The enactment of the Affordable Care Act (ACA) in 2010 began an extended period during which far-reaching changes to the American healthcare will take effect. The provisions of the ACA go into effect over several years. But after the Supreme Court ended the uncertanty about the constitutionality of the ACA, employers must prepare to make important strategic decisions before the individual mandate and employer play or pay provisions of the law take effect in 2014.
The ACA included several provisions that immediately affected employers by subjecting health insurance plans to several reforms, including:
- Prohibiting lifetime limits on coverage;
- Barring rescissions of coverage in most circumstances;
- Restricting annual limits on coverage;
- Requiring certain plans to provide coverage for dependent children up to age 26;
- Placing limitations on excessive waiting periods; and
- Banning preexisting condition exclusions for children.
Tax credits for small businesses. The law also established a program for certain small employers would be eligible to receive tax credits to purchase health insurance coverage for their employees.
Employer Requirements, Fines, and Taxes
Although the health care reform package doesn’t require employers to provide insurance coverage to their employees, beginning in 2014, it penalizes employers that don’t offer coverage or don’t offer coverage that is considered good enough.
Employers with 50 or more full-time equivalent employees that don’t offer coverage will have to pay an assessment ($2,000 for each full-time employee) to help offset the cost of health insurance if even one of their employees is receiving help from the federal government to purchase insurance. However, the assessment wouldn’t take the first 30 employees into account. For example, if an employer has 52 employees and one of them receives a federal subsidy to purchase insurance, the employer would have to pay the penalty for 22 employees (52 employees minus the first 30).
Employers with 50 or more employees that do offer coverage may still have to pay an assessment if even one of their employees receives a federal subsidy to purchase insurance because their coverage isn’t considered good enough under the legislation. The assessment would equal the lesser of $3,000 per full-time employee who received a subsidy or $2,000 for each full-time employee. Employees who are offered employer coverage aren’t eligible for federal subsidies unless their employer’s plan doesn’t have an actuarial value of at least 60 percent or their required contribution exceeds 9.5 percent of their household income.
Automatic enrollment. Under the ACA, if an employer has more than 200 employees, it would have to automatically enroll its employees in one of the health insurance plans it offers (if it offers a health insurance plan). Employees can opt out of coverage.
“Cadillac” tax. The ACA also creates a tax on employer-sponsored high-end “Cadillac” coverage that will begin in 2018. The tax is 40 percent of the “excess benefit” of plans that exceed the thresholds of $10,200 for individual coverage and $27,500 for family coverage. However, standalone dental and vision benefits are exempted from the tax, and certain employers are allowed to make adjustments to their cost of coverage if their employees’ age and gender demographics aren’t representative of the national workforce’s age and gender demographics.
Health exchanges. States will have to set up Small Business Health Options Programs (SHOPs or SHOP exchanges) by 2014 through which small businesses with up to 100 employees can purchase coverage. States can allow employers with more than 100 employees into the SHOP exchanges beginning in 2017. The federal government will set up exchanges in states that decide not to establish their own exchange.
The health care reform package also contains other provisions that affect employers, including:
- Prohibit preexisting condition exclusions (effective in 2014);
- Ban annual limits on coverage (effective in 2014);
- Ban waiting periods that are more than 90 days (effective in 2014);
- Limit annual contributions to health flexible spending arrangements under cafeteria plans to $2,500 (effective in 2013);
- Eliminate the deduction for expenses allocable to the Medicare Part D subsidy (effective in 2013);
- Require certain large employers to report the health insurance coverage they offer on a return;
- Require employers to report the cost of employer-sponsored health coverage on Form W-2s;
- Limit distributions for qualified medicine under health savings accounts (HSAs), Archer medical savings accounts (MSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs) to prescription drugs and insulin (effective in 2011);
- Increase the tax on distributions from HSAs and Archer MSAs that aren’t used for qualified medical expenses to 20 percent of the disbursed amount (effective in 2011); and
- Allow employers to offer rewards of up to 30 percent of the cost of coverage to employees who participate in a wellness program and meet certain health-related standards.
Reasonable breaks required. Section 4207 of the Act amended the Fair Labor Standards Act (FLSA) to require a “reasonable” break time for nursing mothers. Because the FLSA applies to almost all employers, the new break requirement will as well. The only employers exempt from the break requirement are those with fewer than 50 employees that would experience undue hardship from “significant difficulty or expense” by complying with the requirement.
A nursing mother is eligible for the break time for up to one year after her child’s birth and may take advantage of the breaks anytime she has the need to do so. In addition to the break time, employers must provide a private place, other than a restroom, for the employee to use for expressing breast milk.
Contrary to the general FLSA requirement that employers pay for breaks that last less than 20 minutes, the amendment permits nursing mothers’ break time to be unpaid. However, the amendment is clear that it will not preempt state laws that provide greater protections to nursing mothers, e.g., laws that require such breaks to be paid.
The health care reform legislation is expansive and, as a result, cannot be covered in its entirety within the confines of this topic page. Aditionally, it may take some time for employers to determine the complete extent of its effects on the workplace. However, employers should review their current health and benefits plans to get a better idea of what short- and long-term changes they may need to make to be in compliance with the new health care reform laws.