While the majority of the Patient Protection and Affordable Care Act going into effect on Jan. 1, 2014, employers are still in need of the federal government’s final guidance on many pieces of the legislation. How prepared you are today and looking forward to 2014 likely depends upon how much you were relying on the outcome of the November 2012 presidential election. Businesses that took the “wait-and-see” approach may now have some catching up to bring themselves up to speed on the understanding and implementation of the health care reform requirements. Employers who held the course will need to continue to stay mindful of the ongoing updates to the regulations as they are finalized and published.

Certain health care revisions may be more applicable to your business than others. For example, the Small Business Health Care Tax Credit gives a tax credit to eligible small businesses that provide health care coverage to their employees. For the years ending 2010 through 2013, small business can receive a maximum tax credit of 35 percent. Small tax-exempt employers such as charities can received a tax credit of up to 25 percent. These rates will increase on Jan. 1, 2014 to 50 percent and 35 percent, respectively.

Certain employers may also be subject to a penalty tax if they either fail to offer health coverage or offer coverage that does not satisfy certain standards:

  • Employers with 50 or more employees are subject to a penalty tax if either:
    • They do not offer health coverage to their employees.
    • They offer health coverage, but the coverage either:
      • Is “unaffordable”
      • Does not pay at least 60 percent of the medical benefits provided under the plan
  • An employer must pay a penalty equal to $2,000 times the number of full-time employees exceeding 30 if just one full-time employee both:
    • Purchases health coverage through a newly created health insurance exchange
    • Receives a refundable tax credit for health insurance
  • For employers who offer coverage that is either unaffordable or does not provide minimum value, the employer must pay a penalty equal to $3,000 for each full-time employee who:
    • Opts out of employer coverage.
    • Purchases health coverage through the exchange.
    • Receives a refundable tax credit for health insurance.

This penalty is capped at the amount the employer would have otherwise had to pay if the employer were not offering coverage. The penalty tax is not deductible.

Key Provisions Requiring Attention in 2013

  • Health Flexible Spending Accounts – $2,500 annual limit on salary reduction contributions under cafeteria plans.
  • Expanded Form W-2 reporting requirement to reflect the cost of employer-sponsored health coverage for employers who filed 250 or more Form W-2s for 2011.
  • Coverage for women’s preventive health services for non-grandfathered health plans to be effective Jan. 1, 2013, for calendar-year plans.
  • The payment of fees to fund the Patient-Centered Outcomes Research Institute (PCOR) by certain health plan insurers and self-insured health plan sponsors (due Jul. 31, 2013, for n years ending Oct. 1, 2012, to Dec. 31, 2012).
  • A phased-in $2 million annual limit restriction on the dollar amount of essential health benefits, applicable for plan years beginning on or after Sept. 23, 2012, but before Jan. 1, 2014.
  • The continued disclosure of Summary of Benefits and Coverage (SBC) and 60-day advance notice of material changes affecting SBC content.
  • Loss of the deduction for the portion of health care expenses that are reimbursed to the employer through the Medicare Part D subsidy program, effective Jan. 1, 2013. This applies to insured and self-insured health plans regardless of their grandfathered status.
  • An increase in the the Federal Insurance Contributions Act (FICA) Medicare tax rate by 0.9 percent for wages greater than $200,000 ($250,000 for married couples filing jointly). This change increases the employee’s portion of FICA Medicare taxes from 1.45 percent to 2.35 percent for wages over this threshold. Employers are required to collect the employee’s portion of FICA Medicare tax and will need to ensure that their payroll provider or systems comply with this requirement.

Pending final guidance, by Mar. 1, 2013, plans must notify employees and new hires of the upcoming existence of state insurance exchanges.

State Health Care Revisions

Some states have fallen in line with the Patient Protection and Affordable Care Act, while other states have been more reluctant to the health care revisions and even opted out of some of critical portions of the act.

Michigan: Michigan opted not to have a state-based health exchange, but will link up with a federal health exchange. While Governor Rick Snyder had supported a state exchange, the complexity of creating it along with the number of unanswered questions was a larger undertaking than the Michigan House of Representatives was willing to commit to. Snyder has filed a grant application to move ahead with the state-federal exchange, but down the road may wish to exercise the option for a state exchange.

Texas: Governor Rick Perry has been vocal about halting the expansion of Medicaid to some of the state’s poorest residents. The state has opted for alternatives besides a state exchange. Legislators passed what is known as a transformation waiver, providing monetary incentives to hospitals that work closely with doctors and clinics to provide effective, more cost-effective health care. Currently, Texas facilitates the Regional Healthcare Partnerships that enable hospitals throughout the state to coordinate health care and ultimately improve access and affordability.

Florida: Governor Rick Scott announced that Florida would not be pursuing efforts to implement a state-based health insurance exchange. Florida’s Agency for Health Care Administration has returned the $1 million federal Exchange Planning grant received in 2010.

Preparation for 2014

It will be essential for employers to understand how health care reform defines full-time, ongoing, variable and seasonal employees. While traditionally a full-time employee has been defined as 40 hours per week, health care reform defines full-time as an average of 30 hours during a specified period of time. In addition, there is guidance on when an employee is eligible to come onto the plan as well as the length of time that they are eligible to remain on the plan regardless of their hours of service once on the plan.

In August 2012, the IRS issued notices that were intended to aid employers in determining which of their employees they should be concerned with for purposes of the employer mandate. While one might have hoped that this would have been a fairly simple calculation, it has created great cause for concern for employers.

Proposed rules published in the Federal Registry as recently as Jan. 2, 2013, attempt to further clarify the requirements put forward by the Internal Revenue Code section 498H. It addresses “pay-or-play” penalties identified for controlled groups and further defines dependents while continuing to identify self-only coverage as the basis for affordable coverage.

While many factors remain yet unknown, employers are strongly encouraged to continue working with their insurance advisors to identify what their possible penalties may be if they either do not provide coverage to full-time employees; provide coverage that is unaffordable to some or all employees or provide coverage that is not of minimum value.

To learn more about the Patient Protection and Affordable Care Act and how it will affect your business, contact our CPAs in Troy, Mich., or Houston, Texas.