- Supreme Court Upholds the Health Care Law: Upcoming Deadlines and Issues Employers Now Face
- September 7, 2012 | Authors: Jeanne E. Floyd; James "Jim" M. McCabe; Adam M. Meehan; Evelyn Small Traub
- Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Richmond Office
Now that the Patient Protection and Affordable Care Act (“ACA”) has survived its journey through three levels of judicial scrutiny and found its way out on the other side with not much more than some minor lacerations and bruises, employers must start looking to the future, and quickly. While some of the heavy hitting aspects of the legislation - individual mandate, creation of exchanges, and other employer-specific mandates - do not take effect until 2014 or later, there are very significant pre-2014 aspects of the ACA that have already 1 or will soon become effective.
In this article, we highlight critical deadlines that directly and indirectly affect employers in 2012 and 2013, as well as assess certain issues employers may face in implementation. We also discuss the prospects of employment litigation that employers may face under the ACA and the potential impact of the upcoming elections for employers who are trying to plan for implementation.
The ACA is comprehensive and affects numerous aspects of the provision of health care coverage and health care coverage administration. If you have specific questions about any of the topics discussed below or about the application of the ACA to your health care coverage, please contact a member of the Troutman Sanders Labor and Employment or Employee Benefits and Executive Compensation teams.
Significant Deadlines and Planning for Implementation of the ACA in 2012 and 2013
Summaries of Benefits & Coverage - September 23, 2012
Starting this year, the ACA will require group health plans and health insurers to distribute a Summary of Benefits & Coverage (SBC) to plan participants and beneficiaries. (See our prior articles regarding SBCs) The initial SBC must be distributed on the first day of open enrollment for any plan year that starts on or after September 23, 2012, or on the first day of the first plan year that begins on or after September 23, 2012, to participants and beneficiaries who enroll in coverage other than through open enrollment. Group health plans and health insurers must also distribute the SBC at other specified times throughout the plan year as outlined in the regulations (such as for new hires and participant requests). In addition, employers must provide a notice regarding any material modification in the terms of the plan or coverage that is not reflected in the most recently provided SBC no later than 60 days in advance of when such a change will be effective.
Earlier this year, the Departments of Labor, the Treasury, and Health & Human Services (the “Departments”) issued guidance on SBCs. Some of the highlights of that guidance are:
Content Required in SBC: In general, SBCs are limited to four double-sided pages and must contain: (1) a description of the coverage; 2 (2) exceptions, reductions or limitations of coverage; (3) any cost-sharing provisions; (4) coverage examples; (5) a statement that the SBC is only a summary; and (6) a phone number and website for individuals to get more information. A model uniform formatted SBC is provided on the DOL website.
Electronic Delivery: The SBC may be provided electronically when enrollment, renewal, or a request for an SBC is made online. A paper copy, however, must be available upon request.
Language: If the SBC is sent to an address in a county that has a population of 10% or more that is only literate in a non-English language, the SBC must contain a translation for that language and/or indicate that language assistance is available. A sample language statement and county-by-county data can be accessed through the DOL website.
Calculations: The Center for Consumer Information and Insurance Oversight (CCIIO) has provided a coverage example calculator that plans and issuers can use to complete the required coverage examples. The coverage example calculator is posted on the CCIIO Resources page.
Penalties: The penalty for “willful” non-compliance with SBC requirements is $1,000 per enrollee for each failure to comply (other ERISA penalties could apply). However, the Departments will not impose penalties during the first year of applicability on plans and issuers that are working diligently in good faith to comply with SBC requirements.
Since complying with the exacting SBC requirements could prove to be an intricate process, employers should seek legal counsel to review the SBC and notification procedures. Moreover, now might be a good time to review all plan notifications and procedures for participants and beneficiaries to ensure that all required notices are being provided in the most efficient and legally compliant manner. Employers should also consider coordinating with insurers, third-party administrators, and other health care vendors who may also have a legal obligation or business interest in ensuring that the SBC requirement is being implemented correctly.
PCORI Fees for Self-Insured Health Plans and Health Insurers - October 1, 2012
There are two significant fees that will apply under the ACA.
First, the ACA establishes a non-profit organization called the Patient-Centered Outcomes Research Institute to collect fees (“PCORI fees”) from certain self-insured plans and health insurers in order to fund healthcare-related research. The ACA amended the Internal Revenue Code by adding provisions to collect these PCORI fees, which are effective for any plan years ending on or after October 1, 2012, and before October 1, 2019.
The PCORI fees are calculated by multiplying the applicable dollar amount by the number of “covered lives” under the plan. The applicable dollar amount is $1 for plan years ending in 2012; $2 for 2013; and escalating increments starting in 2014. For insured plans, the fee is paid by the issuer of the health insurance policy; for self-insured plans, the fee is paid by the plan sponsor. Health insurance issuers or plan sponsors will be required to pay this fee to the IRS (the IRS is proposing to use a Form 720) by July 31 of the calendar year immediately following the last day of the plan year. The first payments will be due by July 31, 2013. Please see our previous article further explaining this new fee requirement.
The second fee under the ACA is the transitional reinsurance assessment fee, which is intended to raise revenue for the Transitional Reinsurance Program established under the ACA. The fee generally applies to all “health insurance coverage” and self-funded “group health plans” unless HIPAA-excepted (e.g., credit-only insurance, separately offered limited scopes dental, or vision benefits). Health insurance issuers and sponsors of self-insured group health plans will be required to pay the fee for a three-year period, beginning in January 2014.
The fee will be a per capita fee, which effectively includes each covered life under the plan (i.e., covered employees, spouses, dependents, and any other individual receiving coverage under the plan). While the amount of the exact fee is unknown, some estimates indicate that the fee could be from $61 per person to as high as $105 per person for 2014. If the plan is fully insured, the issuer is liable for the fee. However, it is expected that the fee will be passed on to plan sponsors in the form of increased premiums.
Employers Must Report Health Coverage Costs
on 2012 Form W-2
The ACA requires certain employers to include the aggregate cost of employer-sponsored coverage on an employee’s Form W-2 starting in 2013 (for taxable year 2012). The cost of coverage includes both the employee and employer contributions, regardless of how the cost is shared between the two. Take a look at the IRS website for a chart that breaks down what costs need to be included in the reporting.
The IRS has issued guidance that will allow certain employers and certain costs to be afforded “transitional relief” from the reporting requirements imposed by the ACA. The following employers and coverage do not have to be reported on the 2012 Form W-2:
- Employers filing fewer than 250 Forms W-2 for the previous calendar year;
- Multi-employer plans;
- Health Reimbursement Arrangements;
- Dental and vision plans that either (1) are not integrated into another group health plan, or (2) give participants the choice of declining the coverage or electing it and paying an additional premium;
- Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements;
- Employee assistance programs, on-site medical clinics, or wellness programs for which the employer does not charge a premium under COBRA continuation coverage or similar requirements; and
- Employers furnishing Forms W-2 to employees whose employment terminates before the end of a calendar year and who request a Form W-2 before the end of that year.
The above employers and certain types of costs will not be required to be reported in future years until the IRS publishes guidance and gives at least six months of advance notice of any such alteration. However, employers that are required to report the cost of coverage on Forms W-2 should review payroll and reporting systems to ensure that this information is being properly recorded for inclusion on the 2012 Forms W-2.
Health Care Flexible Spending Account (FSA) Limited to $2,500 in 2013
For plan years that end on or after January 1, 2013, the ACA imposes a $2,500 limit on tax-free contributions to a health FSA. The IRS issued Notice 2012-40 to provide guidance about these rules and flexibility for employers applying the new rules.
Since the limit only affects plans that have plan years starting on or after January 1, 2013, employers with plan years that do not run congruent with the calendar year can keep higher reimbursement limits in effect through the end of their 2012-13 plan year (for example, a plan year that runs December 1, 2012, to November 30, 2013, can keep the higher limits in place until their 2013-14 plan year starts on December 1, 2013). The Notice also grants relief for 2012 plans (meaning that the plan year started in 2012) that have a grace period of no more than two and a half months. This relief permits the use of any unused carried-over contribution from a 2012 plan year to be subsequently used in the two and a half month grace period, and that amount will not count against the $2,500 limit for the plan year starting in 2013. The Notice also affords certain relief for operational failures that are not due to willful neglect and allows for plan defects to be retroactively amended in certain situations.
Plans may adopt amendments reflecting this limit at any time through the end of the 2014 calendar year retroactive to plan years beginning after December 31, 2012, provided the plan has been operating in accordance with the law change.
Tax Changes Effective in 2013
There are a number of tax changes for both individuals and employers that will be effective in 2013. While a complete review of each tax change is outside the scope of this article, employers should be aware of the following changes:
- Certain high-income taxpayers will face an increase of the Medicare tax. A 0.9% increase applies to “earned income,” which is generally wages and salary in adjusted gross income in excess of $200,000 ($250,000 for married couples), and a 3.8% increase applies to certain investment income.
- A taxpayer’s unreimbursed medical expenses must exceed 10% of the taxpayer’s AGI in order to be deductible (raised from 7.5% of AGI).
- Medicare Part D deduction for employers is eliminated by the ACA.
- The ACA imposes a 2.3% tax on the sale of certain medical devices to be payable by the manufacturer, producer or importer.
Exchange Coverage Notice - March 1, 2013
By March 1, 2013 (or at the time of hiring for employees hired after March 1, 2013), all employers must provide notice to employees about the availability of state exchanges for the purchase of health insurance in 2014. The notice must include:
- The employee’s right to purchase health insurance through the state insurance exchange;
- The employee’s possible loss of an employer subsidy if health insurance is purchased through the exchange; and
- The employee’s eligibility for any government subsidies.
Employers should stay tuned as the Department of Labor is expected to issue guidance regarding the exchange notice requirement in the near future.
Planning in 2013 for the Application of
the “Employer Penalty”
Beginning in 2014, “applicable large employers” will be subject to a penalty if one or more of their full-time employees obtains a premium credit through a health insurance exchange. An employer is an applicable large employer if the number of actual full-time employees plus the number of full-time employee equivalents equals 50 or more during the preceding calendar year. Because the number of employees for purposes of determining whether an employer is an applicable large employer is based on the prior year employee numbers, employers who are planning on adjusting employment figures to maintain, or reduce, the employee count to avoid penalties should consider taking action in 2013. Please see our prior article further explaining issues related to the employer penalty.
Increase in Employee Lawsuits
While the media has focused on the political reactions and ramifications of the ACA, generally, employers must focus on implementing its complex provisions, as well as the likelihood of an increase in lawsuits filed by employees in the aftermath of the ACA. The ACA is a large and complex law (the ACA’s ten titles stretch over 900 pages and contain hundreds of provisions) that will inevitably lead to differences of interpretation surrounding the application of its principles and mandates. Moreover, multiple federal agencies are in the process of drafting countless regulations that purport to serve as guidance, but are often viewed as additional brush that makes it difficult to see the forest. As the ACA’s provisions and regulations become reality for employers, they must be prepared to see a potential rise in litigation (and to avoid that litigation where possible).
Some of the new potential areas where employees could bring claims against employers include:
- New reporting, record-keeping, and benefits requirements: Employers that fail to implement the new requirements may face fines under the ACA for each violation, as well as possible claims alleging breach of fiduciary duties for employers who act in such capacity.
- Whistle-blower protection: The ACA amended the Fair Labor Standards Act to provide new protection for employees who voice complaints or assist in investigations or other proceedings involving alleged abuses, fraud, or other violations under the ACA.
- False claims: The ACA makes any knowing representation of false claims for approval or payment subject to stiff civil penalties, including up to six times the amount of overcharge or damages.
- Relation to other frequent areas of litigation: The ACA prohibits discrimination in favor of highly compensated employees under rules similar to the nondiscrimination rules already applicable to self-insured plans.
- Grandfathered plans: The ACA provides that certain group health plans that were in place on March 23, 2010 (“grandfathered” plans), will not be required to comply with many of the requirements of the ACA. The primary way in which a plan will lose grandfathered status is if certain changes are made to health coverage that are to the disadvantage of participants. (Please see our prior article regarding grandfathered status, which is available here.) Employees could challenge (through class actions or otherwise) whether their employers’ plans meet and have maintained their grandfathered status. While a complete analysis of grandfathered status issues is beyond the scope of this article, employers who have chosen to avoid some of the ACA’s requirements through grandfathered status should understand the pitfalls that could lead to a loss of the status and develop a strict plan for compliance with that status.
Impact of the November 2012 Elections
The results of the upcoming November elections may impact the future of some or all of the ACA. It is unlikely, however, that the Act will be repealed after the November election before the requirements discussed above take effect. A new President, Senators, or Representatives would not take office until January 2013, after many of the deadlines discussed above would have passed. A quick repeal of or amendment to the ACA is unlikely even if there is significant turnover, because members of the Senate could block any such attempt through a filibuster (or simply the threat of a filibuster). To overcome the filibuster, a vote would require a three-fifths majority (60 votes in Senate), which is unlikely based on current polls.
Even if repeal is unlikely in the short term, the results of the November elections could have a significant impact on the implementation of the ACA, especially on the more significant provisions that do not go into effect until 2014. For example, implementation of the ACA will require additional funding, enforcement by the administration, and regulatory change, all of which will be impacted by which party has control in the houses of Congress and the Presidency.
In light of the uncertainty that the November elections bring to the future of the ACA, some employers may wish to wait for the results before investing significant resources into planning for the implementation of certain requirements. This “wait and see” approach may be appropriate for some of the 2014 (and later) deadlines that implement more controversial provisions of the ACA. However, employers should not utilize any delayed approach on the deadlines discussed in this article, as any results from the November elections would be unlikely to have any effect on the above provisions. Accordingly, employers should plan to comply, or already be complying, with the ACA’s fast approaching 2012 and 2013 deadlines.
1. Some of the more significant requirements that are already effective include:
- Dependent coverage for children up to age 26;
- Certain preventive care must be covered without charging a deductible, co-pay or co-insurance;
- Enhanced internal appeals process and an external independent review stage;
- Coverage cannot be rescinded retroactively, with some exceptions;
- No pre-existing condition exclusions for participants under the age of 19; and
- Prohibitions on lifetime limits for essential health benefits.
2. Employers sponsoring group health plan coverage that includes Medicare Advantage benefits do not have to provide an SBC with respect to such benefits because such benefits do not constitute health insurance coverage. Employers should note, however, that other disclosure requirements still apply to Medicare benefits outside the scope of the SBC requirements.