First open enrollment beginning after Sept. 23, 2012
Summary of Benefits and Coverage requirement
Beginning Sept. 23, 2012, Summaries of Benefits and Coverage (SBCs) are required for both fully insured and self-insured group health insurance policies. The purpose of the SBC is to provide individuals with standard information so they can compare medical plans and make more informed choices about their coverage. The health insurance carrier is responsible for creating the SBC on fully insured policies. The employer group is responsible for creating the SBC on self-funded policies.
January 1, 2013
W-2 reporting for benefits provided during prior year
Health care reform requires employers issuing more than 250 Form W-2s to report the total cost of coverage under an employer-sponsored group health plan. This amount will be reported on Form W-2 in Box 12 using Code DD. The value of the employer’s excludable contribution to health coverage is not taxable. This reporting is for informational purposes only and will help employees understand how much their employer contributes to the cost of their health care coverage.
- Read more about W-2 reporting.
Health care FSA contributions limited to $2,500
Beginning in 2013, health care reform is setting a limit of $2,500 on the maximum amount that an employee can elect to contribute each year to a health care Flexible Spending Account (FSA). The limit only applies to elective employee contributions and so does not apply to employer matching or other non-elective FSA contributions. Dependent care FSAs, Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), adoption care assistance and elective “premium conversion” contributions for health coverage are not subject to the $2,500 contribution limit.
- Read guidance from the IRS on cafeteria plans.
Increased Medicare health insurance tax withholding for high-income individuals
Beginning in 2013, employers will be required to withhold additional amounts from the wages of high-earning employees. The Medicare tax rate will increase from 1.45 percent to 2.35 percent on wages over $200,000 for single filers, wages over $250,000 for joint filers, and wages over $125,000 for persons who are married filing separately. Employers are not required to consider a spouse’s wages or whether an employee earns wages at a second job, and the employer would begin withholding the additional tax in the pay period in which it pays wages in excess of $200,000 to an employee. The IRS said it does not plan to add additional boxes to Form W-2 for the additional Medicare tax on wages in excess of $200,000. Employers will report aggregate Medicare wages in Box 5 and the aggregate Medicare tax in Box 6.
- For more information, please read the IRS Q&A.
Repeal of employer business deduction for qualified retiree drug programs
Currently, employers are entitled by the Medicare Modernization Act of 2003 to a tax-free subsidy of 28 percent of their costs to provide a prescription drug benefit program to their retirees. This legislation was intended to provide relief by reducing the coverage gap, known as the doughnut hole, for individuals in the Medicare Part D program. As of 2013, employers that currently receive a federal subsidy for providing retiree prescription drug coverage may still receive the subsidy, but will no longer be able to take a deduction on their federal tax returns related to the subsidy.
- Learn more about this change from SHRM.
First dollar preventive care services for women
Starting with plan years beginning on or after August 1, 2012, non-grandfathered group health plans are required to provide first-dollar coverage for certain women’s preventive care services, including certain contraceptive services. “First-dollar coverage” means that health plans must not impose any co-payments, co-insurance, deductibles, or other cost-sharing requirements. Certain religious employers are exempt from the requirement to provide coverage for contraceptive services.
- Learn more about first-dollar preventive coverage for women.
March 1, 2013
Employee health insurance exchange notices
As of March 1, 2013, employers must provide notices to all employees regarding new health insurance exchanges, which are supposed to be operational in 2014. The Department of Labor has not yet issued regulations for implementing this requirement.
July 31, 2013
Patient-centered outcomes fee due
The Internal Revenue Service (IRS) released a proposed regulation explaining a new fee, the “patient-centered outcomes research fee” or “comparative effectiveness fee” that must be paid by both fully insured and self-insured health plans under health care reform. For calendar-year, self-insured plans, the first payment will be due by July 31, 2013, for the 2012 plan year.
- For more information read the IRS proposed rule.
Because there are many variables involved in health care reform legislation, this article is intended as general information only and should not be taken as legal advice. Please consult your organization’s legal or compliance resources for health care reform guidance that is specific to your business.
Health Care Reform outline of changes by year
- The U.S. government will set up a program to create non-profit insurance co-ops.
- Medicare payment reforms will encourage “accountable care organizations.”
- A pilot program will be created to test more efficient ways to pay for Medicare.
- Medicare payments to hospitals with high rates of preventable readmissions will be reduced.
- The Medicare payroll tax will increase from 1.45% to 2.35% on individuals with adjusted gross income (AGI) in excess of $200,000 and couples with AGI in excess of $250,000.
- A new 3.8% tax will be imposed on investment income for individuals with AGI in excess of $200,000 and couples with AGI in excess of $250,000.
- Contributions to health care flexible spending accounts will be limited to $2,500 per year.
- The threshold for itemized medical deductions will be raised from 7.5% to 10% of AGI for people under the age of 65.
- A 2.3% tax will be imposed on certain medical device manufacturers and importers.
- Health plans will be prohibited from denying coverage to adults for preexisting medical conditions; therefore state high-risk pools will be phased out.
- Health plans will be prohibited from imposing annual limits on benefits.
- Small businesses with less than 25 employees and average wages of less than $50,000 will be able to qualify for a tax credit of up to 50% of the cost of the health care premiums for workers.
- New health insurance exchanges will be created by the states.
- People earning up to 133% of the federal poverty level ($29,327 for a family of four as of 2009, to be indexed) will qualify for Medicaid. Childless adults will be eligible for the first time.
- People earning up to 400% of the federal poverty level ($88,200 for a family of four as of 2009, to be indexed) will qualify for subsidies on a sliding scale to purchase health insurance through the newly created insurance exchanges.
- Most U.S. citizens will be required to buy health insurance or pay a penalty, except for certain financial hardship cases.
- Employers with more than 50 employees that do not offer health coverage will be fined if at least one employee uses tax credits to purchase an individual plan through an insurance exchange.
- Insurers will not be allowed to charge women higher premiums.
- Health insurers will be required to pay annual fees.
- The threshold for itemized medical deductions will be raised from 7.5% to 10% of AGI for people 65 and over.
- Health plans will be required to eliminate co-payments and deductibles for preventive services.
- A 40% excise tax will be imposed on health insurance plans costing more than $10,200 for an individual or $27,500 for a family, excluding stand-alone vision and dental plans. Higher thresholds will be implemented for certain high-risk industries.