Timeline already begins for businesses under the Affordable Care Act
For now, the Affordable Care Act, also known as ObamaCare, is here to stay, but that doesn’t make it easy to understand.
The new health care laws mean that employers have new rules to follow and new responsibilities when it comes to providing health care options to employees, and it can be difficult to sort through. To help business owners better understand their obligations when it comes to the Affordable Care Act, the Asheville-based Van Winkle Law Firm partnered with Crescent Health Solutions and JPS Certified Public Accountants to present an educational seminar on the subject titled “The Affordable Care Act: What It Means for Employee Benefits and Your Business” last month.
Mary Williams Matthews, vice president of Healthcare Services, started off by giving the seminar attendees a summary of the schedule for the mandated changes. The timeline included the provisions that have already taken place and those yet to come under the Affordable Care Act.
In 2010, the provision for extended coverage for young adults allowed young adults to stay on their parent’s insurance plan until the age of 26.
That year also saw the start to the first phase of small business health insurance tax credits, which gives credit to qualifying businesses of up to 35 percent of the employer’s contribution to employee health insurance. By 2014, phase two of the plan increases that credit from 35 to 50 percent.
Effective in 2011 were increased taxes on Health Savings Accounts (HSA) distributions if they are not used for qualified medical expenses.
“It’s supposed to be used for (medical expenses) but can be used for other purposes,” Matthews said.
If the HSA was used for different purposes, the increase was from 10 to 20 percent.
In 2011, a provision for SIMPLE Cafeteria plans for small employers offers employers “safe harbor” from nondiscrimination requirements for cafeteria plans. This provision is for businesses with fewer than 100 employees.
Unless a plan is grandfathered in, a provision was made in 2010 to cover preventative care for employees with no copays, coinsurance or deductibles unless care is given by a health care provider outside of the network.
Matthews said examples of preventative care services include blood presser, diabetes and cholesterol tests, some cancer screenings, some types of health counseling, well baby and well child visits, routine vaccines and counseling/screenings to ensure healthy pregnancy.
However, the downside of this provision is that “everybody’s premiums are going up,” Matthews added.
During the current year, medical loss ratio rebates (MLR) kick in; however, MLR’s are not applicable to self-insured plans. MLR’s are measured by what insurers spent on clinical services provided to enrollees and activities that improve health care quality in 2011. In order to be eligible for a rebate, the loss ratio — meaning the amount of spending on enrollees compared to the premiums charged — must be at least 80 percent in small groups and 85 percent in large groups.
“The government wanted to ensure the ratio of benefits received compared to the cost of the plan,” Matthews explained. “You cannot reap excessive profits off of providing coverage.”
The notice of MLR’s comes from insurers with an indication of the rebate to be made out to the employer/plan sponsor/trust. The employer must determine who is entitled to the rebate, whether it is to be put into a trust, goes to the employer or the employee (if they contribute to the plan), or a mixture of both. If the employer pays all of the coverage costs, the rebate goes to the employer, but if some or all of the rebate goes to the employees it can be used in one of three ways: benefit enhancements, a “premium holiday,” or in a cash distribution.
This year also brings in the start of information reporting (unless a business has less than 250 employees). Information reporting means employers disclose the value of employee health insurance coverage sponsored by the employer, which is reported on W-2 forms.
Matthews said many business owners are worried that information reporting will lead to the IRS taxing health coverage, but she said the aim is “trying to measure cost.”
Starting in 2012, employers must also provide a summary of benefits and coverage to employees, giving accurate information and description on what types of coverage are available. The insurance provider should be able to supply employers with this information, but it is the employer’s duty to make it available to every employee. The summary of benefits can also be made available online provided employees can easily access it at work.
Starting Jan. 1, 2013 new laws regarding health flexible spending arrangements (FSA’s) will take effect.
FSA’s allow employees to set aside a portion of their earnings to pay for qualified expenses in a cafeteria plan, such as certain medical expenses. The advantage to FSA’s is that the money paid into it is not subject to payroll taxes, however, funds that are not used by the end of the plan year are lost to the employee, which is known as “use it or lose it.”
Starting in 2013, health FSA’s have a maximum amount available for reimbursement of incurred medical expenses under a plan year of $2,500. Unused contributions carried over into a grace period don’t count against the $2,500 of a later plan year, and there will be relief for certain contributions exceeding $2,500.
Matthews said the changes might include an end or changes to the “use it or lose it” issue, but that has not been determined yet. New regulation is expected by the end of the year.
Also in 2013, an additional hospital insurance tax under the Medicare payroll tax will be added for high-income taxpayers ($200,000 for a single person and $250,000 if married). The Medicare payroll tax is increased by 0.9 percent on wages that exceed those amounts, and the employer will have to withhold the extra on those wages.
In addition, the Medicare tax on investment income will impose a tax on individuals equal to 3.8 percent of the lesser of the individual’s net investment income for the year, or the amount of the individual’s modified AGI exceeding a threshold amount.
Essential Health Benefit provisions (EHB’s) must be covered by policies both inside and outside an insurance exchange. EHB’s include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services and devices, laboratory services, preventative and wellness services and chronic disease management and pediatric services.
The EHB provisions apply to individual and “small group” markets with fewer than 100 employees.
Premium assistance credit will take effect in 2014. Premium assistance credits are refundable tax credits that eligible taxpayers can use to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange.
There will be an excise tax on high-cost employer plans exceeding threshold amounts, which will be indexed for inflation.