Health Insurance: Reform Synopsis for Small Employers

2012 – 2013 Health Reform Provisions health insurance

Small Business Tax Credit – Employers with fewer than 25 employees should check to see if they qualify for the Small Business Tax Credit.  For tax years beginning in 2014, the credit will be available only to small businesses that purchase health coverage through a Health Benefit Exchange (Exchange). You should seek advice from an accountant and attorney to determine how the credit may affect your specific situation.

Limit employee contributions to health flexible spending accounts (FSA). Beginning in 2013, employee salary reduction contributions to health FSAs will be limited to $2,500 per plan year, with indexed increases allowed in future years to adjust for inflation.

Provide written notice about Health Benefit Exchanges (Exchanges). In late summer or fall (future guidance is expected on complying with this notice requirement), employers must provide written notice to current employees, and, going forward, new employees, to inform them of the Exchanges and the circumstances under which they may be eligible for health insurance subsidies.

Provide a Summary of Benefits and Coverage (SBC) – On or after Sept. 23, 2012, group health plans and health insurance issuers offering group or individual health insurance coverage are required to use standards in compiling and providing an SBC that accurately describes the benefits and coverage under the applicable plan or coverage. These standards ensure that information is presented in a clear and uniform format that helps plans and individuals better understand their health coverage and compare coverage options across different types of plans and insurance products.

2014 Health Reform Provisions

Although the following provisions will not become effective until 2014, it is important for employers to know what is coming and know what action is required.

What Employers Need to Do

Offer Minimum Essential Coverage (MEC) – Employers will want to consider whether they need to make changes to the cost and quality of the coverage offered to avoid penalties that will apply if that coverage is considered unaffordable or low in value. Beginning in 2014, employers with 50-plus full-time employees may be subject to a penalty if an employee receives a premium credit or cost-sharing subsidy. The penalty is calculated as follows:

• Employers Not Offering Coverage: If an employer does not offer MEC and one or more full-time employees receive a premium credit or cost-sharing subsidy through the Exchange, the penalty is $2,000 per year per full-time worker. When calculating the penalty, the first 30 full-time workers are subtracted from the payment calculation.

• Employers Offering Coverage: If an employer offers MEC and one or more full-time employees receive a premium credit or cost-sharing subsidy through the Exchange, the penalty is $3,000 per employee who receives a premium credit or cost-sharing subsidy.An employer-sponsored plan that satisfies the ACA’s reform requirements must:

• Be affordable to the employee (premium may not exceed 9.5 percent of household income. The IRS, however, has issued a safe harbor allowing employers to substitute the employee’s W-2 income for household income.)

• Provide minimum value, which is at least 60 percent of the total allowed cost of benefits.

What Employers Need to Know

Rest assured that upon renewal, your plan will automatically be adjusted to comply with ACA provision requirements applicable to small group plans. The following items become effective Jan. 1, 2014. Note: No action is required of you.

Companies will be removing plan exclusions for those of any age with a pre-existing condition. This is an update to the provision from 2010 that did not allow exclusions for children under the age of 19 with a pre-existing condition. This applies to grandfathered and non-grandfathered plans; however, grandfathered individual health plans are exempt from this requirement.

Plans must provide  Essential Health Benefits (EHB). The ACA requires all non-grandfathered small group employers to provide EHB. (Most Minnesota plans already are in compliance)

Be aware of the Patient-Centered Outcomes Research Institute (PCORI) Fee – For plan years ending on or after Oct. 1, 2012, the Act imposed a fee, called the PCORI Fee, of $1 per member per year on health insurance issuers and employers sponsoring self-funded group health plans. For fully insured plans, the temporary fee is rolled into the premium rates and is not called out separately on the invoice. The fee began in 2012 and ends in 2019.

Adjusted community rating (ACR) rules will apply to non-grandfathered individual and small group insurance markets effective for plan years (policy years in the individual market) beginning on or after Jan. 1, 2014. Under the ACA’s provisions, the use of actual or expected health status or claims experience to set rates for premiums is prohibited. Other rating factors such as age, geographic area and tobacco use may be used to vary premiums, within certain limits. These rules are still proposed and subject to change before becoming final law.

Annual limitation on plan deductibles is $2,000 single/$4,000 family. This applies to non-grandfathered small groups with the exception of 50-plus as they are not considered small group.

Out-of-pocket maximums for all non-grandfathered plans will be capped at the same level at which health savings account (HSA) plans are capped. In 2013, these levels are $6,250 single/$12,500 family.

This communication is not intended, nor should it be construed, as legal or tax advice. Please contact a competent legal or tax professional for legal advice, tax treatment and restrictions. Federal and state laws and regulations are subject to change.

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