Taking the Next Steps on the Path to Health Care Compliance
Since its enactment on March 23, 2010, 53 of the 57 provisions required by the Affordable Care Act for 2010-2012 are in place, and it's in the employers' best interest to prepare for the next set of requirements.
Employers who issued more than 250 W-2s in 2012 are required to report the value of their employer-sponsored health benefi ts on the W-2s they issue for 2012. Although the value of these benefi ts are not included in the employee's taxable income, this information will be used by the federal government to administer the so-called "play or pay" mandate that will take effect New Year's Day 2014.
This provision requires employers with at least 50 full-time employees (applicable large employers) to decide whether to offer minimum essential coverage to substantially all (at least 95 percent) of its full-time employees and their children to age 26 (the "play" option), or pay an excise tax if the company does not offer coverage (the "pay" option).
If a large employer decides to offer coverage, it must meet a minimum value test (cover at least 60 percent of allowable expenses) and be "affordable" to the employee (their contribution for single coverage can't exceed 9.5 percent of the employee's W-2 income) or else pay an excise tax. In 2013, employers will begin establishing measurement, administrative and stability periods to identify and offer coverage to "full-time" employees (30 hours/week). This could lead to higher use of part-time employees. Employers will need to weigh not only the financial consequences of dropping their health benefits, paying the excise taxes, and sending their employees to newly-formed health insurance exchanges, but also the impact to their organization's culture and their ability to hire and retain talent. If an employer offers financial incentives for wellness programs, the amount can increase from 20 percent to 30 percent of the cost for single coverage beginning January 1, 2014. Employers will want to consider tying more of their wellness incentives to healthy outcomes and consider how to transform their culture to support lasting behavioral change.
Some requirements have yet to be implemented because no federal guidance has been issued. Examples include the auto enrollment provision that applies to employers with more than 200 employees; non-discrimination rules for insured plans; and employee notice requirements regarding insurance exchanges.
Employers will want to be vigilant in keeping up with newly-released guidance so they can formulate compliance plans, such as terminating any executive medical reimbursement plans, so that their executives do not incur tax liabilities.
The "federally-facilitated" health insurance exchange to be operated by the Department of Health and Human Services in Ohio will begin enrolling individuals and small groups (less than 50 employees) on October 1, 2013. At the same time, private exchanges are being developed to serve employers of all sizes. Employers will want to assess the effectiveness of both the public and private exchanges. It may make using a defined contribution structure viable.
One of the nation's leading experts on health care policy, the Brookings Institution's Henry Aaron has said that "Nothing approaching the complexity of this rollout has ever taken place in U.S. peacetime history, with the start-up challenges vastly more complicated than Social Security or Medicare ever were." I couldn't agree more.
Consequently, many questions linger about the Act's prospects of containing health care costs, or to what extent the uninsured will be covered. It also remains to be seen how the deficit crisis and national debt will influence the future funding of the Act (such as premium subsidies). Since the largest tax expenditure is the exemption of employer-provided health benefits (more than $1 trillion over fiscal years 2013-2017) it may be difficult for Washington to leave that tax exemption alone.
Changes in the tax treatment of employer provided benefits could do more than the Act to spur employers to cease sponsoring health benefits, given that was why these benefits came into being in the first place during World War II's wage and price controls. In any event, employers will want to stay on the path to compliance to ensure they make the most appropriate decisions for their organizations.