What Are Employers’ Obligations Under the Patient Protection and Affordable Care Act (“PPACA”) – Negotiating the Maze
In 2011 the United States Supreme Court upheld the Patient Protection and Affordable Care Act (PPACA), commonly referred to as “ObamaCare.” The major provisions of the PPACA become effective on January 1, 2014. Employers need to determine if the PPACA applies to them, and if so, whether to comply with the PPACA or pay the resulting penalties for non-compliance. This article provides a brief overview of the PPACA. Some of the topics discussed in this article are addressed in more detail in the proceeding articles.
Whether or not an employer is impacted by the PPACA depends on the number of employees employed by the employer, whether the company offers employer-sponsored health care plans, and the type of health care coverage provided in the employer sponsored plan. Employers with 50 or more “full-time equivalent employees” may be subject to stiff penalties if they fail to comply with the mandates of PPACA. The impact on employers with less than 50 “full-time equivalent employees” appears minimal at this time.
By January 1, 2014, states much establish a marketplace (referred to as an “exchange”) offering particular employers and individuals a choice of health care plans that meet certain coverage requirements. If a state does not establish an exchange, citizens of that state may obtain health care coverage under the Federal exchange. The exchange is only open to citizens and legal residents who are not eligible for Medicare, Medicaid, or an employer-sponsored health care plan meeting certain standards.
Initially, only employers with less than 100 full-time employees may use the exchange to purchase affordable health care coverage for their employees through the Small Business Health Options Program (SHOP). By 2017, large employers will be able to buy insurance for their employees through the exchange.
Covered Employers “Pay or Play” Mandate:
This obligation, which begins in 2014, requires employers with 50 or more “full-time equivalent employees” to provide group health plan coverage to all full-time employees and their dependents up to age 26. Failure to “play” will result in employer penalties. The employer-sponsored plans must cover at least 60% of the employee’s medical costs, but need not make any contributions towards dependent coverage. The offered plans must also be “affordable,” meaning the employee’s contribution toward the plan premium for self-only coverage cannot exceed 9.5% of their household income.
Employers will pay a penalty or $2,000 per year, per full-time employee after the first 30 employees who obtain coverage through the exchange. Large employers with health care plans that fail to meet the 60% coverage and controlled cost under 9.5% of income (discussed above), will have to pay an annual penalty of $3,000 per full-time employee who obtains coverage through the exchange after the first 30.
Employers with more than 200 employees must automatically enroll employees into their employer-sponsored health care plans unless the employee opts out of coverage. Employees no longer have to elect health coverage; rather they will be automatically enrolled unless they choose to opt out. This process is likely to significantly increase plan participation.
The PPACA includes a provision stating that beginning after September 23, 2010 (excluding grandfathered plans), employers will no longer be able to offer varying contribution plans to different classifications of employees (i.e., owners, management, and all other employees). Under the Act, employers cannot discriminate in favor of highly compensated individuals regarding their eligibility to participate in health care plans. Likewise, the employer-sponsored health care plan cannot discriminate in favor of highly compensated individuals as to benefits that are provided. All employees must be offered the same benefits, waiting period times cannot vary, and employers’ contributions cannot vary amongst employees.
NOTE: Regulations are pending regarding implementation of this provision. However, it appears that violation of these new non-discrimination rules could trigger a penalty of $100 per day for each non-highly compensated employee receiving lesser coverage.
Medical Loss Ratio Rebates:
If insurance companies do not spend enough on benefits for claimants, rebates will be issued to employers beginning August 1, 2012. Disposition of the rebates is a fiduciary act under ERISA and requires employers to determine whether all or part of the rebate must be refunded to employees or otherwise be used to benefit employees. Employers should look to their plan documents and the structure of their plan premiums to make this determination.
Distribution of Summary of Benefits and Coverage:
Employers must issue a “summary of benefits and coverage” for open enrollments that begin on or after September 23, 2012. The United States Department of Labor has issued detailed guidance in the form of questions and answers regarding this requirement.
Reporting on W-2 Forms:
Beginning in 2013, W-2 forms issued to employees must include a report of the total cost of the employer-provided group health coverage provided to the employee. The cost is not taxable, and is aimed at providing employees with more information as to the costs of health care coverage.
Medical Flexible Spending Account Limitations:
Beginning in 2013, employee contributions to medical flexible spending accounts will be limited to $2,500.
Providing Exchange Notice to Employees:
To assist large and small employers with implementing this law, several provisions in the PPACA are included to help educate employees on how the exchanges will operate. One provision pursuant to Section 18B of the Fair Labor Standards Act (“FLSA”) requires employers to provide notices to all employees regarding the emergence of these exchanges, what they are, contact information for the exchanges, the availability of premium tax credits and the potential for loss of employer contributions if employees partake in the exchange. This requirement to provide notice was to take effect on March 1, 2013 and failure to comply would violate the federal FLSA.
This deadline was extended by joint federal agencies, with the expectation that the notices will now be due in late summer or fall 2013. According to the Department of Labor (“DOL”) this “will coordinate with the open enrollment period for Exchanges.” In addition, the DOL is considering providing model language for employers to use in the notices or permitting a template to be used.
Determining an Employer’s Liability:
To determine whether an employer will be subject to the penalties under the PPACA, employers must count their “full-time equivalent employees” as well as assess what the employer’s ownership structure entails. Then, should the employer determine they may be subject to the penalties under the Act, the employer must examine their health care plans to ensure they are in compliance. There are many costs that may increase based on the determination of these factors, Klinedinst PC has experienced and informed attorneys who can assist you in negotiating the maze of this Act. Please contact us to further assist you.
The opinions expressed in this employment update are general in nature, and are not meant to provide specific legal advice. For more information, please contact a Klinedinst attorney. No attorney/client privilege is created or assumed by reading this newsletter.
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