All employers must learn about the Affordable Care Act (ACA). Most employers have been or will be significantly affected by the ACA. We will attempt to sort through this enormous body of law so that all employers, large and small, will have an understanding of where they fit and what their responses should be.
This is the first of a series of articles that will focus on small employers (less than 200 employees), but also touch on the issues that employers of all sizes must face. This first article will focus on issues that apply to plans of employers of all sizes. Initially, we will focus on plans governed by ERISA. A later article will revisit some of these same issues with a focus on the different impact on and responses of governmental employers. For the sake of simplicity, we will assume that plan years are calendar years. From these articles, we hope to equip you to deal more effectively with your ACA compliance team – insurance agent and company, third party administrator (TPA), accountant and attorney.
Larger employers must pay a penalty if they fail to do so. Small employers escape this penalty. But if an employer (large or small) offers coverage, it must follow the rules described below.
The Old News
The ACA was adopted in early 2010 and it began changing plans right away. Some of the “employee rights” provisions became effective immediately after adoption. The small employer tax credit also became effective for 2010. The most notable set of rules, however, became effective January 1, 2011. These are what we call the benefit mandates, and were the most visible set of changes.
One set of mandates applied to all plans and could not be delayed or circumvented. The most noticeable mandates were:
- The prohibition on lifetime and annual limits. This mandate was implemented on a phase-in basis and the prohibition becomes complete in 2014.
- The coverage of children as dependents to age 26 regardless of student status.
- The elimination of pre-existing condition exclusions. These exclusions were eliminated for children under age 19 in 2011, and this change applies to adults in 2014.
Another set of benefit mandates could be avoided or delayed by election of grandfather treatment. These mandates include:
- The requirement to provide preventative health services at no charge (including women’s preventative health coverages effective in 2013, such as contraceptives and morning after pills but not surgical abortions).
- Another set of rules were the “patient protections” allowing direct access to Ob-Gyns and pediatricians and primary care physicians (for HMOs and POS plans).
- The broad adoption of claim and appeal procedure rules, as well as optional external review rules.
- OTC drugs (other than insulin) could no longer be reimbursed on a tax-free basis.
- Emergency services must now be available without prior authorization for out-of-network services (additional charges may apply).
Another change that could be avoided by grandfather treatment is the rule prohibiting discrimination in participation. Previously, discrimination rules applied only to self-insured plans. A new anti-discrimination rule, however, applies to insured plans. This rule became effective in 2011, but the IRS suspended enforcement (penalty application) pending publication of regulations. There will be some further delay in enforcement after publication of the rules, but the length of the delay is unknown. We don’t have a publication date. These rules are supposed to be modeled after the rules applicable to self-insured plans. Our crystal ball suggests that participation will not need to be at the 100% level. The self-insured plan rules allow blanket exclusions for collectively bargained, seasonal and part-time employees and then allow exclusion of an additional 30% or more of the remaining eligible employees. This will be of only limited help for employers of 50 or more employees, as the pay-or-play penalties will apply if less than 95% of full-time employees are covered. The “limited help” is that the pay-or-pay penalty is considerably less than the discrimination violation penalty. The discrimination rule is the sleeper issue for 2014 or 2015, particularly for small employers.
Another big event in 2012 was the requirement to prepare and distribute the Summary of Benefits and Coverage (SBC). This will likely be a helpful consumer tool, for those who have the ability and desire to do comparison shopping. This rule required plans to compile a specified set of information about the plan on four pages (since this couldn’t be done on four pages, the Reg writers interpreted this to mean “4 two-sided pages” plus a glossary of terms).
The Current News for 2013
The year 2013 is relatively quiet on the ACA front, but does bring some changes. The most noticeable change for most employers/employees is the limitation in health care flexible spending accounts to $2,500 in any plan year. The plan must be amended by the end of 2014 to recite this limit, but the plan must be operated in accordance with this limit beginning in 2013.
A new employee notice requirement was scheduled for March 1, 2013. The IRS has recently announced that this will be delayed until late summer or fall.
A new era of federal taxes and fees begins in 2013. The Patient Centered Outcomes Research fee becomes effective for 2013. The amount is $2.00/covered life/year ($1 for the first year) and the fee is scheduled to sunset after seven years. This fee will generally be paid by the insurance company or TPA in the following July, and passed through to the employer sponsor. Another fee is the Reinsurance fee for high risk pool coverage. This amount was announced as $63/covered life. This fee will not impact plans until 2014 and will continue through 2016. Again, this will be paid by insurance companies and passed through to the employer in the form of higher premiums. Another fee beginning in 2014 applies only to insurance companies (self-insured plans exempt). The amount has not been determined.
The medical device tax of 2.3% becomes effective in 2013, as well as increases in individual taxes on high earners.
Other ACA Issues
Later installments will deal with the following issues:
- New requirements for 2014
- Consequences of size. How does the impact of the ACA change as the employer size changes to 50, 100, 200 and more employees? And how does an employer using part-time and seasonal employees determine size?
- Pay or play rules and taxes
- Special issues for governmental and church employers
- Non-ACA health plan issues
- Employee communications
- Plans exempt from ACA
- FSAs, HRAs, HSAs and account-based plan issues
Dealing with 2013 changes and gearing up for the 2014 changes will make this an interesting year. If you would like information on these topics in advance of the next installment or if you have questions about how the ACA will affect your business, call one of the labor attorneys at Mika Meyers.