Health Care Reform Overview

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The Patient Protection and Affordable Care Act (PPACA), often referred to as Health Care Reform, is a groundbreaking piece of legislation that focuses on making affordable health coverage available to all U.S. citizens. Over the four years since the law was signed in March 2010, there have been notable changes in the health insurance industry that affect insurers, employers, employees and their families. Health care reform has taken center-stage as the legislation continues to evolve with updated mandates and compliance that affect nearly everyone in the U.S. TelePayroll is here to help guide your business through the regulations and mandates brought about by health care reform and to ensure your business remains compliant. Below is an overview of the main health care reform provisions in place thus far.

Automatic Enrollment

Employers with 200 or more employees are required to enroll employees into the employer’s group health insurance plan automatically.

Please note: This provision is NOT in effect for 2014. The Department of Labor reported that regulations will not take effect and that employers are not required to comply with the automatic enrollment provision until final regulations are issued and become applicable.

Annual Limits / Pre-Existing Conditions

Beginning on January 1, 2014, annual dollar limits for essential health benefits are prohibited under the Affordable Care Act. Lifetime and specific annual limits, such as visit, day, and frequency, are still allowed. Health plans also can’t deny or limit coverage based on pre-existing conditions. A pre-existing condition is defined as any condition which a patient has already received medical advice or treatment prior to enrolling in a new health insurance plan.

Cafeteria Plan Limitations

Over-the-Counter Restrictions
Beginning on January 1, 2011, over-the-counter drugs and medicines are no longer categorized as eligible medical expenses for flexible spending accounts (FSAs), health savings accounts (HSAs), and health reimbursement accounts (HRAs). Prescribed over-the-counter drugs and insulin are still covered as eligible medical expenses.
Employee FSA Contribution Limit
Employee contributions to flexible spending accounts (FSAs) are limited to $2,500 annually beginning on January 1, 2013. This limit will increase according to changes in the cost of living.
Increased HSA Penalty
A 20% penalty is now in effect for using HSA funds on payments that are not qualified medical expenses.

Dependent Coverage

Young adults below the age of 26 can stay on their parents’ group health plan. The spouse of an employee is not included, even if the spouse is below 26 years of age.

Employer Shared Responsibility

Beginning January 1, 2015, applicable large employers with 100 or more full-time-equivalent employees that have at least one full-time employee receiving a subsidy for coverage may receive a penalty if coverage doesn’t meet minimum essential guidelines or is determined to be unaffordable or provide minimum value. These guidelines go into effect for employers with 50-99 employees on January 1, 2016.

Learn more about Employer Shared Responsibility

Employer Penalties

Low-Value Plan
Employers will face a penalty if they offer coverage that does not meet the minimum essential coverage provisions of the PPACA.
No Coverage
A penalty will be assessed if employers do not provide health insurance or offer minimum essential coverage to at least 70% of full-time employees, and at least one full-time employee receives a premium subsidy. The penalty is $2,000 for each full-time employee minus the first 80 employees in 2015. The exclusion will be reduced to 30 employees in 2016, and likely eliminated after 2016.
Unaffordable Coverage
If premiums exceed 9.5% of a family’s income, coverage is deemed unaffordable and employers can be penalized if at least one full-time employee receives a subsidy through a health insurance marketplace. Learn more about potential penalties for employers.

Learn more about Employer Penalties

Health Insurance Marketplaces

Health insurance marketplaces give small businesses and individuals the ability to compare, purchase, and enroll in health plans. Marketplaces are operated by the federal government or through individual state governments.
Plans offered through the marketplace can have four different levels of coverage, or the percentage of medical costs that the plan covers. The four values are outlined below:

  • Bronze – 60% of medical expenses covered
  • Silver – 70% of medical expenses covered
  • Gold – 80% of medical expenses covered
  • Platinum – 90% of medical expenses covered

The exchange for small businesses is called SHOP, or the Small Business Health Options Program. SHOP provides small businesses with many benefits when researching coverage options:

  • Easy coverage comparisons
  • One-stop shopping experience
  • More choices for affordable coverage
  • One monthly payment
  • Less administration
  • Tax credits

Currently, SHOP is open to businesses with 50 or 100 employees, depending on the state. In 2016, SHOP will be available to groups with up to 100 employees in all states. By 2017, states are allowed to open their marketplaces to larger employers with over 100 employees.

Individual Insurance Requirement

Starting in January 2014, U.S. citizens and legal residents who pay taxes are required to have and maintain health insurance or pay a penalty:

  • In 2014, the penalty is $95 per adult and $47.50 per child (up to $285 for a family) or 1% of family income, whichever is greater
  • In 2015, the penalty is $325 per adult and $162.50 per child (up to $975 for a family) or 2% of family income, whichever is greater
  • In 2016, the penalty is $695 per adult and $347.50 per child (up to $2,085 for a family) or 2.5% of family income, whichever is greater

Limit on Waiting Period

Starting January 2014, a group health plan or group health insurance issuer cannot impose a waiting period for coverage that is longer than 90 days.

Medical Loss Ratio Rebate

Under the ACA, insurers are required to report their medical loss ratio, which is the amount of premium revenue spent on medical care and services. For small groups, the minimum amount insurers must spend on care is 80% of premium revenue. For large groups, insurers are required to spend at least 85% of premium revenue on care and services. Insurers who do not meet or exceed the minimum requirements listed above must issue rebates to their customers.

Medicare Tax Increase

Beginning in January 2013, the employee portion of the Medicare tax increases 0.9% from 1.45% to 2.35% on wages exceeding $200,000 for individuals and $250,000 for married couples. Employers must withhold and remit the Medicare tax increase for all employee above this threshold. The employer portion of the Medicare tax remains unchanged at 1.45%.

Minimum Essential Coverage (MEC)

Applicable large employers must offer health coverage to full time employees that meets minimum essential coverage requirements. The two main factors in determining minimum essential coverage are minimum value and affordability.

  • Minimum value – the insurance plan must have an actuarial value of at least 60%, or cover at least 60% of medical expenses
  • Affordability – an employee’s premium contribution for individual coverage for the lowest cost plan must not exceed 9.5% of the employee’s household income

Nondiscrimination in Eligibility and Benefits

The nondiscrimination provision ensures that benefits offered by employers don’t discriminate among employees. Group plans are prohibited from having:

  • Different contribution amounts for different classes of employees
  • Different waiting periods for different classes of employees
  • Benefit options that are available to management but not to other employees

Notice to Employees of Coverage

Employers must notify their employees of coverage options available through health insurance marketplaces by October 1, 2013. The notice should inform employees:

  • About the health insurance marketplace
  • That they may be able to get lower cost private insurance through the marketplace
  • That if coverage is bought through the marketplace, they may lose the employer contribution to their health benefits

The Department of Labor has provided examples for employers that provide health coverage and employers that do not offer coverage.

Required Essential Health Benefits

All private health insurance plans offered through insurance marketplaces must offer the same set of essential health benefits. These benefits are minimum requirements for all plans in the marketplace:

  1. Ambulatory patient services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health and substance use disorder services
  6. Prescription drugs
  7. Rehabilitative services or devices
  8. Laboratory services
  9. Preventative and wellness services
  10. Pediatric services

Summary of Benefits and Coverage

Employers and insurers must provide a Summary of Benefits and Coverage (SBC) to current policyholders, new enrollees, and potential applicants. The SBC outlines a plan’s benefits and cost sharing provisions in a simple, standard format so coverage options can be easily compared. The SBC must be provided in the following scenarios:

  • By the first day of coverage (if there are any changes to the SBC)
  • Upon application / renewal of coverage
  • Upon request

Health insurance providers are responsible for creating and issuing the Summary of Benefits and Coverage for all fully insured plans. The group health plan’s administrator is responsible for ensuring delivery to the health plan’s participants. In the case of self-insured plans, the plan administrator is tasked with creating the SBC and providing it to plan participants.

W-2 Reporting Requirement

Employers that file 250 or more Forms W-2 in the previous tax year are required to report the cost of employees’ health coverage. This provision is intended to help employees understand their benefits and the actual cost of health coverage to employers. The amount reported is for informational purposes only and will not change the status of health care coverage that would be tax-exempt.

Wellness Program Incentives

The Department of Health and Human Services has proposed guidelines that would provide incentives to employees for participating in workplace wellness programs. Employees can receive rewards, such as premium discounts, lower cost-sharing requirements, and extra benefits, which equal up to 30% of the total cost of coverage. The reward can increase to 50% if the employee participates in a program specifically for reducing or preventing tobacco use.