Preparing for compliance
In a 5-4 decision on June 28, the U.S. Supreme Court ruled that the individual mandate within the Patient Protection and Affordable Care Act (PPACA) is constitutional. This decision means that nearly everyone must purchase health insurance or pay a penalty that will be collected and enforced by the Internal Revenue Service (IRS). While the U.S. House of Representatives continues to vote on the issue, PPACA is currently the law of the land and businesses of all sizes should prepare for compliance with the law.
“Despite the fact that the House of Representatives had another repeal vote on PPACA in July, the Democrat-controlled Senate will not take it up. Over the next 18 months, the Department of Health and Human Services will start to develop the rules for the health exchanges, minimum coverage requirements and other regulations, and we will start to see what concrete steps will need to be taken by ARA [American Rental Association] members to move forward with compliance,” says John McClelland, ARA’s vice president for government affairs.
While the law isn’t scheduled to be fully in effect until 2014, several provisions already have been implemented with more to follow in the coming months.
Provisions already in place:
- Reporting: Employers are responsible for reporting the total cost of medical benefits — excluding dental and vision — an employee receives in a year on the employee’s W-2 form. The first W-2 containing this calculation was issued in 2012 for the 2011 tax year.
- Flexible spending accounts: Over-the-counter drugs can no longer be paid for through flex-spending accounts. A 20 percent penalty will be imposed on non-medical withdrawals from these accounts. A flexible spending account annual amount cap of $2,500 will be imposed Jan. 1, 2013.
- Voluntary long-term care program: Employers can enroll their employees in a long-term care insurance program. Employees pay monthly premiums that make them eligible for benefits if they become unable to care for themselves. If employers choose to participate, they must automatically enroll all of their employees, who must actively opt out of the program.
- Summary of benefits: Employers must provide employees with a summary of the benefits and coverage that are offered in the employer’s health benefits program and continue to do so in each subsequent year at the time of enrollment. The summary must be short and clearly written, so that the average employee can understand its contents.
Effective Jan. 1, 2013:
- Medicare taxes: Those earning more than $200,000 annually ($250,000 for families) will pay 0.9 percent more withholding on wages that exceed those thresholds. A 3.8 percent assessment also will be applied to unearned income for higher-income tax payers. Employers’ Medicare contributions are not affected by this tax increase.
Effective Jan. 1, 2014:
- State-based insurance exchanges: At first, only companies with 100 or fewer employees will be able to participate in this option, allowing individuals and small businesses to purchase health plans. If states do not create these exchanges, the federal government has the authority to create national exchanges. Plans in the exchanges will be underwritten by the companies that are currently providing insurance to this market. There is no public insurance option.
- Essential benefits: Though specific benefits are still being determined, all plans must offer a package of “essential benefits.” The law defines essential health benefits as “at least the following general categories and the items and services covered within the categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative services and devices; laboratory services; preventive and wellness services, and chronic disease management; and pediatric services, including oral and vision care.”
- Individual mandate: Everyone will be required to be insured with few exceptions. When fully phased in by 2016, increasing yearly fines will be imposed on each individual who is not insured. The penalty imposed on a household cannot exceed 2.5 percent of household income and will be collected by the IRS.
- Employer mandate: Every employer with more than 50 employees will be required to offer a plan that has minimum essential coverage. Any employer who does not offer such coverage will pay a penalty of $2,000 per employee unless all employees’ salaries are above 400 percent of poverty. The federal poverty level is currently defined as $10,890 per year for an individual or $22,350 for a family of four. Thus, 400 percent of those levels is $43,560 for an individual or $89,400 for a family of four.
- Affordability provisions: Subsidies will help persons or families with income up to 400 percent of the federal poverty level pay for health care if they are not offered a qualified plan and cannot afford a plan from the exchange. Employers with more than 50 employees also will be subject to a $3,000 fine per employee if they do not pay enough of their employees’ benefits for the plan they offer. If an employee has to pay between 8 percent and 9.8 percent of their income as their portion of the premium for an employer-sponsored health plan and their income is less than 400 percent of poverty, they are eligible for a credit to buy insurance on the exchange.
- Coverage: Plans can no longer deny coverage or set rates based on pre-existing conditions. Insurance plans may not impose lifetime or annual limits on coverage, nor can they cancel coverage unless claims are fraudulent.
- Health-based incentive programs: Employers will be able to offer employees rewards of up to 30 percent, potentially increasing to 50 percent, of the cost of coverage for participating in a wellness program and meeting certain health-related standards.
- Out-of-pocket expenses: All plans will be required to limit out-of-pocket expenses. The amount is based on current restrictions for high-deductible plans of $5,950 for individuals and $11,900 for families.
- Waiting periods: There is a 90-day limit on waiting periods before an employee is eligible for an employer-sponsored plan.
Deloitte, Washington, D.C., has issued tables to outline several taxes and fees associated with PPACA, some of which are listed below on this page. These tax provisions will remain in effect unless they are repealed by Congress.
ARA is currently working with the Small Business Coalition for Affordable Health Care to repeal the employer mandate, as well as the Stop the HIT Coalition to repeal the Health Insurance Tax (HIT) that would fall mainly on small businesses that cannot self-insure.
“However, businesses should continue to prepare for compliance with the law as it stands,” McClelland says.
Also, to help equipment rental professionals navigate the details of the law, an educational seminar focused on health care issues will be held on Sunday, Feb. 10, 2013, from 1:45 p.m. to 3:15 p.m. at The Rental Show. The Show Planner, to be distributed later this year, will include more information about the seminar.
Tax provisions in the Patient Protection and Affordable Care Act
Details for several key provisions within the health care law are listed below from tables issued by Deloitte, Washington, D.C., to outline taxes and fees associated with the law.
Fee on health insurance providers
Impose annual fee on U.S. health insurance providers: $8 billion for 2014, $11.3 billion for 2015 and 2016, $13.9 billion for 2017, and $14.3 billion for 2018; allocated to taxpayers based on net premiums for U.S. health risks.
- Fee is adjusted for premium growth thereafter.
- Limited exceptions for voluntary employee benefit associations and some nonprofit providers that serve low-income, elderly, or disabled populations.
- Includes joint and several liability.
Effective date: Calendar years beginning after Dec. 31, 2013; fee allocated based on market share of net premiums for U.S. health risks written for calendar years beginning after Dec. 31, 2012.
10-year revenue estimate: $60.1 billion.
Fees on certain employers not offering health care coverage
Employers with at least 50 full-time employees generally would be subject to nondeductible fees if they:
- Do not offer coverage to employees (fee is $2,000 per employee, but first 30 employees are not counted in the payment calculation).
- Offer coverage, but have at least one full-time employee receiving premium assistance tax credit (fee is lesser of $3,000 for each employee receiving a tax credit or $750 for each full-time employee).
Effective date: Tax years beginning after Dec. 31, 2013.
10-year revenue estimate: $52 billion.
Excise tax on ‘Cadillac’ group health plans
40 percent nondeductible excise tax levied at insurer level on employer-provided health coverage in excess of $10,200 for individuals ($27,500 for families), indexed for inflation.
- Premium thresholds for retirees and high-risk professions would be increased $1,650 for individuals ($3,450 for families).
- Inflation adjustment for CPI-U after 2019 (CPI-U +1 percent only for 2019).
- Employer aggregates and issues information returns indicating amount subject to excise tax.
Effective date: Tax years beginning after Dec. 31, 2017.
10-year revenue estimate: $32 billion.
Fee on individuals who do not obtain health insurance coverage (individual mandate)
Excise tax of the greater of $695 or 2.5 percent of income per adult in the household would be imposed on individuals who fail to obtain adequate coverage; capped at national average bronze premium.
Tax would phase in beginning at the greater of $95 or 1 percent of income in 2014, reaching $695 or 2.5 percent of income in 2016 (indexed for inflation thereafter).
Exclusion for employer-provided health care for adult children up to age 26.
Effective date: Tax years beginning after Dec. 31, 2013.
10-year revenue estimate: $17 billion.
Definition of ‘medical expenses’ for employer-provided health coverage
Conform definition of medical expenses for purposes of health flexible spending arrangements, health reimbursement arrangements, health savings accounts and Archer Medical Savings Accounts to the definition for the itemized deduction.
Effective date: Expenses incurred after Dec. 31, 2010.
10-year revenue estimate: $5 billion.
Comparative Effectiveness Research Trust Fund
Impose fee on insured and self-insured health plans to finance patient-centered outcomes research trust fund.
Effective date: Effective for policies and plans for portion of policies or plan years beginning on or after Oct. 1, 2012.
10-year revenue estimate: $2.6 billion.
Health savings account distributions
Increase penalty for nonqualified distributions from health savings accounts to 20 percent.
Effective date: Distributions made during tax years beginning after Dec. 31, 2010.
10-year revenue estimate: $1.4 billion.
Employer reporting of value of health insurance benefits
Require employer W-2 reporting of value of health benefits provided to employees.
Effective date: Taxable years beginning after Dec. 31, 2010.
10-year revenue estimate: Negligible.
Cafeteria plan nondiscrimination safe harbor
Simplify cafeteria plan nondiscrimination safe harbor for certain small employers.
Effective date: Tax years beginning after Dec. 31, 2010.
10-year revenue estimate: Negligible.