Provisions for Business Owners

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With hundreds of provisions mandated by the Affordable Care Act, it is easy to lose track of which rules affect your business. Find out which provisions affect your business and what you need to do to stay compliant.

Universal Changes

The following health care reform provisions affect all employers if they decide to offer health coverage, regardless of their size:

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 cannot 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 also 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.

Health Insurance Marketplace

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

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.

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.

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 health 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, cost sharing provisions and limits on coverage 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.

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.

1-49 Employees

If your business has less than 50 full-time or full-time equivalent (FTE) employees, you are not required to provide health coverage to your employees. For business owners that are close to 50 FTE employees, you will need to prepare to offer coverage to full-time employees starting January 1, 2016. The following ACA provisions, in addition to the universal changes, affect you currently:

Small Business Tax Credit

Businesses that offer health insurance with less than 25 full-time or full-time equivalent employees can qualify for a tax credit to help offset the cost of coverage. From 2010-2013, the credit amount is up to 35%, or 25% for tax-exempt businesses.

Starting in 2014, the tax credit increases up to 50%, or 35% for tax-exempt groups. The credit can be claimed through 2013 and for two additional years starting in 2014.

To qualify for the small business tax credit, your business must:

  • Employ less than 25 full-time or FTE employees
  • Pay annual average wage below $50,000
  • Contribute at least 50% to employee health insurance premiums

The maximum credit will be available to employers with 10 or fewer FTE employees that average less than $25,000 in annual wages.

50-99 Employees

Businesses with 50-99 full-time or full-time equivalent employees are not required to offer health insurance coverage in 2015, but the Employer Shared Responsibility (ESR) mandate goes into effect for these businesses on January 1, 2016. Employers should be tracking employee hours in 2014 to prepare for ESR, especially if the business is close to the threshold of 100 full-time equivalent employees. The following ACA provisions, in addition to the universal changes, affect you currently:

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

100+ Employees

Applicable large employers with 100 or more full-time or full-time equivalent employees are required to offer health coverage starting January 1, 2015 or face potential penalties under the Employer Shared Responsibility provision. To avoid possible fines, employers need to keep track of employee hours and determine the number of full-time equivalent and full-time employees on staff. The following ACA provisions, in addition to the universal changes (link), affect you currently:

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.

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

W-2 Reporting

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.

Three methods can be used to calculate the value of reported coverage:

  1. COBRA Applicable Premium Method: The reportable cost of coverage for a period equals the COBRA applicable premium for that period, without the 2% administrative fee. This method must be used for employers offering self-insured plans.
  2. Modified COBRA Premium Method: This method can only be used by employers who subsidize the cost of COBRA. The employer may determine the reportable cost for a period based on a reasonable good faith estimate of the COBRA applicable premium during that period, as long as the method used is consistent. If the actual premium charged in the current year is equal to the COBRA applicable premium for the previous year, employers can report the COBRA applicable premium as an alternative.
  3. Premium Charged Method: This method can be used only if an employee is covered by an employer’s group health insurance plan. Employers must use the premium amount charged by the insurer for the employee’s coverage.

Please note: This provision is optional for businesses filing less than 250 W2s in the previous tax year.