Health Care Reform Requires Action Despite Delay of Employer Mandate
This article provides an overview of various health care reform provisions requiring employer action this year and next. These Patient Protection and Affordable Care Act requirements are effective even though the IRS is delaying, by one year, enforcement of the law's "employer-shared responsibility" penalties, sometimes referred to as the "play or pay" mandate, and related reporting requirements. Although enforcement of the employer shared responsibility provisions has been postponed one year, numerous health care reform changes require employer action this year and next.
What Was Postponed?
The IRS announced two months ago that it was delaying, by one year, enforcement of the employer "shared responsibility" penalties, sometimes referred to as the "play or pay" mandate. The Patient Protection and Affordable Care Act (PPACA) imposes a $2,000 per year per full-time employee penalty if a covered employer fails to offer minimum essential coverage to substantially all full-time employees (and their dependents). Even if an employer offers coverage to substantially all full-time employees, defined generally as those who work an average of at least 30 hours per week, it is still potentially subject to a penalty of $3,000 per year for each full-time employee who is not offered coverage that provides minimum value and satisfies the law's affordability standard. Government enforcement of these penalties, which were scheduled to become effective January 1, 2014, for employer's with calendar year plans, have been postponed by one year.
Also postponed until 2015 are certain penalty-related reporting provisions. One provision requires insurers and self-funded employer plans to report to the IRS information about the health insurance coverage they provide and the individuals to whom they provide that coverage. The other provision requires reporting by employers about the health insurance coverage they offer to their full-time employees. Regulations implementing these reporting requirements are expected to be published shortly.
Changes Effective Later this Year and Next
The announced postponement was welcomed by most employers. Nevertheless, there remain numerous PPACA requirements that become effective later this year and next that demand attention. These include the following:
Notice of Exchange Coverage: A notice concerning Exchange coverage must be distributed by all employers to all current employees by October 1, 2013, and thereafter to new hires within 14 days of their start date. See our bulletin, Employer Notices about PPACA Insurance Exchanges, for additional information.
New SBC Requirements: Summaries of benefits and coverage, also known as SBCs, must be updated to include two additional items: Does the plan provide "minimum essential coverage"? Does the coverage meet the law's "minimum value" actuarial standard? This is effective for plan years beginning on or after January 1, 2014, and therefore must be included with the open enrollment materials distributed this fall for calendar-year plans.
Defining "Full-Time Employees": October 2013 marks the start of the 12-month standard measurement period that most employers electing to utilize the look-back measurement period for variable hour and seasonal employees are expected to use in determining the eligibility of such employees for coverage effective January 1, 2015. Employees who complete at least 1,560 hours of service (an average of at least 30 hours per week) during the 12-month standard measurement period ending in October 2014 will be offered an opportunity to enroll for coverage as part of that fall’s open enrollment process.
Wellness Programs: Final wellness program regulations published in June 2013 are effective for plan years beginning on or after January 1, 2014. These new regulations will require, in certain instances, modifications in the design and operation of existing wellness programs. Also effective beginning in 2014, the maximum incentive amount that may be offered under health-contingent wellness programs is increased to 30 percent of the cost of coverage (or 50 percent in the case of tobacco wellness programs).
Additional Changes: In addition, the following benefit and coverage mandates are effective January 1, 2014, for calendar year plans:
- Eligibility waiting periods may not be longer than 90 days. Guidance issued makes clear that providing for coverage effective the first day of the month following an employee’s completion of 90 days of service is not permitted.
- Essential health benefits may not be subject to annual dollar limits.
- Pre-existing condition exclusions are prohibited for both adults and children (having been prohibited for children under 19 since 2011).
- Coverage of adult children to age 26 is required regardless of the child’s eligibility for other coverage.
Extra Requirements for Non-Grandfathered Plans: Plans which are no longer grandfathered under PPACA are subject to the following extra requirements for plan years beginning on or after January 1, 2014:
- Routine costs for individuals participating in clinical trials must be covered.
- Obesity screening and counseling for adults must be covered.
- Annual out-of-pocket maximums are limited to the maximums applicable to high-deductible health plans. The 2014 limits are $6,350 for individuals and $12,700 for families. An exception authorized by the Department of Labor allows plans with major medical and prescription drug benefits administered by separate claims administrators an additional year to aggregate claims in applying the maximums.
Reinsurance Fee: A reinsurance fee will become payable on a quarterly basis beginning January 15, 2014. The fee is payable by insurers and third-party administrators which, in turn, are expected to pass the cost along to plan sponsors. The fee is set at $63 per covered person for 2014. The fee funds a reinsurance program to help cover costs for high-risk individuals purchasing Exchange coverage.
PCORI Fee: The reinsurance fee is different than another PPACA per covered person fee: the $1 per covered person Patient-Centered Outcomes Research Institute (PCORI) fee. This fee was payable by July 31, 2013 (for 2012) by insurers and by employers of self-funded plans. The PCORI fee increases to $2 per covered person for 2013.
Additional 2013 Changes: Other 2013 changes include W-2 reporting of the value of employer-provided insurance coverage, capping of health care flexible spending account contributions at $2,500 per year, additional preventive services for women without cost sharing (for plans that are not grandfathered), a 0.9 percent increase in the employee share of Medicare taxes on wages exceeding $200,000, and the elimination of the Medicare Part D retiree drug subsidy deduction.
If you have any questions regarding this bulletin, you may contact Thomas G. Hancuch, Philip L. Mowery, Kelly A. Starr or any Vedder Price attorney with whom you have worked.
Vedder Thinking | Articles Health Care Reform Requires Action Despite Delay of Employer Mandate
Newsletter/Bulletin
September 2013
This article provides an overview of various health care reform provisions requiring employer action this year and next. These Patient Protection and Affordable Care Act requirements are effective even though the IRS is delaying, by one year, enforcement of the law's "employer-shared responsibility" penalties, sometimes referred to as the "play or pay" mandate, and related reporting requirements. Although enforcement of the employer shared responsibility provisions has been postponed one year, numerous health care reform changes require employer action this year and next.
What Was Postponed?
The IRS announced two months ago that it was delaying, by one year, enforcement of the employer "shared responsibility" penalties, sometimes referred to as the "play or pay" mandate. The Patient Protection and Affordable Care Act (PPACA) imposes a $2,000 per year per full-time employee penalty if a covered employer fails to offer minimum essential coverage to substantially all full-time employees (and their dependents). Even if an employer offers coverage to substantially all full-time employees, defined generally as those who work an average of at least 30 hours per week, it is still potentially subject to a penalty of $3,000 per year for each full-time employee who is not offered coverage that provides minimum value and satisfies the law's affordability standard. Government enforcement of these penalties, which were scheduled to become effective January 1, 2014, for employer's with calendar year plans, have been postponed by one year.
Also postponed until 2015 are certain penalty-related reporting provisions. One provision requires insurers and self-funded employer plans to report to the IRS information about the health insurance coverage they provide and the individuals to whom they provide that coverage. The other provision requires reporting by employers about the health insurance coverage they offer to their full-time employees. Regulations implementing these reporting requirements are expected to be published shortly.
Changes Effective Later this Year and Next
The announced postponement was welcomed by most employers. Nevertheless, there remain numerous PPACA requirements that become effective later this year and next that demand attention. These include the following:
Notice of Exchange Coverage: A notice concerning Exchange coverage must be distributed by all employers to all current employees by October 1, 2013, and thereafter to new hires within 14 days of their start date. See our bulletin, Employer Notices about PPACA Insurance Exchanges, for additional information.
New SBC Requirements: Summaries of benefits and coverage, also known as SBCs, must be updated to include two additional items: Does the plan provide "minimum essential coverage"? Does the coverage meet the law's "minimum value" actuarial standard? This is effective for plan years beginning on or after January 1, 2014, and therefore must be included with the open enrollment materials distributed this fall for calendar-year plans.
Defining "Full-Time Employees": October 2013 marks the start of the 12-month standard measurement period that most employers electing to utilize the look-back measurement period for variable hour and seasonal employees are expected to use in determining the eligibility of such employees for coverage effective January 1, 2015. Employees who complete at least 1,560 hours of service (an average of at least 30 hours per week) during the 12-month standard measurement period ending in October 2014 will be offered an opportunity to enroll for coverage as part of that fall’s open enrollment process.
Wellness Programs: Final wellness program regulations published in June 2013 are effective for plan years beginning on or after January 1, 2014. These new regulations will require, in certain instances, modifications in the design and operation of existing wellness programs. Also effective beginning in 2014, the maximum incentive amount that may be offered under health-contingent wellness programs is increased to 30 percent of the cost of coverage (or 50 percent in the case of tobacco wellness programs).
Additional Changes: In addition, the following benefit and coverage mandates are effective January 1, 2014, for calendar year plans:
- Eligibility waiting periods may not be longer than 90 days. Guidance issued makes clear that providing for coverage effective the first day of the month following an employee’s completion of 90 days of service is not permitted.
- Essential health benefits may not be subject to annual dollar limits.
- Pre-existing condition exclusions are prohibited for both adults and children (having been prohibited for children under 19 since 2011).
- Coverage of adult children to age 26 is required regardless of the child’s eligibility for other coverage.
Extra Requirements for Non-Grandfathered Plans: Plans which are no longer grandfathered under PPACA are subject to the following extra requirements for plan years beginning on or after January 1, 2014:
- Routine costs for individuals participating in clinical trials must be covered.
- Obesity screening and counseling for adults must be covered.
- Annual out-of-pocket maximums are limited to the maximums applicable to high-deductible health plans. The 2014 limits are $6,350 for individuals and $12,700 for families. An exception authorized by the Department of Labor allows plans with major medical and prescription drug benefits administered by separate claims administrators an additional year to aggregate claims in applying the maximums.
Reinsurance Fee: A reinsurance fee will become payable on a quarterly basis beginning January 15, 2014. The fee is payable by insurers and third-party administrators which, in turn, are expected to pass the cost along to plan sponsors. The fee is set at $63 per covered person for 2014. The fee funds a reinsurance program to help cover costs for high-risk individuals purchasing Exchange coverage.
PCORI Fee: The reinsurance fee is different than another PPACA per covered person fee: the $1 per covered person Patient-Centered Outcomes Research Institute (PCORI) fee. This fee was payable by July 31, 2013 (for 2012) by insurers and by employers of self-funded plans. The PCORI fee increases to $2 per covered person for 2013.
Additional 2013 Changes: Other 2013 changes include W-2 reporting of the value of employer-provided insurance coverage, capping of health care flexible spending account contributions at $2,500 per year, additional preventive services for women without cost sharing (for plans that are not grandfathered), a 0.9 percent increase in the employee share of Medicare taxes on wages exceeding $200,000, and the elimination of the Medicare Part D retiree drug subsidy deduction.
If you have any questions regarding this bulletin, you may contact Thomas G. Hancuch, Philip L. Mowery, Kelly A. Starr or any Vedder Price attorney with whom you have worked.
