July 10 2012 – Healthcare Reform

Background:  In short, the court battle over thePatient Protection and Affordable Care Act (ACA) is over. The US Supreme Court says the law is valid.  Whether you agree or not, it is now timefor businesses to start getting ready for what this means. 

 

There are thousands of ins and outs to this law – far more thanthis article can address.  But for now, there are 7 areas to startfocusing on.   

Number 1 – The Employer “Play or Pay” Mandate:  The press has been all about the individual mandate.  But, the moreimportant mandate for employers is the “play or pay” mandate, which will require large employers (generally, those with 50 or more full-timeemployees taking into account full-time equivalents) to provide adequate and subsidized group health plan coverage to all full-time employeesand their families beginning in 2014.  If an employer fails to satisfythis requirement, it will be subject to a penalty – generally, $2,000per full-time employee per year.  This could have a significant economic impact on the bottom line for many employers. Obviously, it is veryimportant for employers to start budgeting for this new cost of doingbusiness. 

Number 2 -New Nondiscrimination Requirements:  ACA prohibits most insured group health plans from discriminating in favorof highly-paid employees. If an employer’s plan fails to satisfy thisrequirement, the employer will be subject to significant financialpenalties.  Implementation of this requirement has been delayed to giveregulators time to issue guidance.  However, it is expected that thisrequirement will begin applying in 2014 or shortly thereafter.  If youare offering different plans, eligibility periods, or premium subsidiesto different groups of employees, it is likely that you will need toadjust your offerings to comply with these new nondiscriminationrequirements.

 

Number 3 – Automatic Enrollment:  ACA requires most employers with more than 200 employees toautomatically enroll new employees who are eligible for group healthplan coverage.  Instead of having to affirmatively elect healthcoverage, the “default” will be for employers to automatically enrollany eligible employee who fails to opt out.  This type of enrollmentprocess is certain to increase plan participation – and likely to leadto higher plan subsidy costs for many employers.  Like some otherrequirements, this has also been delayed to give regulators time toissue guidance on the requirement.  This is expected to be applicable in 2014 or shortly thereafter.

 

Number 4 – Disposition of Medical Loss Ratio (MLR) Rebates:  In the coming months, many employers will receive MLR rebates fromtheir group health insurance carriers.  In most cases, disposition ofthese rebates is a fiduciary act under ERISA that will require employers to determine whether all or part of a rebate must be refunded toemployees or otherwise used to benefit employees.  The answer willdepend on the language of an employer’s plan documents and the structure of plan premiums.  Any employer that receives an MLR rebate will needto review its legal rights and obligations with respect to the rebate.

Number 5 – New Summary of Benefits and Coverage (SBC) Requirement:  Starting with the next open enrollment period, employers mustdistribute an SBC for most of their group health plans.  The SBC is auniform disclosure of the material terms and provisions of a plan, which is intended to allow employees to more easily compare different planofferings.  The content requirements for an SBC are very detailed andwill likely require the assistance of an employer’s insurance carrier or third-party administrator.  With 2013 open enrollment periods rightaround the corner for most employers, compliance with the new SBCrequirements should be an immediate priority.

Number 6 – Reporting the Cost of Coverage on 2012 W-2 Forms:  Beginning with the 2012 W-2 forms to be distributed by employers in2013, many employers will be required to report the total cost of anygroup health plan coverage that was provided to an employee.  This costof coverage is not taxable.  Instead, it is simply an informational item on the W-2.  But compliance with this new requirement will likelyrequire a lot of coordination between an employer’s HR and payrolldepartments.  Be sure that you are planning for this new requirementnow, as it will be quite difficult to gather all of the necessaryinformation and program payroll systems after the end of year and stillbe in a position to distribute W-2s in a timely manner.

 

Number 7 – New Limitations on Medical Flexible Spending Accounts:  Employee contributions to a flexible spending account maintained under yourcafeteria plan will be limited to $2,500 beginning in 2013.  Yourcafeteria plan should be amended to reflect this change before January1, 2013 for calendar year plans.
The compliance obligations discussed above are just a sample of theadditional burdens that employers will need to address in order tosatisfy their healthcare reform obligations.

 

The Future:  The cost of maintaining a health plan will likely go up.  You will have to examine the portion of employeecost that you are paying currently in light of employees’ pay todetermine whether you will be in compliance with the play or pay mandate and anticipate the additional cost of the automatic enrollmentrequirement.  The cost of compliance with ACA will be reflected inincreased administration fees and premiums, as well.  Also, you shouldconsider that your employees will have many questions about how all ofthis impacts them, so you need to be prepared to address thosequestions.

 

As you can see, this decision has far-reaching – and possiblyexpensive – implications for employers.  To explain the requirements inmore detail, Fisher & Phillips will produce free webinars and otherinformation.  For enrollment and other information, visit our website at www.laborlawyers.com .