress and signed into law by President Obama in 2010. Proponents and opponents of the law each have strong feelings about its merits, and the legal issues surrounding the Affordable Care Act are numerous and complex. As a result, further amendments, regulations and judicial challenges are likely in the future. In light of the Supreme Court’s decision, though, the law remains intact, and employers who have not paid close attention to the Affordable Care Act thus far should familiarize themselves with its key provisions and prepare to take necessary actions. 

The key provisions of the Affordable Care Act become effective over the course of several years. Some are already effective now, and others will become effective over the next six years. Some of the key provisions already in effect include:

  • Small business tax credit- Certain small employers that offer health care coverage to their employees are eligible to receive tax credits. In order to be eligible for the tax credits, the business must employ no more than 25 employees, and must pay at least 50 percent of its employees’ health care premiums. The amount of the credit is based on the number of employees and average employee compensation, but small businesses can receive credits of up to 35 percent of their premiums.

  • Nondiscrimination- The nondiscrimination rules that previously applied only to self- insured health plans will now apply to fully-insured group health plans as well.

  • Extended coverage for dependent adult children- Group health insurance plans that offer coverage to dependent children must extend coverage to dependent adult children until the year in which they turn 27 years old. (Until 2014, grandfathered plans must offer extended coverage only if the dependent child is not eligible for other employer-sponsored coverage.)

  • Elimination of lifetime limits, and restriction of annual limits- The new legislation prohibits group insurance plans from imposing lifetime limits on essential benefits and permits them to impose annual limits on such benefits only until January 1, 2014.

The provisions of the Affordable Care Act that have attracted the most attention impose penalties upon certain employers if they fail to provide sufficient health care coverage to all full-time employees. These provisions, the so-called “play or pay” mandate, become effective in 2014. At that time, employers with more than 50 “full-time equivalent” employees will be required to pay at least $2,000 for each full-time employee in excess of 30 if any of their full-time employees receive a tax credit because the employer (a) did not offer coverage at all, (b) did not offer coverage at affordable rates, or (c) did not offer coverage meeting the minimum standards established by law. Various means will be used to determine compliance with the law, but requirements (and penalties for non-compliance) will generally be more burdensome for larger employers than smaller employers. 

Employers should also be aware of the new tax reporting obligations imposed upon them by the Affordable Care Act. When issuing Form W-2 to their employees in January of 2013 (for income paid in 2012), employers must report the value of employer-provided health care coverage on Form W-2. In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee.  The value of the coverage provided is excluded from taxable income, however; reporting is required for informational purposes only. 

In addition, employers that offer health care coverage and employ 200 or more persons on a full-time basis will be required to enroll all new full-time employees in their group health insurance plan automatically, and to provide employees the opportunity to opt out of the coverage. This requirement will not become effective until further regulations are issued, however, and is not expected to be effective by 2014 as originally planned. 

What should employers do now?

  • Determine the extent to which the new rules apply- Since the Affordable Care Act does not apply to all employers in exactly the same manner, employers should review the law to identify the requirements applicable to them, and the compliance deadlines corresponding to each requirement. Employers who maintain so-called “grandfathered plans,” for example, will not be subject to the new rules in the same manner as employers whose plans do not qualify for grandfathered status.

  • If the law is applicable to them, employers should decide whether to “play or pay” – If the Affordable Care Act is applicable to a particular employer, the employer should decide whether it will offer health care insurance to its employees or pay the penalties otherwise imposed by the law.

  • If you elect to provide insurance, confirm that your coverage complies with the new rules -Employers who elect to comply with the Affordable Care Act by providing coverage to their employees should consult their benefits providers to ensure that their plans comply with all aspects of the new law that may are applicable to them.

  • Seek tax advice regarding potential tax benefits resulting from the payment of premiums- Employers that offer health care coverage to employees should confer with their accountant or tax advisor to assure that they are taking advantage of any tax credits that may be available to them. 

The Affordable Care Act undeniably changes the landscape of health insurance coverage. Although the law is lengthy and complicated, most of the new rules affect insurers more directly than employers. Employers must be certain that they understand the requirements that are imposed upon them, however, and are ready to comply with those rules in a timely manner. If you have any questions about the new health care law, or any other issue relating to employment law, please contact one of our attorneys:

Daniel F. Pyne III
Richard M. Noack
Ernest M. Malaspina
Karen Reinhold
Erik P. Khoobyarian
Shirley Jackson