With the end of 2012 quickly approaching, and for 2013 planning purposes, this newsletter provides a high-level list of the important changes to be aware of under the Patient Protection and Affordable Care Act and the effective date of those required changes.
The Patient Protection and Affordable Care Act (PPACA) requires employers that sponsor group health plans to take a number of legal compliance steps related to their group health plans. With the end of 2012 quickly approaching, and for 2013 planning purposes, below is a high-level list of the important changes you should be aware of under the PPACA and the effective date of those required changes.
Employer W-2 Reporting
Employers are required to report the value of group health plan benefits on the employee’s annual Form W-2, beginning with the 2012 taxable year (the W-2 due in January 2013). The value of the coverage is calculated similar to the COBRA premium. Certain exceptions apply. No reporting is required for excepted benefits (stand-alone dental and vision); most health flexible spending accounts (FSAs), health reimbursement accounts (HRAs) and health savings accounts (HSAs); and on-site clinics, employee assistance plans or wellness programs where the employer does not charge a COBRA-like rate for access.
Summary of Benefits and Coverage
Health plans must distribute a Summary of Benefits and Coverage (SBC) to all plan participants. The SBC is required to describe each benefit coverage option, cost-sharing, exclusions and limitations, provider information, formulary information, etc. Changes to the SBC must be communicated to participants 60 days in advance of the effective date of the change. If a group health plan willfully fails to provide the SBC to participants, it may be subject to a fine of up to $1,000 for each failure and applicable excise tax reporting requirements. However, governmental agencies with enforcement authority have indicated the penalty will not be assessed in 2013 if the employer has attempted to comply in good faith with the SBC requirements. An SBC is not required to be provided for plans, policies or benefit packages for excepted benefits, such as stand-alone dental or vision plans and certain health FSAs or HSAs. However, an SBC does need to be provided for an HRA. SBCs must be provided to participants and beneficiaries beginning on the first day of the first open enrollment period that begins on or after September 23, 2012 (the first day of the plan year beginning on or after September 23, 2012, for those participants and beneficiaries who do not enroll in coverage through an open enrollment period, including individuals who are newly eligible for coverage or who are eligible for special enrollment under the Internal Revenue Code).
Claims and Appeals
Group health plans must establish internal and external review procedures consistent with minimum standards. They must also have an internal appeals process that complies with PPACA beginning on or after September 23, 2010. PPACA regulations expanded the definition of an “adverse benefit determination” under the Department of Labor (DOL) claims procedure regulations to include rescissions of coverage and eligibility determinations. For plans with two levels of appeal, the second-level appeal results in a “final internal adverse benefit determination” that triggers the right to external review. Claimants can appeal certain types of claims to an independent review organization (IRO), an entity that performs independent external reviews of adverse benefit determinations and final internal adverse benefit determinations under state or federal external review procedures. Group health plans are required to contract with at least two IROs by January 1, 2012, and with at least three IROs by July 1, 2012, however many insurers and/or third-party administrators are offering this service to their customers. This rule does not apply to grandfathered plans.
Comparative Effectiveness Research Fee
For plan years ending after September 30, 2012, through 2013, self-insured health plans and fully insured health plans (through the insurer) will be assessed a $1 per participant fee to fund research regarding patient-centered outcomes for medical treatment. The fee increases to $2 per participant for subsequent years through plan years ending on or before September 30, 2019.
Quality of Care Reporting
The U.S. Department of Health and Human Services is required to develop reporting requirements for all non-grandfathered health plans regarding the quality of care. The purpose is to improve health outcomes through quality reporting, effective case management, chronic disease management and medication and care compliance; prevent hospital readmissions; improve patient safety and care; and implement wellness programs.
Health FSA Contribution Limits
Currently there is no maximum contribution limit on the amount that can be contributed to a Health FSA. The maximum annual contribution limit permissible under a Health FSA, effective for plan years on or after January 1, 2013, is reduced to $2,500.
Loss of Medicare Part D Subsidy Deduction
Effective January 1, 2013, the deduction for the portion of health care expenses that are reimbursed to the employer through the Medicare Part D subsidy program will no longer be available. The Retiree Drug Subsidy will remain in existence, however an employer’s ability to deduct the amount of the subsidy will end. This change increases an employer’s income tax liability, in effect increasing the employer’s cost of providing prescription drug coverage to retirees. This applies to insured and self-insured health plans regardless of their grandfathered status.
FICA Medicare Tax Increase
For tax years beginning after December 31, 2012, the FICA Medicare tax rate will increase by 0.9% for wages over $200,000 ($250,000 for married couples filing jointly). FICA taxes are comprised of Social Security and Medicare taxes, thus this change increases the employee’s portion of the FICA Medicare tax from 1.45% to 2.35% for wages over $200,000 ($250,000 for married couples filing jointly). An employer will be required to collect the employee’s portion of this FICA Medicare tax.
Notice of State Insurance Exchanges
By March 1, 2013, plans must provide notice to employees and new hires of the upcoming existence of state insurance exchanges. Employers are awaiting further guidance on the content of this notice.