Employer Compliance in 2013 under the Affordable Care Act

by Bradley Arant Boult Cummings LLP

Having survived the election and a Supreme Court challenge (for the most part), the Affordable Care Act (ACA) is here to stay. Employers should evaluate the requirements under ACA that apply to their group health plans for 2013. This alert provides a brief overview of requirements for 2013 as well as considerations for next year.

  • Health Care Flexible Spending Account (Health FSA) Limit. Health FSAs reimburse participants for eligible medical expenses from contributions made to their accounts. Under ACA, employers must now limit employee salary reduction contributions to a Health FSA to $2,500, generally beginning January 1, 2013 (for calendar year plans). This limit may be increased for future cost-of-living adjustments. Employers have until December 31, 2014, to amend their plans to reflect the limit, but plan operations should reflect the limit for plan years beginning after December 31, 2012.
  • Form W-2 Reporting for Health Coverage. ACA added a new reporting requirement for the IRS Form W-2. Now, the cost of employer-sponsored health coverage must generally be reported on an employee's Form W-2 beginning with the 2012 Form W-2 issued in January 2013, subject to certain exceptions for small employers.
  • 0.9% Additional Medicare Tax. Employers and employees currently each pay a Medicare tax of 1.45% on wages. Beginning in 2013, employers must withhold an additional 0.9% payroll tax as part of the employee portion of the Medicare tax for certain higher income employees. Although the additional tax is imposed on wages in excess of $200,000 for single filers ($125,000 for married individuals filing separately and $250,000 for joint filers), employers must nevertheless withhold the additional tax on behalf of all employees who have annual wages in excess of $200,000, regardless of their marital or tax return filing status.
  • Patient Centered Outcome Research Fee. Beginning with plan years ending after September 30, 2012, until September 30, 2019, a new fee will be imposed on employers that sponsor self-funded group health plans and on the insurers of fully-insured group health plans. The amount of the fee is $1 per covered individual for the first plan year ending on or after September 30, 2012; $2 per covered individual for the following plan year; and an amount increased for inflation thereafter. For self-funded plans, employers will need to pay the fee using IRS Form 720 by the July 31 coinciding with or next following the end of each plan year.
  • Elimination of Tax Deduction for Retiree Drug Expenses. Previously, an employer sponsoring retiree prescription drug coverage was entitled to the tax-free treatment of the Medicare Part D subsidy received by the employer for a portion of its expenses incurred in sponsoring the coverage, as well as a tax deduction for the full amount of those expenses. Beginning in 2013, employers may no longer claim the tax deduction.
  • Limits on Deductible Compensation. ACA generally caps the employee compensation deduction amount at $500,000 under Internal Revenue Code Section 162(m) for certain health insurance providers. The cap applies to amounts paid on or after January 1, 2013, but for services performed on or after January 1, 2010.
  • Notice Regarding Exchanges. ACA added a new section to the Fair Labor Standards Act that generally requires employers to provide each employee by March 1, 2013, a written notice regarding the new American Health Benefit Exchanges (Exchanges). Fortunately, in a Frequently Asked Questions bulletin issued earlier this year, the Department of Labor (DOL) has extended the deadline until regulations are issued. The regulations are anticipated by late summer or fall of 2013. The DOL is considering providing a model notice. In the notice, employees must be informed of the existence of an Exchange, given a description of the services provided by the Exchange, and told how to contact the Exchange to request assistance. Employees must also be informed that they may be eligible for a premium tax credit or a cost-sharing reduction through the Exchange if the employer plan’s share of the total cost of benefits under the plan is less than 60%. Finally, employees must be informed that (a) if they purchase a qualified health plan through the Exchange, then they may lose any employer contribution toward the cost of employer-provided coverage; and (b) all or a portion of employer contributions to employer-provided coverage may be excludable for federal income tax purposes.

2013 will also be the year for employers to evaluate generally whether they will provide coverage in 2014 that will meet the minimum value and related affordability requirements under ACA to avoid the imposition of the penalty tax. In 2014, ACA provides for across-the-board prohibited annual limits on essential health benefits, coverage for adult children to age 26 regardless of other employer-sponsored coverage, automatic enrollment for certain large employers, required plan coverage for certain clinical trials, cost-sharing limitations, limits of up to 90 days on waiting periods, and certain nondiscrimination rules.

If you have any questions about these requirements, please contact David Joffe or one of the other attorneys in the Employee Benefits and Executive Compensation Group at Bradley Arant Boult Cummings LLP.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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