Earlier this year, the U.S. Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act, known as ACA or “health care reform.” This November President Obama won re-election to the presidency and will move forward with implementing the ACA. The ACA is now the law of the land and there are a few things business owners offering health insurance need to understand. But first, a word of reassurance.
Don’t fear the unknown! When it comes to the ACA many people want to exploit our natural fear of the unknown. They cry “HR Compliance” the way Chicken Little cried “the sky is falling” after an acorn fell on his head. Don’t worry. The fact of the matter is that Federal and State agencies have not finalized major portions of the regulations of the ACA. When they do, rest assured that the insurance companies and we at BenefitsCafe.com will give you the information that you need to comply. Remember that we’ve been a trusted advisor for decades. We will be there to help you transition successfully into health care reform.
Here are five things businesses need to know about the ACA.
1. Employers must give employees a Summary of Benefits and Coverage (SBC)
Those who wrote the ACA were concerned that many people do not understand the benefits of their health insurance plan. To address this problem the ACA requires health plans to create standardized benefit descriptions that include a glossary of terms. Employers must distribute the information to employees.
The purpose of HealthCare.gov’s Summary of Benefits and Coverage (SBC) is to present benefits and coverage information in clear language and in a consistent format. Inspired by the Nutrition Facts Label on packaged food, the SBC includes two medical scenarios: having a baby and managing Type II diabetes. It estimates how much a patient would pay for medical care in each scenario with specific insurance plans.
Important things to know about the SBC
- The health insurance companies will create the SBCs.
- It’s the employer’s responsibility to distribute the SBCs to employees.
- This requirement applies to health plan renewals after Sept. 23, 2012.
- Department of Labor will NOT impose penalties for non-compliance with the SBC notice during the first year as long as employers show a “good faith” effort to comply.
- BenefitsCafe.com has suggestions to help employers comply with the SBC distribution requirements.
2. Fewer than 250 W-2 forms issued? Less reporting required by the IRS
The IRS requires employers to report the value of the health insurance they provide to employees and sets two classes of employers.
- More than 250 W-2 forms issued: The ACA requires businesses that issue more than 250 W-2 forms per year to report the value of group sponsored health insurance on the employees’ W-2. Remember that the W-2 form reports an employee’s earnings and withholdings for a tax year and employees file the W-2 with their tax returns.
- Fewer than 250 W-2 forms issued: The IRS does not require employers that issue fewer than 250 W-2 forms to include the value of group health insurance on the W-2. Employers with fewer than 250 W-2s can “voluntarily” include this information on the W-2 but it is not required.
The IRS answers questions about W-2 form requirements and reporting the value of health care benefits at IRS.gov.
3. Tax credit for small businesses that provide health insurance for employees
Proponents of the ACA often tout the Tax Credit for Small Employers as a major benefit to businesses. The IRS has set up a web page with information: Small Business Health Care Tax Credit for Small Employers. The maximum “credit” (which offsets taxes dollar for dollar and is better than a “deduction” which reduces taxable income) is 50 percent of the amount an employer pays towards employee health insurance.
It sounds great, however there are several requirements that must be met to claim the maximum credit.
Number of employees
- An employer can have no more than 10 employees.
- The maximum credit reduces as the number of employees rises above 10 and disappears when an employer has 25 employees.
Average employee wages
- Average wages can not exceed $27,000 per year/$13.25/hour for a full time worker in 2020; and
- The credit amount declines as average wages increase. The credit vanishes when average wages reach $55,000 per year/$26.44 per hour.
Because of the high wages paid in most industries in California, few small employers that provide coverage pay such a low average wage. Note, however, that the calculation of average wages and number of employees excludes the wages of an owner and his or her family members.
If you have fewer than 25 employees, pay at least 50 percent of the cost of “employee only” health insurance, and pay average wages that are less than $50,000, then you may qualify for the credit.
BenefitsCafe.com will help clients gather the appropriate information and do a preliminary estimate of the credit amount. This information will help you and your accountant determine whether applying for the credit makes financial sense. See page 7 of the Rules for California Small Business Health Insurance for additional information on the Tax Credit.
4. Shared Responsibility: Employer tax penalty for not offering affordable health insurance
50 or more employees
Beginning Jan. 1, 2014, an employer with 50 or more employees must pay a tax penalty if they either:
- Do not provide health insurance with minimum benefits;
- Require employees to contribute more than 9.5 percent of an employee’s household income for the health insurance and those employees obtain a government subsidy for coverage.
This chart shows employer penalties under the ACA, referred to as “shared responsibility.” Employers wishing to more precisely calculate their potential penalty liability should read the document we prepared, Calculating the Potential ACA Employer Tax Penalty.
5. The California Health Benefit Exchange will be a new option for health insurance
California is leading all states in the implementation of the ACA requirement for a state-run health insurance “exchange.” The California Health Benefit Exchange (HBEX), named “Covered California” will offer health insurance plans to individuals and businesses with 1 – 100 employees. Covered California will begin enrolling people October 1, 2013 with coverage effective January 1, 2014.
Standardized Benefits: All plans must have “essential health benefits” which include:
- outpatient services, emergency services
- hospitalization; maternity and newborn care
- mental health and substance use disorder services, including behavioral health treatment
- prescription drugs
- rehabilitative services
- laboratory services
- wellness services
- pediatric services including dental and vision care for children
Analysis by HBEX suggests that these plans may look like the existing Small Group Kaiser $30 HMO co-pay plan or Anthem Blue Cross PPO $30 co-pay plan (i.e., a plan with a $500 deductible and 20% member co-insurance).
All plans offered in 2014 will have a percentage of the standardized benefits and be labeled platinum, gold, silver and bronze. Many insurance companies will participate in the exchange. So, an individual will likely be able to select an Anthem Blue Cross plan with “Silver” level of benefits or select an Aetna plan with “Bronze” level of benefits.
Plans with Different Provider Networks
The benefits will be identical for all plans in the same level. The insurance companies will likely offer plans with identical benefits but with different provider networks. In this way, a full network Bronze plan that includes UCLA Medical Center and Cedars-Sinai Medical center would cost more than a Bronze plan with a “narrow network” that does not include these high-cost hospitals and doctor groups.
Cost of Plans
This is a little tricky since plan costs will be decided by individual insurance companies.
To give you an idea of the cost of the HBEX plans, a consulting firm analyzed the costs and services of different plans for HBEX. The consulting firm “estimated the gross healthcare costs for the hypothetical baseline coverage healthcare plan- to be approximately $390 per member per month (PMPM) as of January 1, 2012.”
Insurance companies wishing to participate in the HBEX must submit bids that include the benefits and premium (price) of their health plans. The insurance companies will not see the rates from any other competitor – in this way they will go blindly into a new market without the ability to alter their rates for a year. Consequently, many insurance company executives estimate that the first year rates will be higher than in previous years. Also, the ACA requires that rates for younger subscribers are closer to the rates for the oldest members. This will raise rates for those under age 30.
Individuals and families who qualify because of their low income will be able to obtain tax subsidies to reduce the cost of their health insurance only when they purchase coverage through the HBEX. You can estimate the cost of coverage and the subsidy amount with this ACA Subsidy Calculator.
Many of the health insurance companies are developing their own exchanges where individuals and families will be able to purchase a plan from an insurance company. No subsidies will be available however. BenefitsCafe.com will provide more information on this option as it becomes available.
In the meantime, BenefitsCafe.com is ready to help clients answer questions about healthcare reform. Call us or contact us if you have any questions about what the Affordable Care Act means for your business. We’re here to help. You can also view our health care FAQ for more info.