Following the Supreme Court’s June 28 ruling that upheld the Patient Protection and Affordable Care Act of 2010 (PPACA), any employers that put health care reform preparations on hold in anticipation of the decision should take them up again.
“The message we delivered to our clients the day of the Supreme Court decision is full speed ahead,” says Andy Anderson, a partner at Morgan, Lewis & Bockius. “Some people are making the decision to postpone these tasks until after the presidential election, but that could really compromise an employer’s ability to respond in time for [2014 deadlines].”
With that in mind, employee benefits lawyers have weighed in to help assemble a health care reform checklist for employers in light of upcoming deadlines both looming and distant.
Basic Preparedness
First, companies should know what they’re working with by taking stock of all the health plans they offer.
Employers also should familiarize themselves with the law and the guidance issued to date and ensure compliance with a number of PPACA provisions that are already in effect and might apply to them. For instance, since 2010, young adults can be covered under their parents’ health plans until age 26.
Although some new internal and external claims procedures are already in effect, many employers haven’t yet updated their plan documents to address them. “Health care reform added a good deal of nuance and technicality to claims requirements that need to be contemplated, applied to the plan and communicated to participants,” says Daniel Lange, a partner at Katten Muchin Rosenman. Employers should be working with third-party administrators to coordinate contracts with outside organizations that will handle external appeals.
Additionally, plans effective on March 23, 2010, that haven’t been changed significantly are exempt from certain provisions of PPACA, but if companies think their plans are grandfathered, they should reconfirm with their insurers.
The bulk of the law’s provisions affecting employers will take effect in 2014, but a number of requirements are right on the horizon. After the flurry of initial guidance and 2011-effective dates, many employers have relaxed a bit regarding PPACA. Kurt Lawson, a partner at Hogan Lovells, advises that employers refocus the attention they had a few years ago.
Employers will have to report the aggregate cost of provided coverage on Form W-2, starting with the W-2s they will distribute to employees by Jan. 31, 2013. This requires that companies (or their insurers or administrators) track costs on an ongoing basis. This can be a convoluted process, and employers should already have started.
“Companies will need to consider which health plans are covered by the W-2 reporting rules and then must track the individual cost of coverage for each employee,” says Marjorie Glover, a partner at Chadbourne & Parke.
Starting this fall, insurance providers will be required to provide plan participants with Summary of benefits and coverage (SBCs) that are clear, understandable and use a standardized format analogous to food labeling to allow employees to easily compare employers’ plans. Employers have to distribute SBCs by open enrollment for 2013, and companies with self-insured plans should know how they will be assembled.
Additionally, employers should be getting ready to implement the $2,500 cap on contributions to cafeteria plans, effective in 2013, which reduces the maximum amount that employees can defer.
“That would affect not only HR and communications with employees, but also your payroll processing unit,” says Russell Greenblatt, a partner at Katten Muchin Rosenman.
The Act also addresses the Federal Insurance Contribution Act (FICA) taxes. A provision in PPACA that increases FICA taxes for high-income individuals will take effect in 2013.
Finally, in late summer 2012, employers will start receiving refunds from their health insurers if they don’t meet medical loss ratio requirements, which mandate that large group insurers spend at least 85 percent of premium dollars on health coverage as opposed to administrative expenses and small group insurers spend at least 80 percent. Employers will have to handle and distribute refunds.
“Ultimately the rebates will work to the advantage of the employer and to some extent the participants,” Anderson says. “But it’s sort of an administrative headache that employers weren’t asking for.”
Even in advance of agency guidance on some of the rules that will take effect in 2014 and beyond, employers can and should be thinking about them and planning for them at a high level.
“I’m hopeful that as guidance is issued, some of the compliance deadlines will be delayed or transitional relief will be granted,” Glover says. “Many companies are not fully up to speed on this.”
The employer “play or pay” mandate to provide coverage takes effect in 2014, and employers should, on their own or with benefits consultants, start thinking about whether their plans are designed in a way to avoid penalties and evaluating the number of full-time-equivalent employees they have. Some employers may consider discontinuing their health plans and paying a penalty, which encompasses considerations such as how that would affect hiring and retention, what competitors will do and what institutional perspectives may exist to inform the decision. Glover says she expects employers with group health plans in place to keep them, at least at first.
“Longer term, we may see more employers move away from sponsoring a group health plan, especially smaller and new companies,” Glover says. “We may also see smaller companies change their hiring practices—for example, where possible, remain under the 50 full-time employee threshold—to avoid the mandate.”
Aditionally, employer health care plans must be affordable—9.5 percent or less of the employee’s household income. Employers with a relatively highly paid full-time work force may not find this to be an issue; employers in low-wage industries may face a new challenge. Anderson says employers should be considering questions such as how increasing the subsidy for lower-paid employees will affect the cost of providing group health coverage.
And beginning in 2018, high-cost or so-called Cadillac health plans will be subject to a 40 percent excise tax, and many group health plans now provide coverage in excess of the limits. Companies can begin thinking about ways to reduce coverage to avoid the excise tax or to ameliorate its effects.
