Affordable Care Act: What Every Business Needs to Know

Below is information provided during a seminar titled, The Affordable Care Act: An Overview of What to Expect, hosted by the Lansing Chamber of Commerce. In this first of three sessions, Fraser Trebilcock Lawyers, along with Blue Cross Blue Shield and Grotenhuis, helped area business leaders to understand the ACA. You can learn more about the session and upcoming sessions here: LRCC Programs on Health Care Reform. Scroll to the bottom for more links related to ACA.

The Patient Protection and Affordable Care Act (ACA) created sweeping reform to the health care system in the United States. The driving principles behind the ACA are to provide affordable health care to all Americans, reduce the growth of the health care costs, and improve the health of our communities.

Significantly, group health plans have faced significant new challenges under the lengthy and complex ACA. The law has drastically changed health care as we know it and requires immediate action and ongoing analysis and restructuring of benefits in the years to come.

While there are variations for some of these requirements, such as a plan’s grandfathered status or whether a particular benefit is deemed excepted under HIPAA’s portability requirements, the group health plan requirements generally include the provisions set forth in this summary.

List of Mandates in Effect Prior to 2012

  • Coverage of Adult Children up to Age 26
  • Lifetime Benefit Limits and Restricted Annual Benefit Limits
  • Limited Grounds for Rescinding Coverage
  • Prohibition of Preexisting Conditions Exclusions (Under Age 19)
  • Internal and External Claims Appeals Processes
  • Mandated Coverage of Preventive Health Services
  • Mandated Patient Protections
  • Reasonable Break Time for Nursing Mothers
  • Over-the-Counter Drug Prohibition
  • HSA and Archer MSA Penalty Increase

Mandates Effective for 2012-2013

Cost of Employer-Sponsored Health Coverage Included on Form W-2

Employers must begin reporting the aggregate cost of employer-sponsored coverage provided on their employees’ Form W-2 (Code DD in Box 12).

Restricted Annual Benefit Limits
The annual limit rule increases the minimum annual dollar limit on the value of benefits for any participant or beneficiary with respect to the scope of essential health benefits from $1.25 million to $2 million.

Uniform Summary of Benefits and Coverage (SBC)
With varying compliance dates for disclosure, in general, the requirement went into effect September 23rd of 2013. Group health plans must provide a summary of benefits and coverage that: (1) is in either color or grayscale; (2) is presented in a uniform format; (3) uses terminology understandable by the average plan enrollee; (4) does not exceed four double-sided pages in length; and (5) does not include print smaller than 12-point font. The SBC, notice of material modification, and uniform glossary requirements apply to self-funded and fully-insured group health plans, including grandfathered plans. However, an SBC need not be provided for plans, policies, or benefit packages that constitute HIPAA excepted benefits under 26 CFR 54.9831-1(c).

Extension of Nondiscrimination Rules
The ACA extended the nondiscrimination rules of Internal Revenue Code §105(h)(2) nondiscrimination testing to non-grandfathered fully-insured group health plans. This is a substantial change as §105(h) has historically only been applicable to self-funded group health plans. Fully-insured plans have not had to comply with nondiscrimination testing in the past, except as required under §125 cafeteria plan testing requirements. This provision was scheduled to already be in effect, however, the IRS released Notice 2011-1 delaying the effective date of nondiscrimination testing rules under the ACA until further regulations and guidance are issued. However, group health plans need to be aware that this is still within the ACA so even fully insured plans must be mindful when making design choices.

Employer Annual Reporting Requirements Regarding Quality of Care
Group health plans must annually submit, to the Secretary and enrollees under a plan, a report during each open enrollment period regarding wellness and prevention programs. The Secretary was required to develop reporting requirements for group health plans and issue regulations in 2012; however, these have yet to be released.

Comparative Effectiveness Fee (Patient-Centered Outcomes Research Trust Fund)
Fees on insured and self-insured plans (certain benefits are excepted) in the amount of $1 per covered life for plan years ending on or after October 1, 2012, and ending before October 1, 2013, are required. There are a number of different ways to calculate the “covered lives” which are set forth in the regulations. The approach used by a plan, however, must be consistent. The fee will increase to $2 for the next plan year (ending on or after October 1, 2013 and ending before October 1, 2014) and will again increase and be calculated as indicated for future plan years until the fee ceases for years ending on or after October 1, 2019.

Effective Dates in 2013

Restricted Annual Benefit Limits
The annual limit rule increases the minimum annual dollar limit on the value of benefits for any participant or beneficiary with respect to the scope of essential health benefits to $2 million for 2013. Beginning in 2014, annual limits on the dollar value of benefits for any participant or beneficiary will no longer be allowed. However, group health plans may still place annual or lifetime limits on specific covered benefits that are not essential health benefits.

Flexible Spending Account Limit to $2,500
The flexible spending account limit on salary deferral will be $2,500, adjusted in future years for changes in the cost of living. This requirement applies for plan years effective on or after January 1, 2013. See IRS Notice 2012-40.

Elimination of Deduction for Expenses Allocable to Medicare Part D Subsidy
The employer’s deduction for the amount of any Medicare Part D retiree drug subsidy will be eliminated.

Effective Dates in 2014 and Beyond

Automatic Enrollment for Large Employers Offering Coverage

In accordance with the regulations promulgated by the Secretary, an employer with more than 200 full-time employees and that offers employees enrollment in one or more health benefits plans must automatically enroll new full-time employees in one if its plans, subject to any waiting period authorized by law, and to continue the enrollment of current employees in a health benefits plan offered through the employer. Additionally, any automatic enrollment program shall include adequate notice and the opportunity for an employee to opt out of any coverage the individual or employee was automatically enrolled in. While the effective date for this requirement is a bit unclear, the provision also states that implementation is in accordance with regulations promulgated by the Secretary. The Department of Labor recently issued guidance stating that until regulations are issued, employers are not required to comply with the automatic enrollment mandate. The Department of Labor indicated that it intends to complete the regulations by 2014.

Prohibition on Annual Benefit Limits
Beginning in 2014, annual limits on the dollar value of benefits for any participant or beneficiary are no longer allowed. Group health plans may still place annual or lifetime limits on specific covered benefits that are not essential health benefits.

Prohibition on Excessive Waiting Periods
Group health plans and a health insurance issuers offering group or individual health insurance coverage are prohibited from applying any waiting period (the period that must pass before coverage begins for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan) that exceeds 90 days.

Play or Pay
Penalties can be imposed on applicable large employers who (1) fail to provide health care coverage for all full-time employees; (2) offer minimum essential coverage that is unaffordable; or (3) offer minimum essential coverage under which the plan’s share of the total allowed cost of benefits is less than 60%. The penalty tax will be imposed if any full-time employee is certified to the employer as having purchased coverage through an Exchange with respect to which a tax credit or cost sharing reduction is allowed or paid to the employee. The taxes range from $2,000-$3,000 per full-time employee depending on the circumstance with certain reductions and caps imposed.

The penalty tax can be imposed on “applicable large employers.” The term “applicable large employer” generally means an employer who employed an average of at least 50 full-time employees (an employee who works on average at least 30 hours per week) or full-time equivalent employees (as defined in the regulations) on business days during the preceding calendar year.

Each state is required to establish an American Health Benefit Exchange (“Exchange”) for that state that (1) facilitates the purchase of qualified health plans, (2) provides for the establishment of a Small Business Health Options Program that is designed to assist qualified employers in the state who are small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market in the state; and (3) meets certain organizational and operational requirements. An Exchange is required to make qualified health plans available to qualified individuals and qualified employers, but cannot make available any health plan that is not a qualified health plan. The Exchange is required to have an initial open enrollment period, and annual open enrollment period, and certain special enrollment periods. Note that the terms “qualified employer,” “qualified individual,” and “qualified health plan” are each specifically defined.

An employer is required to provide notice of the availability of the Exchange informing employees (1) of the existence of the Exchange; (2) that employees may be eligible for a subsidy under the Exchange if the employer’s share of the aggregate cost of benefits is less than 60%; and (3) that if the employee purchases a policy through the Exchange, he or she will lose the contribution to any health benefits offered by the employer.  The notice must be provided to each employee at the time of hiring (or to current employee no later than October 1, 2013).

Fair Health Insurance Premiums
Health insurance issuers for health insurance coverage offered in the individual or group market may not charge discriminatory premium rates.

Guaranteed Availability and Renewability of Coverage
Health insurance issuers that offer health insurance coverage in either the individual or group market must accept every employer and individual in the State that applies for coverage. However, the issuers are permitted to limit enrollment to annual open and special enrollment periods for those with qualifying lifetime events. The Secretary is required to promulgate regulations with respect to enrollment periods.

Nondiscrimination based on Health Status
The ACA extends the prohibition from discriminating against an individual with regard to eligibility or coverage based on a health status-related factor to health insurance issuers offering individual health insurance coverage. Additionally, the ACA codified the nondiscrimination requirements for wellness programs.

Nondiscrimination in Health Care Providers
Group health plans and health insurance issuers offering group or individual coverage are prohibited from discriminating with respect to plan participation or coverage against health care providers acting within the scope of their professional license or certification under applicable State laws.

Comprehensive Health Insurance Coverage
Health insurance issuers that offer health insurance coverage in the individual or small group market must ensure that such coverage includes essential health benefits. Group health plans must comply with certain cost-sharing requirements.

Coverage for Clinical Trials
Group health plans and health insurance issuers offering group or individual health insurance coverage that provide coverage to qualified individuals are prohibited from (1) denying the individual participation in a clinical trial; (2) denying (or limiting or imposing addition conditions on) the coverage of routine patient costs for items and services furnished in connection with participation in the trial (with some exceptions); and (3) discriminating against the individual on the basis of the individual’s participation in such trial.

Transparency in Coverage
The ACA places reporting obligations on group health plans and health insurance issuers offering group or individual health insurance coverage seeking certification as a qualified health plan to the Exchange, the Secretary, the State insurance commissioner, and to the public.

Individual Mandate
An applicable individual must ensure that the individual, and any dependent of the individual who is an applicable individual, is covered under minimum essential coverage. Subject to limited exemptions, a shared responsibility penalty is imposed on any applicable individual for any month in which he or she fails to maintain minimum essential coverage, which includes a government sponsored program, an employer sponsored plan, a plan in the individual market, a grandfathered plan, and certain other coverage.

Increase Wellness Incentive Limit
The ACA codifies substantially similar basic requirements for the wellness programs currently in the HIPAA regulations. However, significantly, the ACA increases the maximum incentive available to 30% of the cost of coverage and authorizes the Secretaries of Labor, Treasury, and HHS to increase the incentive to 50% of the cost of coverage.

Reporting of Health Insurance Coverage
Every person, including self-insured and fully-insured group health plans, who provides “minimum essential coverage” to an individual during a calendar year is required to make a return to the IRS regarding individual health insurance coverage. Additionally, the reporting person is required to provide a written statement to the covered individual.

Effective Dates in 2018

Excise Tax on Cadillac Plans

A 40% nondeductible excise tax will be imposed on high-cost health coverage (the “Cadillac Tax”). If the coverage is insured, the health insurance issuer is responsible for paying the tax. If the coverage is HSA or Archer MSA contributions, the employer is responsible for paying the tax. For other coverage, the plan administrator is responsible for paying the tax. The Cadillac Tax only applies to applicable employer-sponsored coverage. With certain exceptions, if the employer or plan sponsor miscalculates the excess benefit attributable to each coverage provider, it must pay a tax penalty (in addition to the Cadillac Tax) in the amount equal to 100% of the additional excise tax that must be paid by coverage providers due to the miscalculation plus interest.

Please note that the above serves as a summary only. There are various complexities associated with each provision, with varying definitions, exceptions, and requirements. With regard to provisions becoming effective within the next year, plans sponsors and group health plans should immediately have their plan design, procedures, and administration thoroughly reviewed by legal counsel.

This legislation is overwhelming in nearly every sense of the word, and we are ready to assist you in planning your strategies and steps toward compliance, as well as updating your documents as required. As always, please contact us with any questions you may have. Attorney Beth Latchana can be reached directly at (517) 377-0826.

Interested in learning more about Final HIPAA Regulations? Click here.

Interested in learning more about Accountable Care Organizations? Click here.

IRS Circular 230 Disclosure

Unless expressly stated otherwise, this document is not intended or written to function as a covered opinion under Department of Treasury regulations. Any federal tax advice within this document is not intended or written to be used, and cannot be used, for the purpose of: (1) avoiding penalties that may be imposed, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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