Health Care Reform Timeline

Health Care Reform Summary & Timeline

IRS to Issue New Health Care Reform Law Affordability Test

August 15, 2011

IRS to Issue New Health Care Reform Law Affordability Test

The Internal Revenue Service said it will develop new rules that will make it easier for employers to determine if their health care plans are “affordable” and exempt from a stiff financial penalty mandated by the health care reform law.

Under the law, starting in 2014, employers are liable for an annual $3,000 penalty for those employees whose required health insurance premium contribution for single coverage exceeds 9.5 percent of family income and the employees are eligible for federal premium subsidies to buy coverage through state insurance exchanges.

In rules proposed Aug. 12 that were welcomed by employers, the IRS said it will develop a safe harbor in which coverage would be considered affordable so long as the premium contribution for single coverage did not exceed 9.5 percent of employees’ W-2 wages.

The IRS said it is developing the new safe harbor to give employers more certainty on whether their plans will pass the affordability test.

“Giving employers the ability to base their affordability calculations on their employees’ wages [which employers know] instead of employees’ household income [which employers generally do not know] is intended to provide a more workable and predictable method of facilitating affordable employer-sponsored coverage for the benefit of both employers and employees,” the IRS said in its notice of proposed rule-making. That notice is expected to be published in the Aug. 17 Federal Register.

Employers had complained that it would be difficult—if not impossible—for them to know employees’ household income, creating a big obstacle to determine whether their plans would be considered affordable, said Anne Waidmann, a director with PricewaterhouseCoopers in Washington, D.C.

The IRS safe harbor “would provide more certainty and effective planning,” said Frank McArdle, a principal with Aon Hewitt Inc. in Washington, D.C.

“This will make it easier for employers to do the necessary calculations,” said Chantel Sheaks, a principal with Buck Consultants, also in the District.

The IRS also affirmed that the 9.5 percent affordability test is to be applied only on single coverage, allowing employers to charge higher amounts for family coverage.

“While we think that was clear in the law, employers will welcome the additional clarity,” said James Klein, president of the American Benefits Council in Washington, D.C.

from Workforce Management

New Guidelines Provide Additional Women’s Preventive Care with No Cost Sharing

On August 1, 2011, the Department of Health and Human Services (HHS) released an amendment to the Interim Final Regulations for preventive care under the Patient Protection and Affordable Care Act (PPACA). The amendment applies to non-grandfathered individual insurance policies as well as non-grandfathered insured and self-insured group health plans.

The amendment provides additional guidelines for women’s preventive services. Health plans will need to cover women’s preventive services, including birth control, without copayments or deductibles. The guidelines reflect the recommendations made last month by the independent Institute of Medicine.

For plan years beginning on or after August 1, 2012, non-grandfathered plans will be required to cover the following additional preventive care services for women with no cost sharing:

• Annual well-woman visits
• Screening for gestational diabetes
• HPV DNA testing for women 30 years and older
• Sexually-transmitted infection counseling
• HIV screening and counseling
• FDA-approved contraception methods and contraceptive counseling
• Breastfeeding support, supplies, and counseling
• Domestic violence screening and counseling

For more detail on the amendment and the additional preventive care services for women, visit: www.hrsa.gov/womensguidelines/.

For more information on the existing PPACA preventive care guidelines, visit: http://www.healthcare.gov/center/regulations/prevention/taskforce.html.

Plans may impose cost sharing on brand name preventive drugs if a generic version is available and is just as effective and safe for the patient to use. Cost sharing would not be permitted on the generic drug.

Religious Exemption
The regulations do not provide for a religious exemption. However, the regulations permit the Health Resources and Services Administration (HRSA) to establish exemptions from these guidelines for coverage of contraceptive services for group health plans of religious employers. A religious employer is defined as an organization that meets all of the following criteria:

• The promotion of religious values is the purpose of the organization
• The organization primarily employs individuals who share the religious beliefs of the organization
• The organization primarily serves people who share the religious beliefs of the organization
• The organization is a nonprofit organization as described in the Internal Revenue Code Sections 6033(a)(1) and 6033(a)(2)(A)(i) and (iii).

No religious exemption is available for individual policies; they must cover contraceptives with no cost sharing.

Highlighting Health Insurance Value on Forms W-2

The Patient Protection and Affordable Care Act (PPACA) requires that employers report the cost of providing health insurance to an employee on the employee's Form W-2. This provision raises many questions: Which employers must report the cost of providing health insurance? What, precisely, must employers report and when? Most of these questions have been answered by the Internal Revenue Service (IRS) in Notice 2011-28, which provided a bit more time for some employers to comply.

It’s critical to note that health insurance benefits are not being taxed. Reporting the cost of health insurance on W-2s might seem like a path to taxation, but the reason for reporting is to convey to employees the value of their health insurance, because many employees do not realize how expensive it is. While the PPACA does include a provision to tax health insurance starting in 2018, this applies only to so-called "Cadillac" health insurance coverage that is more valuable than that provided by most employers. In short, health insurance coverage will not be taxed under current law unless it is very expensive.

When Must Employers Report?

Large employers must report the cost of health insurance coverage on 2012 Forms W-2. Small employers (those that filed 250 or fewer Forms W-2 for the 2011 tax year) must report this information on their 2013 Forms W-2. Remember, employers issue Forms W-2 in January following the tax year they cover, so this means the first required reporting starts in January 2013. IRS Notice 2010-68 and IRS Notice 2011-28 clarify that reporting the cost of health insurance coverage is optional for the years before it is mandatory.

Which Employers Must Report?

The reporting requirement applies to all employers, including churches and other religious organizations, all levels of government, and employers not subject to COBRA continuation coverage requirements.

The reporting requirement, however, does not apply to all types of coverage offered under plans. The cost of coverage under church plans—plans that are offered by religious organizations and are not subject to the Employee Retirement Income Security Act or COBRA continuation—does not have to be reported. So while the reporting requirement applies to religious organizations, if a religious organization offers only church plans, it has nothing to report.

Calculating and Reporting the Cost Coverage

Employers must report the "aggregate cost of applicable employer-sponsored coverage," which is the total cost of coverage under all the group health insurance provided to the employee. The IRS provides employers with a few different options for how to relay this. The key principle underlying the employer’s options for cost calculation is that once the employer chooses a method, the employer must apply that method uniformly to all employees receiving coverage under the same plan.

Essentially, employers must report the cost of medical coverage under their group health plan that is tax-free. There are several benefits and lines of coverage that do not count toward the reportable aggregate cost:

• Stand-alone dental and vision plans.

• Amounts contributed to Archer medical savings accounts, health savings accounts (HSAs) and health reimbursement arrangements (HRAs).

• Amounts contributed by the employee to health flexible spending arrangements (FSAs), although amounts contributed by the employer to FSAs are included in reportable cost.

• "Excepted benefits," including accident, death and disability (AD&D) insurance; liability insurance; and automobile health insurance.

• Long-term-care insurance.

• Any health-like insurance (for example, covering a specific condition) that is not excludable from taxable income.

The aggregate reportable cost includes the entire amount of the coverage, including employer and employee contributions. For fully insured plans, this is easy enough to calculate: Employers may report just the premium charged for the employee’s coverage. Employers with self-insured plans (and those with fully insured ones, if they wish) can use the COBRA premium rate to determine the aggregate cost of covering an employee. Alternatively, if the employer does not calculate precise COBRA premiums from year to year, it can use a good-faith estimate of the total COBRA premium, including employer subsidization.

Cost Changes During the Year

When the reportable cost changes in the middle of a tax year, employers must ensure that the reported cost accounts for the changes. Most employers probably will calculate the costs on a monthly basis, which makes adjusting for changes easier. Sometimes a change—such as the employee’s beginning, ending or changing coverage—occurs in the middle of a month. In that case, the employer may include, exclude or prorate the changes in costs for that month, as long as the employer uses the same method for all employees covered by that plan.

In addition, employers must incorporate in the calculation any method changes, such as when the employer recalculates the COBRA premium in the middle of the year. When calculated on a monthly basis, the reportable cost is simply the annual sum of the monthly costs.

Once the cost of coverage is determined, employers must report it in Box 12 on the Form W-2 using code DD. As usual, employers must distribute the Forms W-2 to employees in January following the applicable tax year and must file the forms with the Social Security Administration.

From the Society for Human Resource Management

Health Reform Prompts Most Employers To Begin Modifications

from Spencer’s Benefits Reports: In the year since the Patient Protection and Affordable Care (ACA) was enacted, employers continue to maintain their health care benefits, implement cost-sharing methods, and assess the long-term impact of reform on their organizations, according to a recent survey released by the International Foundation of Employee Benefit Plans (IFEBP). The survey, Health Care Reform: Employer Actions One Year Later, reviewed actions employers have taken in the 12 months since the ACA became law and explored their plans for the upcoming year. It is the second in a series of IFEBP surveys on the effect of the (ACA) on single employer plans. The majority of survey respondents (62.5%) are focused on making necessary changes to make their plans ACA compliant, the IFEBP found.

“For the most part, employers have moved beyond the ‘wait and see’ phase they were in just a year ago and are beginning to take action,” explained Sally Natchek, senior director of research at the IFEBP. “Although many employers are concerned about rising costs, very few have drastically altered or ended their health care benefits. Most employers remain committed to offering quality health care benefits to their employees.”

Rising Costs, Employee Cost-Share Expected

The majority of employers (60%) have conducted an analysis to determine how the ACA will affect their 2011 plan costs. Among respondents analyzing ACA cost effects, 85% expect their health care costs to rise, with the largest proportion (36%) estimating a cost increase in 2011 of 1%-2% due to the ACA. Although extending coverage to adult children to age 26 is still seen as the top driver of cost increases (by 33.4% of respondents), administrative costs and cost-shifting due to reduced Medicare/Medicaid payments to providers have emerged over the past year as major concerns by 27.5% and 28% of respondents, respectively. Approximately one in ten responding organizations (10.5%) currently is redesigning their primary health plan to reduce premiums and avoid triggering the 2018 excise tax on “Cadillac plans” with vlaues that exceed a specified dollar amount.

In anticipation of increased costs, employers are boosting employees’ share of premium costs (40%), in-network deductibles (29%), and employees’ proportion of dependent coverage cost (28%). Many employers also plan to increase out-of-pocket limits and copayments or coinsurance for primary care (27% and 24% respectively). Also, about one-third of (32.4%) employers have conducted dependent eligibility audits in the past 12 months, or plan to do so in the next 12 months.

Although many employers are looking for employees to help manage rising costs, few plan to eliminate or reduce their health plan benefits as the result of health care reform. Just 2.6% are planning to cut health benefits for new hires, 1.6% are planning to drop dependent coverage, 0.9% will close health benefits to new hires, and 0.8% will discontinue health benefits for active workers or retirees. Less than 1% of employers (0.7%) plan to stop providing employees with health care coverage in 2014, when “play or pay” provisions become effective. This finding is radically different from the McKinsey & Company survey conclusion that 30% of employers will definitely or probably stop offering employer-sponsored insurance in the years after 2014.

Additionally, although required only to extend health care benefits to adult children until age 26, 60% of employers are extending the eligibility requirements to other benefit plans (primarily for dental and vision benefits) to conform to the requirements of their medical plans.

Few Will Maintain Grandfathered Status

Although employers report some benefits of maintaining their plan’s grandfathered status—such as the exemption from the appeals process and the mandatory coverage for preventive care with no cost sharing or annual limits—just 30% (of the 44.6% of respondents whose primary plan is currently grandfathered) expect to maintain grandfathered status beyond the next three years.

“Maintaining grandfathered status will be very challenging for employers,” stated Ms. Natchek. “Plans can lose the status in numerous ways, including reducing benefits, raising coinsurance or significantly raising copayments or deductibles. To remain grandfathered, an employer will be able to make only limited changes in their health care plan. This does not appear feasible for most organizations.”

More Wellness And Related Programs

In light of the ACA, 18% of employers have adopted or expanded their use of wellness initiatives in the last 12 months, and more than one-quarter (27%) plan to do so in the next 12 months. Additionally, 38% are expanding the use of financial incentives to encourage healthy behaviors, and 27% are adopting or expanding their disease management offerings.

High-Deductible Plan Interest Continues

Employers continue to perceive value in the role of high-deductible health plans (HDHPs) for cost management. As a result of the ACA, approximately one-third of responding organizations (33%) are increasing their emphasis on or assessing the feasibility of HDHPs with a health savings account (HSA). Rarely are employers reducing their emphasis or assessing the feasibility of dropping HDHPs.

The survey is based on responses from 1,350 individuals, including benefits and human resources professionals, general and financial managers, and other professionals, who are members of the IFEBP and the International Society of Certified Employee Benefit Specialist (ISCEBS). For more information, visit http://www.ifebp.org/books.asp?7051E.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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