Quick Reference Guide
*May contain certain exclusions for Grandfathered Plans
**Delayed indefinitely until further guidance is released
Health Care Reform Employer Action Plan for Your 2011 Renewal
Plans Providing Retiree Coverage
- Decide whether you want to participate in the Early Retiree Reinsurance Program
- Submit application to the Secretary of HHS
- Include the present value of the future taxes as a current liability charged against earnings, in preparation for
- the elimination of the Medicare Part D subsidy in 2013
Plans Providing Dependent Coverage
- Describe adult child eligibility as defined under federal and state laws (including restrictions, if plan is grandfathered)
- Provide written notice of special enrollment opportunity for those who are able to add over age dependents and offer them a special enrollment opportunity of at least 30 days (may run concurrent with open enrollment period) for coverage to be effective as of first day of plan year
- If desired, distribute applicable attestation form to be completed by employee regarding coverage of adult dependent
Plans Maintaining Grandfathered Status
- Include Disclosure Notice in all plan materials describing the benefits provided under the group health plan and make sure procedures are in place to meet the document retention requirements
Plans Not Maintaining Grandfathered Status
- Eliminate cost-sharing for preventive services
- Ensure that your group health plan is not discriminating in favor of “highly compensated employees” as defined under IRC §105(h) (delayed until further guidance is released)
- Eliminate relevant restrictions on emergency services
- Eliminate relevant restrictions on primary care providers
- Prepare for transparency disclosure
All Plans Regardless of Grandfathered Status
- Remove any lifetime dollar limits on essential benefits
- Provide written notice of special enrollment opportunity for those who lost coverage due to reaching a lifetime maximum and offer a special enrollment opportunity of at least 30 days (may run concurrent with open enrollment period) for coverage to be effective as of first day of plan year
- Describe any permitted annual limits on essential benefits ($750k for 2011)
- Describe any annual limits on non-essential health benefits
- Remove all references to pre-existing condition exclusions for participants under age 19
- Begin setting up payroll system and gathering necessary cost data to comply with W-2 reporting requirements for the 2012 tax year
- Decide if you would like to participate in the CLASS Act (effective date uncertain)
- Decide if you would like to adopt simple cafeteria plans (only if you have 100 or fewer employees)
Plans Offering Tax-Advantaged Accounts (FSAs, HSAs, HRAs or Archer MSAs)
- Implement and explain new limits on reimbursements for over-the-counter medications
- Explain non-qualified distribution penalties for HSAs and/or Archer MSAs4
Health Care Reform Employer Guide
On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law. Within a week, Congress passed the Health Care and Education Tax Credit Reconciliation Act of 2010 (HCERA). PPACA and HCERA (collectively referred to as “Health Care Reform”) require all employer-sponsored plans—both self-insured and fully-insured group health plans—to comply with certain mandates over the next several years.
This Employer Guide highlights the changes that grandfathered and non-grandfathered plans will need to consider.
I. Effective Immediately Following Enactment
A. Increased Adoption Assistance Exclusion
Health Care Reform increases the tax credit under IRC §23 to $13,170 for all adoptions, including adoptions of children with special needs. It also increases the exclusion for employer-provided adoption assistance under section 137 to $13,170 for all adoptions, including adoptions of children with special needs. In addition, Health Care Reform allows for the credit and exclusion to be adjusted for inflation beginning January 1, 2011. That adjustment is made by multiplying the statutory limit by the cost of living adjustment for the calendar year in which the tax year begins. If the amount as increased is not a multiple of 10, the amount is rounded to the nearest multiple of 10.
[Tax years beginning on or after December 31, 2009]
II. Effective 90 Days Following Enactment
A. Early Retiree Reinsurance Program
Health Care Reform creates a temporary reinsurance program for employers providing benefits for retirees age 55 and older who are not eligible for Medicare. Employers can submit claims to the Secretary of HHS for reimbursement. The program reimburses up to 80% of expenses between $15,000 and $90,000 per retiree. Reinsurance payments must be used to lower the costs of the health plan and are excluded from employer’s gross income. This program is financed by a $5 billion appropriation and ends at the earlier of the time the funding runs out or January 1, 2014. The Centers for Medicare & Medicaid Services (CMS) have indicated that the Early Retirement Reinsurance Program (ERRP) will stop accepting applications after May 5, 2011, as the $5 billion in program funds are being depleted rapidly.
III. Effective Plan Years Beginning On or After September 23, 2010
A. No Lifetime Limits
Group health plans are prohibited from placing lifetime dollar limits on “essential health benefits.” Group health plans will need to provide a 30 day special enrollment period for those individuals who have met their lifetime limit but are still eligible for coverage, which may run concurrent with the open enrollment period.
B. Restricted Annual Limits
Health Care Reform restricts annual limits on “essential health benefits.” The restricted annual limits are based on plan years until 2014 when annual limits on essential health benefits are prohibited.
- $750,000 for plan years beginning on or after September 23, 2010 but before September 23, 2011
- $1,250,000 for plan years beginning on or after September 23, 2011 but before September 23, 2012
- $2,000,000 for plan years beginning on or after September 23, 2012 but before January 1, 2014
C. Child Coverage to Age 26
Health Care Reform allows children under age 26 to remain covered under their parents’ medical insurance coverage. Under the federal law, group health plans that provide dependent coverage are required to extend eligibility for dependents to age 26. Employers are not required to offer coverage to an adult child’s spouse or children. Health Care Reform extends the exclusion from gross income for coverage of adult children. In order for an older age child to be eligible for coverage, the child may be married or unmarried and must:
- Be the child of the employee as defined under IRC §152(f)(1)
- Have not yet reached their 26th birthday
- Not be eligible for other employer coverage (this exclusion is available only to grandfathered plans, and then only for plan years starting on or before January 1, 2014)
D. No Rescissions
Group health plans may not retroactively cancel coverage after enrolling a participant, except in the event of fraud or intentional misrepresentation of material fact. A discontinuance of coverage is not a rescission if it has only a prospective effect, or is retroactive only to the extent it is attributable to a failure to pay required contributions. Note that 30 days advance written notice must be provided to each participant who would be affected by a rescission.
E. No Pre-Existing Condition Exclusions for Children Under Age 19
Group health plans are required to eliminate pre-existing condition exclusions for children under the age of 19. [Provision applies to children under age 19 for plan years beginning on or after September 23, 2010. Provision applies to all other individuals starting January 1, 2014]
F. First Dollar Coverage for Preventive Care
Nongrandfathered group health plans may not impose cost sharing for certain in network preventive services. This means that the group health plan must pay the full cost of evidence-based preventive care, as recommended by the U.S. Preventive Services Task Force, immunizations recommended by the ACIP of the CDC, breast cancer screenings and other preventive services identified in HRSA guidelines.
G. Revised Appeals Process
Nongrandfathered group health plans and health insurance issuers offering group or individual health insurance coverage must provide an effective internal appeals process of coverage determinations and claims and comply with any applicable State external review process. If the State has not established an external review process that meets minimum standards or the plan is self-insured, the plan or issuer shall implement an external review process that meets standards established by the Federal government. The group health plan may be required to continue coverage until the appeals process is resolved. [Plan years beginning on or after September 23, 2010, a non-enforcement period may apply for certain new claims and appeals standards.]
H. Grandfathered Status Disclosure Notice
To maintain status as a grandfathered health plan, employers must include a statement, in any and all plan materials provided to a participant or beneficiary describing the benefits provided under the group health plan, that the plan or coverage believes it is a grandfathered health plan within the meaning of section 1251 of the Patient Protection and Affordable Care Act and must provide contact information for questions and complaints. Plans must maintain records documenting the terms of the plan that were in effect on March 23, 2010 and any other document necessary to support that the plan has maintained grandfather status. Plans are required to make these records available for examination by participants or the agencies on request.
The following model language can be used to satisfy this disclosure requirement:
This [group health plan or health insurance issuer] believes this [plan or coverage] is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your [plan or policy] may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits. Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at [insert contact information]. [For ERISA plans, insert: You may also contact the Employee Benefits Security Administration, U.S. Department of Labor at 1-866-444-3272 or www.dol. gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.] [For individual market policies and nonfederal governmental plans, insert: You may also contact the U.S. Department of Health and Human Services at www.healthreform.gov.]
I. Transparency Disclosures
Group health plans must submit to the Secretary of HHS, and make available to the public, information regarding claims payment policies, enrollment information, information on cost sharing and rating policies, information on out-of-network coverage and information on participant rights. The Secretary of HHS may require additional information as well but has not yet issued guidance on this disclosure. [Plan years beginning on or after September 23, 2010]
J. Nondiscrimination Rules Extended to Nongrandfathered Insured Plans
Nongrandfathered fully insured group health plans must comply with IRC §105(h) rules that prohibit discrimination in favor of “highly-compensated individuals.” Similar non-discrimination requirements applied to self-funded group health plans prior to Health Care Reform. [Delayed indefinitely until further guidance is issued.]
K. Prohibition on Emergency Room Restrictions
Nongrandfathered group health plans may not require prior authorization for emergency room services received in-network or out-of-network and may not include administrative requirements or limitations of benefits for out-of-network emergency services that are more restrictive than those applying to emergency services received in-network. Cost sharing for out-of-network emergency services may not be greater than if the services were provided in-network. Any other cost-sharing requirements (such as a deductible or outof-pocket maximums) can only be imposed for emergency services if the requirement applies generally to out-of-network benefits.
L. Prohibition on Primary Care Physician Restrictions
Nongrandfathered group health plans that require the employees to select an in-network primary care physician must allow the participants to designate any available participating network primary care provider and see any participating OB/GYN and pediatrician without a primary care provider referral. Summary plan descriptions and other similar descriptions of benefits must include a notice to individuals of these rights.
IV. January 1, 2011
A. No Reimbursement for Non-Prescription OTC Drugs
Employees may no longer purchase non-prescription over-the-counter drugs on a pre-tax basis through health FSAs, HSAs, Archer MSAs or HRAs. This change will not affect insulin or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays, and deductibles. [Tax years beginning on or after January 1, 2011]
B. Long-Term Care Program
One provision of Health Care Reform is the Community Living Assistance Services and Support (CLASS) Act. The CLASS Act is a voluntary, federal program for long-term care insurance. Employee participation is voluntary, and employers who choose to implement the program may automatically enroll employees unless they opt out. Employees pay a monthly premium through payroll deduction. After five years of contributing, the employee becomes eligible to receive assisted living funding in the event the employee is no longer able to perform normal daily activities. Only active workers are eligible to participate. The effective date of this program is uncertain.
C. Increase Penalty for Non-Medical Withdrawals from an HSA or Archer MSA
Health Care Reform increases the penalty tax on non-medical withdrawals to 20% from an HSA (currently 10%) or an Archer MSAs (currently 15%).
D. Simple Cafeteria Plans
Employers with 100 or fewer employees during either of the two prior years will be permitted to adopt “simple cafeteria plans.” These plans are deemed non-discriminatory for purposes of the non-discrimination requirements applicable to life insurance, self-funded plans and dependent care plans, if the employer provides a minimum of 2% of pay contribution for participants and the plan satisfies minimum eligibility and participation requirements. Employees who have completed at least 1,000 hours during the prior year must be allowed to participate. Employees younger than 21 years old with less than one year of service can be excluded. The minimum contribution requirement can be satisfied if the employer contribution for all participants is the lesser of (a) 6% of pay or (b) two times each employee’s pre-tax contribution.
V. January 1, 2012
A. Corporate Service Provider Reporting Requirement [REPEALED]
Employers must issue Form 1099s reflecting any payment over $600 to corporate service providers.
B. Automatic Enrollment
Employers with more than 200 employees who maintain one or more group health plans must automatically enroll all full-time employees (defined as employees who work more than 30 hours per week) as soon as they are eligible for coverage. The employer must give affected employees notice of this automatic enrollment procedure and an opportunity to opt out. [Effective date not yet available, but employers may be required to comply as soon as regulations are issued]
C. Comparative Effectiveness Fee
Employers sponsoring group health plans will be required to pay $1.00 per participant in 2012. The annual fee increases to $2.00 per participant in 2013 and is indexed for inflation beginning in 2014. The comparative effectiveness fee phases out in 2019. Revenue from this fee will fund research to determine the effectiveness of various forms of medical treatment. [Plan years ending after September 2012]8
D. Form W-2 Reporting of Value of Benefits (in 2013 for the 2012 tax year)
Employers are responsible for reporting the total costs incurred for providing health care to employees. Specifically, W-2s for the 2012 tax year must include the “aggregate cost” of employer-sponsored group health insurance coverage, excluding any salary reductions deferred to a flexible spending account and all contributions to an HSA or Archer MSA. “Aggregate cost” is the annual cost of the insurance and includes any portion paid by the employee. We are expecting further guidance from the IRS on the factors to be used to determine this aggregate cost. Employers should use COBRA rates to determine the value of benefits. [Tax years beginning on or after January 1, 2012, with the cost of coverage to be first reported on January 2013 Form W-2s]
VI. March 23, 2012
A. Uniform Explanation of Coverage
Employers must provide a uniform summary of benefits and a coverage explanation to all participants at the time of enrollment and each subsequent year during annual enrollment. The summary may not be longer than four pages and not include print that is smaller than a 12 point font. The summary must be written in a “linguistically and culturally appropriate” manner so it is easy for the participant to understand. The summary must contain information regarding cost sharing, continuation of coverage, limitations on coverage and details on where participants can obtain more information. This summary is required in addition to the ERISA summary plan description. The Secretary of HHS will develop this summary no later than March 23, 2011. Failure to comply will result in a fine. Employers may provide the summary in paper or electronic form. [Must be distributed no later than March 23, 2012]
B. 60-Day Notice of Material Modifications
Employers must provide notice of any material modification in coverage at least 60 days prior to the effective date of the modification if not reflected in the most recent Uniform Explanation of Coverage. This notice is required in addition to the ERISA summary plan description. Failure to comply will result in a fine. [Must be distributed no later than March 23, 2012]
VII. January 1, 2013
A. Medicare Tax Increase for High-Earners
Health Care Reform increases the 1.45% Medicare payroll tax on workers’ wages to 2.35% (0.9% increase) on earnings that exceed $200,000 for an individual filer or $250,000 for a married couple filing jointly. The portion of the Medicare payroll tax paid by the employer would remain at 1.45%. Health Care Reform will also impose a new Medicare tax of 3.8% on the lesser of (a) net investment income (including interest, dividends, royalties, rents and other passive income) or (b) the excess of modified gross income that exceeds that threshold ($200,000 for single filers or $250,000 for married couples filing jointly). [Tax years beginning on or after January 1, 2013]
B. No Deduction for Retiree Drug Subsidy
Although Health Care Reform retains the Retiree Drug Subsidy, it eliminates an employer’s ability to deduct the amount of that subsidy. This change increases an employer’s income tax liability, in effect increasing the employer’s cost of providing prescription drug coverage to retirees. The amount by which an employer’s tax liability will increase depends on the total amount of the subsidy and the employer’s applicable corporate Health Care Reform Compliance Timeline and Planning Guide Reviewed by Proskauer Rose LLP 9 tax rate, which currently ranges from 15 percent for income below $50,000 to 35 percent for income over $10 million. Although employers will not face the higher tax liability until 2013, under financial accounting rules, employers must now include the present value of the future taxes as a current liability charged against earnings. [Tax years beginning on or after January 1, 2013.]
C. Cap on Health FSA Contributions
Annual employee contributions to employer-sponsored health flexible spending account are limited to $2,500. This limit is indexed to inflation starting in 2014. [Tax years beginning on or after January 1, 2013]
D. New Electronic Transaction Standards
Group health plans must file a certification with the Secretary of HHS that their plan is in compliance with “administrative simplification” rules (to be published) for electronic fund transfer, health claim status and health care payment. The penalty for non-compliance is $1.00 per covered life per day of noncompliance, to a maximum of $20.00 per covered life per year. A double penalty applies in the case of a misrepresentation by the employer. [Systems must be effective starting January 1, 2013 and employers must certify compliance by December 31, 2013]
VIII. March 1, 2013
A. Employer Notification Regarding Exchanges
Employers must provide existing employees and new employees on their hire date with information about the existence of state insurance Exchanges, including information on employee eligibility for an Exchange if the employer’s share of the health plan is less than 60%, and the loss of employer contribution toward the value of coverage if the employee purchases coverage through the Exchange and the employee does not qualify for a free choice voucher.
IX. January 1, 2014
A. State-Based Exchanges
Every state must establish a health insurance Exchange for use by the uninsured and small employers with 100 or fewer employees (although states may set the cap at 50 employees). The exchanges will offer fully insured contracts that provide essential health benefits at different levels of coverage (i.e., platinum, gold, silver and bronze). Employees may pay for the Exchange premiums on a pre-tax basis only if it is purchased through an employer’s cafeteria plan.
B. Free Rider Penalty
Employers with 50 or more employees will be required to offer “minimum essential coverage” to all full-time employees (working 30+ hours) through a group health plan. If an employer does not provide coverage and at least one full-time employee receives coverage through an Exchange, the employer will be assessed a penalty of $2,000 per year for each full-time employee. If an employer provides coverage but the coverage is deemed unaffordable, the employer will be assessed a penalty of the lesser of $3,000 per year for each full-time employee receiving the premium credit on an Exchange or $2,000 per year for each full-time employee. An employee who is offered coverage will only be eligible for the premium credit if the employee’s contribution exceeds 9.5% of the employee’s household income or if the plan’s share of the total allowed cost of benefits is less than 60%. The first 30 employees are disregarded when calculating the $2,000 per employee penalty.10
C. No Pre-Existing Condition Exclusions
Group health plans and individual insurance policies are required to eliminate pre-existing condition exclusions completely. [Provision applies to dependents under age 19 for plan years beginning on or after September 23, 2010. Provision applies to all other individuals starting January 1, 2014]
D. Limit on Employee Out-of-Pocket Expenses
Group health plans must limit out-of-pocket costs to $5,950 for single coverage and $11,900 for family coverage. Deductibles for small businesses with 100 or fewer employees can be no greater than $2,000 for single coverage or $4,000 for family coverage.
E. Employer Certification of Coverage
Employers offering group health coverage must fulfill two new IRS reporting requirements. Employers that self insure their group coverage must identify those employees and dependents that were offered health coverage and specify the dates of coverage (if the policy is fully insured, the report must be filed by the insurer). Employers with 50 or more full-time employees as well as employers required to offer free choice vouchers must certify whether all full-time employees and their dependents were offered health care coverage. The certification must include the length of the waiting period under the plan, the time period during which coverage was available, the premium charged and the employer’s share of the cost. A statement containing this information must also be provided to all full-time employees. The Secretary will use the certification to enforce the individual mandate.
F. Required Coverage for Clinical Trials for Life-Threatening Diseases
Group health plans may not deny individual participation, discriminate an individual on the basis of participation or deny coverage of routine patient costs for items and services rendered in a clinical trial for a life-threatening disease. [Plan years beginning on or after January 1, 2014]
G. Individual Mandates
Health Care Reform requires individuals to obtain “minimum essential coverage” (i.e., Medicare, Medicaid, CHIP, individual insurance and eligible employer sponsored plans) for themselves and their dependents or pay a monthly penalty tax for each month without coverage. The monthly penalty is 1/12 of the greater of the dollar penalty or the gross income penalty amounts. The dollar penalty in 2014 is $95.00 per individual to a maximum of $285 per family. The dollar penalty in 2015 is $325 per individual to a maximum of $975 per family. The dollar penalty in 2016 is $695 per individual to a maximum of $2,085 per family. In 2017 the dollar penalties will be indexed for inflation. The gross income penalty in 2014 is 1% of household income in excess of a specified filing threshold, 2% in 2015 and 2½% in 2016 and beyond. Waivers are allowed for specified individuals and circumstances.
H. Free Choice Vouchers [REPEALED]
If any employee’s cost of coverage exceeds 8% of household income but does not exceed 9.5% of household income, and the employee’s household income is less than or equal to 400% of the federal poverty level, employers must provide that employee a tax-exempt “free choice voucher” to be used to purchase coverage through a state-based Exchange. The amount of the voucher will be equal to the cost the employer would have paid to cover the employee under the most generous option in the employer’s plan, based on the level of coverage (single or family coverage) that the employee obtains through the Exchange. The employer pays the amount directly to the Exchange, with the employee retaining the excess amount Health Care Reform Compliance Timeline and Planning Guide Reviewed by Proskauer Rose LLP 11 if the cost of coverage in the Exchange is less than the cost of the employer’s coverage. If an employer provides a voucher and the employee purchases coverage through an Exchange, the employer will not be subject to the “free rider” penalty as a result of that employee’s purchase.
I. No Annual Limits
Group health plans may no longer include annual dollar limits on “essential health benefits.” [Plan years beginning on or after January 1, 2014]
J. 90-Day Limit on Waiting Periods
Group health plans may not impose a waiting period longer than 90 days for health care coverage. [Plan years beginning on or after January 1, 2014]
K. Increased Wellness Program Incentives
Health Care Reform raises the wellness program incentive cap from 20% of the total cost of coverage to 30%. [Plan years beginning on or after January 1, 2014]
L. Nondiscrimination Rule
Health Care Reform will adopt HIPAA’s rules whereby group health plans may not discriminate as to benefits or coverage based on health status.
M. Community Rating
Health insurance issuers providing individual or small group policies covering 100 or fewer individuals must abide by strict community rating rules with premium variations allowed only for age (3:1), tobacco use (1.5:1), level of coverage (single or family) and geographic rating area (regions to e defined by the states). Experience rating will be prohibited. These rating restrictions will also apply to insurers offering large group policies through the Exchange.
X. 2015 – 2018
- 2015 – Electronic Records Group health plans must certify to the Secretary of HHS that they are using electronic systems for processing health claims, enrollment and premium payments and that their systems are in compliance. [Group health plans must certify compliance by December 31, 2015]
- 2017 – Exchange for Large Employers States are able to allow large employers with more than 100 employees to purchase health insurance for their employees through the exchanges.
- 2018 – Cadillac Tax Health Care Reform imposes a non-deductible excise tax of 40% on the value of health insurance benefits exceeding $10,200 for single coverage and $27,500 for family coverage (indexed to inflation). The thresholds are higher for qualified retirees and “high risk” professions ($11,850 for single and $30,950 for family.) The tax includes all employer and employee amounts paid for medical, including pre-tax employee premiums and contributions made to health FSAs, HRAs and HSAs. It does not include stand alone dental or vision coverage. The plan administrator is responsible for calculating the value of coverage and dividing the tax pro rata among insurers (including the employer, if self-insured). Plans are allowed to take into account age, gender and certain other factors that impact premium costs. [Tax years beginning on or after January 1, 2018]
Additional Key Points on Health Care Reform
- Insured collectively-bargained, multi-employer and single employer plans in effect on March 23, 2010, do not need to determine whether there has been a loss of grandfathered status until the date on which the last collectively-bargained agreement relating to the coverage terminates. At that time, changes made since March 23, 2010, are evaluated to determine whether there will be a loss of grandfathered status.
- A temporary, high-risk health insurance pool is to be established by the US Department of Health and Human Services (DHHS) no later than June 21, 2010 for use by those individuals with pre-existing conditions who are currently uninsured and unable to purchase insurance. This coverage will end in 2014 when exchanges become operational and the pre-existing condition provision takes effect. The Centers for Medicare & Medicaid Services (CMS) have indicated that the Early Retirement Reinsurance Program (ERRP) will stop accepting applications after May 5, 2011, as the $5 billion in program funds are being depleted rapidly.
- Employers and health insurers are prohibited from encouraging or providing any incentive to any person to disenroll from the employer’s plan in order to shift coverage to the temporary governmental high-risk sharing pool. The penalty for violation is reimbursement to the governmental pool of the medical expenses it incurs for such persons.
- Health Care Reform includes a small business health care tax credit designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers. In 2010, the credit is generally available to employers with less than 25 full-time equivalent (FTE) employees and average annual wages of less than $50,000. Employers must contribute an amount equivalent to at least half the cost of single coverage. For tax years 2010 to 2013, the maximum credit is 35% of premiums paid by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50% of premiums paid by eligible small business employers and 35% of premiums paid by eligible, tax-exempt organizations for two years. The maximum credit goes to smaller employers with 10 or fewer FTE employees paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTE employees, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. Seasonal workers, self-employed individuals (and family members), 2% shareholders of an S-corporation (and family members) and 5% owners (as defined by section 416(i)(1) (B)(I)) of a small business or family members, are not counted as “employees.” Leased employees are counted. Any credits received offset deductions for health insurance costs to employer.
- Health Care Reform provides a $250 rebate for all Medicare Part D enrollees who enter the “donut hole” in 2010. The donut hole is created when a Medicare Part D beneficiary exceeds the prescription drug coverage limit but has not had costs that have reached the catastrophic coverage limit, so is personally responsible for the cost of prescription drugs in this gap. Health Care Reform increases discounts in subsequent years and completely closes the donut hole by 2020. This provision is significant for employers providing coverage for retirees to supplement Medicare Part D coverage. [Phase out begins January 1, 2011]
- Health Care Reform provides that a health insurance company cannot deduct compensation paid to an employee in excess of $500,000 per year. [Applies to current compensation beginning in 2013; applies immediately to compensation deferred in 2010 and paid on or after 2013]Health Care Reform Compliance Timeline and Planning Guide Reviewed by Proskauer Rose LLP 13 Additional Key Points on Health Care Reform, cont’d
- States must implement a CHIPRA premium assistance subsidy for individuals under age 19 and/or their parents for premiums paid for employer-sponsored health coverage and extend such assistance to all individuals who qualify for medical assistance under Medicaid or a state medical assistance program, regardless of age. The state will pay the employee cost of coverage and any cost-sharing expenses (i.e., copays, deductibles, etc.) that otherwise would be covered by the state program. Eligible employees can opt out of the employer’s health plan. [January 1, 2014]
- The current 7.5% of AGI floor on income-tax deductions for health care expenses is raised to 10% of AGI, effective January 1, 2013. The new floor is waived during 2013, 2014, 2015 and 2016 for individuals who turn 65 before the close of those years.