It’s not too late to gear up for implementing Obamacare. But it’s getting close.
By Karen Frost and Lisa McDougall
When the President signed the Patient Protection and Affordable Care Act (PPACA) into law in the spring of 2010, the deadline for the full implementation seemed far away. Nearly three years and thousands of pages of regulations later, the most significant provisions of the PPACA take effect on January 1, 2014. For many HR executives, a January 2014 effective date means that they need to have their healthcare strategies, plan designs, and administrative systems ready to comply by fall 2013. It will be here before we know it.
The impact on HR executives and employer group health plans include new fees or costs for both the plan and employees, changes in plan design, and additional notification and reporting requirements. Employers need to have a good understanding of many elements as they evaluate, develop, and execute their health plan strategies:
New Fees and Costs
The PPACA contains several provisions that impose fees on group health plans that are intended to improve healthcare delivery or pay for the cost of expanded coverage. These will have a direct cost to employer-sponsored plans starting in mid-2013. These fees include:
• The comparative effectiveness fee. This fee is designed to fund comparative clinical effectiveness research. For a plan year ending on or after October 1, 2012 and before October 1, 2013, the fee is $1 times the average number of employees and dependents covered by the plan during the plan year. It increases to $2 for a plan year ending on or after October 1, 2013 and before October 1, 2014. The fee must be paid no later than July 31 of the year following the last day of the plan year. So for employers with calendar year plans, the 2012 fee must be paid no later than July 31, 2013.
• The transitional reinsurance program fee. The transitional reinsurance program is intended to minimize adverse selection in the initial years of state exchange operation by funding a reinsurance program in each state, which will run from 2014 to 2016. A fee will be imposed on group health plans based on total number of covered individuals. The 2013 fee, which is proposed to be $63 annually per covered life (employee, spouse, and dependents), is generally limited to major medical coverage. HR executives will want to be aware of this fee as they set healthcare budgets for the next few years.
• The additional Medicare tax. Employees will pay additional Medicare tax of 0.9 percent on income over a certain amount, depending on their tax filing status. Employers, however, need only withhold the additional Medicare tax on employees’ income that exceeds $200,000, regardless of filing status (which employers will not know). HR executives should coordinate with their payroll providers to be sure the increased tax is collected and reported. Note that this additional tax is only on the employee portion, and not the employer portion, of Medicare tax.
Changes in Plan Design
A number of PPACA provisions that take effect in 2014 have a direct impact on employers’ healthcare plan designs and strategies. HR executives will need to consider how to modify their healthcare plans to comply with these new provisions. A few key ACA provisions will impact plan design:
• Elimination of preexisting conditions. Preexisting condition exclusions were eliminated for dependents under age 19 for plan years beginning on or after September 23, 2010. Individuals over the age of 19 will generally not be subjected to any preexisting condition exclusions for plan years beginning on or after Jan. 1, 2014.
• The 90-day waiting period. Many employers have plans that require employees to work a certain amount of time before health coverage is available to them. For plan years beginning on or after January 1, 2014, an employer’s waiting period cannot exceed 90 days. Companies that have waiting periods beyond 90 days will have to make this change to their policy.
• Employer mandate. The PPACA provision that could have the most significant impact on group health plan design is the employer mandate, which requires employers with 50 or more full-time employees (FTE) to offer minimum essential health coverage to their employees (and dependent children) or pay a “shared responsibility payment.”
The amount of the shared responsibility payment varies. If minimum essential coverage is not offered to employees and/or their dependent children, the penalty is $2,000 per year per full-time employee (excluding the first 30 full-time employees). So if an employer has 100 full-time employees and does not offer minimum essential coverage, the penalty would be 70 times $2,000 or $140,000 per year. If minimum essential coverage is offered, but considered unaffordable or does not provide minimum value, the penalty is $3,000 per year per full-time employee who enrolls in and receives a premium tax credit from a state exchange. So if the same employer has 100 full-time employees and five receive a premium tax credit when enrolling for coverage in a state exchange, the penalty would be $3,000 times five or $15,000 per year.
Guidance was recently issued that provides employers with a safe harbor approach that can be used in determining which employees are considered full-time and, as such, impacted by the employer mandate. Generally, employers may select a measurement period in which they review an employee’s average hours worked. A subsequent stability period follows during which an employer treats the employee (determined to be full-time during the measurement period) as eligible for medical coverage regardless of the employee’s number of hours worked during the stability period. The length of the measurement and stability periods to determine full-time status will be particularly important for HR executives with an hourly or seasonal workforce.
HR executives, if they haven’t already, will need to formulate a strategy for how they determine who is a full-time employee and who is not.
Notifications and Reporting
The PPACA contains a variety of reporting and notification requirements that begin in early 2013.
• W-2 reporting. Employers that sponsor a group health plan are required to report the cost of health coverage on employees’ W-2 forms for coverage beginning in 2012. Generally, W-2 reporting is limited to the cost of the medical plan as most other health-related plans are generally excluded (e.g., health savings accounts, health reimbursement arrangements, and most contributions to health spending accounts). For most employers, W-2s must be distributed by January 31 of the following year. If they haven’t already, HR executives need to take immediate action to make sure that the appropriate amount is reported.
• Notification about state exchanges. Employers should be aware that their 2013 communication plans must include a notification to employees about the creation and existence of state exchanges. This communication is currently mandated to be provided by March 1, 2013. However, several challenges still exist: 1) additional guidance is needed on the content and format of the notice, and 2) most states that are setting up exchanges are in the midst of implementing the required systems and call center infrastructure, so contact information might not yet be available. HR executives must plan to provide this notice in a timely fashion once additional guidance is provided.
It is likely that 2013 will be a busy year as HR executives get ready to implement the final provisions of the PPACA. While uncertainties in the law still exist and further guidance is expected, employers must focus their short-term efforts on following the healthcare reform-related guidance and making related corrections to their plan. Longer term, however, the changes brought about by the PPACA provide employers an opportunity to take a closer look at their overall healthcare strategies and re-assess the role they want to have moving forward in providing healthcare benefits and influencing the health of their workforces.
Karen Frost is vice president of health solutions and strategies, and Lisa McDougall is health solutions strategist, for Aon Hewitt.
