Preparing now for healthcare reform
Some of the more widely publicized provisions of the Patient Protection and Affordable Care Act (“PPACA”) affecting employer group health plans are set to go into effect in 2014. While a number of the law’s requirements are already in place, the 2014 changes will have a very significant impact on health care plans. Employers should be reviewing now how the health care reform law will apply to their plans next year and beyond.
What’s Already in Place
The following PPACA requirements should already be met:
- Extended coverage for eligible adult children to age 26
- Limitations on preexisting condition exclusions for children and rescission of coverage
- Removal of lifetime dollar limits
- Annual W-2 reporting of the cost of coverage by larger employers not qualifying for transitional relief
- Provision of annual written summary of benefits and coverage to participating employees
- $2,500 limitation on health care flexible spending accounts
Moreover, plans that are not “grandfathered” under the PPACA must also offer no-cost preventive care and apply changed claims and appeals rules to participants’ claims.
What’s Coming in 2014
Starting next year, “applicable large employers” must comply with the principal PPACA requirement that they offer employees health care coverage that meets specified standards or be subject to penalties.
An “applicable large employer” is an employer that employed an average of at least 50 full-time (or full-time equivalent) employees on business days during the preceding calendar year. Guidelines exist to help employers determine who is a full-time employee. For instance, in general, two part-time employees who work 15 hours a week will be counted as a single full-time employee. Special rules apply for parent-subsidiary and other controlled groups, as well as for employers who exceed an average of 50 full-time workers due to hiring seasonal workers for 120 or fewer days a year.
Therefore, if your business is bordering on the 50-full-time-employee threshold, it is important to review your 2013 work force with an eye toward the calculation for 2014. Note that there is a transitional rule for the 2014 calculation that allows an employer to use any six-calendar-month period during 2013 for purposes of determining the full-time employee average. See us for more details.
Requirements and Penalties
Very basically, an applicable large employer must offer health coverage to all employees who work 30 or more hours a week and their dependents. The coverage must qualify as “minimum essential coverage” and must be “affordable coverage” providing a “minimum value.” (These terms are defined in the law and guidelines.) If these coverage requirements are not met by the plan and (1) at least one full-time employee enrolls in a plan provided through a state health insurance exchange and (2) a premium tax credit or cost sharing reduction is allowed under PPACA with respect to that coverage, then the employer will be subject to an “assessable payment” (i.e., penalty) of up to $3,000 for each affected employee annually (not to exceed the penalty for not offering coverage, discussed next).
Not every employee will qualify for a premium tax credit or cost sharing reduction for coverage obtained through the exchange. Generally, only employees earning less than four times the federal poverty line will be eligible.
Another assessable payment rule applies if an applicable large employer doesn’t offer minimum essential coverage at all to at least 95% of its employees who work at least 30 hours a week and their dependents. In such a case, if at least one full-time employee purchases exchange coverage for which a premium tax credit or cost sharing reduction applies, then the employer may be charged a penalty equal to $2,000 annually for each full-time employee (with the first 30 employees excluded).
Example: Employer has 70 full-time employees and provides no health care insurance coverage in 2014. At least one employee buys exchange coverage and receives a premium tax credit or cost sharing reduction. Employer is subject to an assessable payment of $2,000 for each of 40 employees (i.e., 70 employees minus the 30 excluded employees), or a total of $80,000.
An employer that qualifies as an applicable large employer will want to discuss with its advisors how the PPACA applies to its specific situation, whether its current plan meets the law’s requirements, as well as the various options available with respect to offering health care insurance coverage to its employees (including the potential cost of incurring penalties under PPACA).