What Will Health Care Reform Mean To You?
Copyright 2010 States News Service States News Service
June 22, 2010 Tuesday
WHAT WILL HEALTH CARE REFORM MEAN TO YOU?
States News Service
Farmington Hills, MI
The following information was released by the National Truck Equipment Association (NTEA):
Throughout the years, the NTEA has been aware of the struggles the membership has faced trying to provide affordable health care coverage for their employees. Each member service survey conducted by the Association reflects the escalating cost of health care insurance as a primary concern of member companies.
While the NTEA has continually monitored this issue and understood the need for assistance and relief for member companies, the state-driven regulatory environment for health care has made it almost impossible for any national association to put together a comprehensive program to address this issue. With the recent passage of the Patient Protection and Affordable Care Act (PPACA), change is coming to the health care landscape, but it is unlikely that the state-driven regulatory environment will be modified.
What Should You Expect?
Under the PPACA, beginning in 2014, every U.S. citizen and legal resident (except those who meet a hardship exemption) will be required to have health coverage or pay a penalty.
The 1,000 pages of new law (and many more pages of regulations to come) technically do not contain an affirmative mandate requiring that employers provide health care coverage to employees. Rather, this law creates a series of incentives and penalties - depending on the size of the employer - to "encourage" employers to provide health care benefits for their employees (who will be required by law to have coverage).
Will Premiums Decrease?
The Congressional Budget Office (CBO) estimates that small-group premiums will fall by 1-4% once the exchanges open in 2014. Unfortunately, industry analysts predict that premiums may rise considerably between now and 2014 as insurance providers will want to maximize earnings before the reforms take effect.
Once the reforms take effect, health insurance companies must comply with numerous transparency mandates. They will be required to report the ratio of proportion of premium payments versus marketing and administration costs. Insurers will also be required to disclose the reasoning behind premium increases. States would have the ability to bar insurers from the exchanges if they are found to be unreasonably increasing premiums.
Despite the reforms built into this law, some businesses may decide it is financially wise to eliminate health care coverage and pay the fines. The Joint Committee on Taxation estimated that employers will pay more than $50 billion in penalties for noncompliance over the first 10 years of these requirements. The CBO projects that 3 million fewer Americans will be covered through employer plans by 2019.
Small Business Tax Credit and Retiree Benefits Changes
In an attempt to help some small employers provide health care coverage for employees, PPACA created a new, temporary tax credit that is available beginning with the 2010 tax year.
This limited credit is available to qualified small employers that pay at least half the cost of single coverage for their employees. It is specifically targeted to businesses that primarily employ low- and moderate-income workers. The nonpartisan CBO predicts that only 12% of the small business community will actually qualify for this credit.
For tax years 2010-2013, the maximum credit is 35% of premiums paid by eligible small business employers. It is generally available to companies with fewer than 25 full-time equivalent (FTE) employees, paying wages averaging less than $50,000 per employee per year. The maximum credit goes to smaller employers - those with 10 or fewer FTE employees - paying annual average wages of $25,000 or less. In 2014, the maximum credit is scheduled to increase to 50%. The credit expires two years later.
Also taking effect in 2010 is a temporary reinsurance program to help companies that provide early retiree benefits for those ages 55-64. This fund will reimburse qualifying employers for 80% of the costs of early retirees' claims between $15,000 and $90,000.
Employer Obligations Scheduled to Take Effect
W-2 Reporting: Employers will be required to report the value of employees' health benefits on W-2s
(beginning with those issued in early 2012 for 2011).
CLASS Act: This new self-funded, public, long-term care plan will provide community living assistance services. This is a voluntary monthly payroll deduction for which adult employees must be automatically enrolled unless they choose to opt-out.
Cafeteria Plans: Small employers with 100 or fewer employees will be allowed to establish "simple" cafeteria plans and can retain their small employer status up to 200 employees.
</p> Wellness Programs: Grants will become available for small employers (100 or less employees) establishing new wellness programs.
Executive-Only Plans: Participants in insured executive-only plans will become subject to tax on benefits provided under "discriminatory" plans.
1099 Reporting: Businesses will have to complete 1099 forms for every business-to-business transaction of $600 or more. This is a significant new paperwork burden, particularly for small businesses. Rep. Dan Lungren (CA-3) introduced the Small Business Paperwork Mandate Elimination Act (H.R. 5141) that would repeal the expanded 1099 reporting requirement.
Medicare Part D Employer Subsidy: The amount received in subsidy can no longer be deducted.
Medicare Payroll Taxes: The Medicare payroll tax on wages and self-employment income in excess of $200,000 ($250,000 joint) will increase by 0.9%, and the employer will be required to withhold but is not required to determine joint income for withholding purposes.
Unearned/Investment Income: Such income over $200,000 ($250,000 joint) will be subject to a 3.8% Medicare tax, but withholding is not an employer's responsibility.
FSA Limits: Cafeteria plan health care flexible spending arrangement contributions will be limited to $2,500 (to be adjusted for inflation after 2013.)
Qualified Coverage: Individuals will be required to have "qualified" health care coverage or pay a penalty.
Health Insurance Exchanges: States must establish an American Health Benefit Exchange (for individuals) that will facilitate the purchase of coverage and a Small Business Health Options Program (SHOP) exchange for small businesses with 100 or fewer employees. States could limit SHOP access to companies with 50 or less employees through 2016. Companies expanding beyond the size limit would be grandfathered in.
Employer Play or Pay: Based on their size, employers may be required to provide employee health care benefits or face a penalty. The provided insurance must meet certain standards as defined by government regulations to be issued. The penalties (see above right) will be based on the number of FTEs, the coverage offered by the employer and whether or not any employees qualify for government health care coverage subsidies.
More than 50 FTEs: If the company does not offer "affordable" health care benefits meeting the government's criteria to FTEs or if one or more employees receive government premium subsidies* the employer will pay a penalty of $2,000 per FTE (excluding the first 30 employees) per year assessed on a monthly (1/12th) basis. The law allows employers to exceed the 50-employee limit for 120 days when using seasonal employees. Certain penalties may apply if companies have a waiting period of more than 90 days before employees are eligible for insurance. Companies must begin reporting to the IRS on whether employee coverage is offered, the length of waiting periods, the lowest cost option and the plan's actuarial value.
Fifty or Fewer FTEs: No penalty is issued.
More than 200 Employees: Employees must be auto-enrolled in health care benefits, although they may opt out. The precise effective date of this provision is unclear and subject to change via Department of
SHOP Exchanges: States will be permitted to allow businesses with more than 100 employees to participate in the SHOP exchanges.
Cadillac Tax: A 40% excise tax will be collected from the insurance provider on health coverage in excess of $10,200 annually for an individual or $27,500 annually per family (adjusted for inflation beginning in 2020). Coverage included in this calculation is major medical, health care FSAs, HSAs and certain on-site wellness centers. Stand-alone dental or vision plans will not be included. It is expected that regulations will require employers to calculate the value of benefits that include multiple components from numerous providers and notify those providers of the share of the excise tax they must pay.
The most significant provisions of the new health care law do not take effect until 2014, but many of the tax changes and obligations begin earlier (some are already in place). The NTEA is closely monitoring this issue and will regularly inform members of any changes or updates that may occur. Nonetheless, you will need to be aware of all of the law's requirements in order to plan how your business will respond. Work closely with your benefits providers to ensure compliance with this law and all of the regulations still to come.
If you have any questions on this article, contact Mike Kastner, NTEA senior director of government relations, at
(202) 557-3500 or e-mail [email protected]
June 22, 2010