The passage of the Patient Protection and Affordable Care Act (PPACA) in 2010 proved again that change is constant. HR managers and smaller employers are struggling to keep up with the many changes and requirements under the plan. But the changes are here, and more are on the way in 2014. Here is a quick guide to some of the major provisions.
Employer plan sponsors must provide formal notice about the planned creation of the new state health insurance exchanges (also known as “American Health Benefit Exchanges”) that will be offering coverage to individuals and their families beginning January 1, 2014. The original deadline for providing these notices to employees was March 1, 2013, but the Department of Labor has extended that deadline pending the issuance of new regulations. The regulations are not expected until the summer or fall of 2013.
What information will need to be provided in these notices? Employers will need to provide employees with information about the existence of the state exchanges, including a description of the services provided by their state's exchange and how to contact the exchange to request assistance. Employees must also be informed that they may be eligible for subsidies through the exchange based on their family income. These subsidies may reduce their premium cost or out-of-pocket expenses through the exchange. Finally, employers must also inform their employees about the financial impact of the foregoing on their employer's coverage, such as the employer's contribution toward the cost of employer-provided coverage and the associated tax benefits.
The Patient Protection and Affordable Care Act now requires most employers to include the cost of any employer-sponsored medical plans on workers' W-2 Forms. Some smaller employers are exempt. Many employers may have already been doing this as the change became effective with the W-2s issued in January for the 2012 tax year.
Health Flexible Spending Account Restrictions
The Patient Protection and Affordable Care Act also now limits workers' allowable pre-tax contributions to flexible spending accounts for health care. The current limit of $2,500 per worker went into effect January 1 of this year. This limit is indexed to inflation for future years. If you haven't already changed your workplace Flexible Spending Account plan, you have until the end of the year to do so. Special rules apply to plans structured for non-calendar years.
This is a hidden cost of the Patient Protection and Affordable Care Act, not well understood outside HR circles. The government now imposes a fee that will be used to fund research on the cost-effectiveness of medical treatments. The fee is being imposed on employers that sponsor any kind of self-funded medical plan. The fee is equal to $1 per head covered under the plan for the first plan year (ending on or after 30 September 2012), $2 for the following year, and adjusted for inflation each year after that. To pay the fee, employers should file IRS Form 720 no later than July 31 following the end of each plan year. The government has also added a new cost on insurers of fully-insured group health plans.
Additional Taxes for Highly-Compensated Employees
Do you have any employees making over $200,000 per year? If so, employers will need to begin withholding an additional amount for Medicare Part A hospital insurance. The additional amount withheld is 0.9% — increasing these employees' payroll tax amount for Medicare Part A from 1.45% to 2.35%. In addition, these highly compensated employees will be subject to a 3.8% tax on net investment income. Both of these provisions are effective this year.
It's Decision Time
2013 is the year for employers to decide whether to keep their plans for 2014 or drop their plans and pay a penalty. This decision is highly specific to the circumstances of each employer. Many employers are already limiting the number of full-time staff in order to stay under the penalty tax threshold. Don't wait until the end of the year to understand your options and their implications for your business.