Key Provisions Under the Affordable Care Act for Employers with 50 or More (Full Time) Employees
Implementation of the Affordable Care Act occurs in stages, with many of the reforms and requirements taking effect in 2013 and 2014. Some of the provisions that may impact employers with 50 or more (full time) employees include:
- Employer Shared Responsibility Provisions
Beginning in 2014, employers with 50 or more full-time (or full-time equivalent) employees that do not offer affordable health insurance may be required to pay an assessment if at least one of their full-time employees is certified to receive a premium tax credit in an individual Marketplace. A full-time employee is one who is employed an average of at least 30 hours per week. The assessment, known as Employer Shared Responsibility, will offset part of the cost of the Marketplace tax credits. If a business meets the threshold level of 50 full-time or full-time equivalent employees, or is close to it, it’s important to understand how these rules may apply and how the payment amounts are calculated. Refer to this FAQ from the IRS for more information.
- Summary of Benefits and Coverage (SBCs) Disclosure Rules
Employers are required to provide employees with a standard “Summary of Benefits and Coverage” form explaining what their plan covers and what it costs. The purpose of the SBC form is to help employees better understand and evaluate their health insurance options. Penalties may be imposed for non-compliance. For more information, refer to this completed sample of the SBC form from the U.S. Department of Labor.
- Medical Loss Ratio Rebates
Under ACA, insurance companies must spend at least 80% of premium dollars on medical care rather than administrative costs. Insurers who do not meet this ratio are required to provide rebates to their policyholders, which is typically an employer who provides a group health plan. Employers who receive these premium rebates must determine whether the rebates constitute plan assets. If treated as a plan asset, employers have discretion to determine a reasonable and fair allocation of the rebate. For more information on the federal tax treatment of Medical Loss Ratio rebates, refer to IRS's FAQs.
- W-2 Reporting of Aggregate Health Care Costs
Beginning January 2013 (applicable to 2012 reporting), most employers must report the aggregate annual cost of employer-provided coverage for each employee on the Form W-2. The new W-2 reporting requirement is informational only and it does not require taxation on any health plan coverage. Reporting is required for most employer-sponsored health coverage, including group medical coverage. Small Employer Exception: For 2012 reporting and beyond until further guidance is issued, the W-2 reporting requirement does not apply to employers required to file fewer than 250 Form W-2s in the prior calendar year. To learn more about the requirements, as well as exclusions, visit this page at IRS.gov.
- Limits on Flexible Spending Account Contributions
For plan years beginning on or after January 2013, the maximum amount an employee may elect to contribute to health care flexible spending arrangements (FSAs) for any year will be capped at $2500, subject to cost-of-living adjustments. Note that the limit only applies to elective employee contributions and does not extend to employer contributions. To learn more about FSA Contributions, as well as what is excluded from the cap, refer to this document provided by the IRS.
- Additional Medicare Withholding on Wages
Beginning January 1, 2013, the ACA increases the employee portion of the Medicare Part A Hospital Insurance (HI) withholdings by .9% (from 1.45% to 2.35%) on employees with incomes of over $200,000 for single filers and $250,000 for married joint filers. It is the employer’s obligation to withhold this additional tax, which applies only to wages in excess of these thresholds. The employer portion of the tax will remain unchanged at 1.45%.
- New Medicare Assessment on Net Investment Income
Beginning January 1, 2013, a 3.8% tax will be assessed on net investment income such as taxable capital gains, dividends, rents, royalties, and interest for taxpayers with Modified Adjusted Gross Income (MAGI) over $200,000 for single filers and $250,000 for married joint filers. Common types of income that are not investment income are wages, unemployment compensation, operating income from a non-passive business, social security benefits, alimony, tax-exempt interest, and self-employment income.
- Elimination of Deductions for Medicare Part D Retiree Prescription Drug Subsidy
As of 2013, employers that currently receive a federal subsidy for providing Medicare Part D retiree prescription drug coverage will no longer be able to take a deduction for those retiree drug expenses with respect to that subsidy. The ACA retains the Medicare Part D subsidy, but eliminates employers’ ability to deduct the amount of the subsidy.
- 90-Day Maximum Waiting Period
Beginning January 1, 2014, individuals who are eligible for employer-provided health coverage will not have to wait more than 90 days to begin coverage. The IRS has provided temporary guidance on how employers should apply the 90-day rule and is expected to provide more information in the near future clarifying these rules.
- Transitional Reinsurance Program Fees
The Transitional Reinsurance Program is a three-year program, beginning in 2014 and continuing until 2016, that reimburses insurers in the individual insurance Marketplaces for high claims costs. The program is funded through fees to be paid by employers (for self-insured plans) and insurers (for insured plans). The U.S. Department of Health and Human Services estimates that the fees for 2014 will be $5.25 a month (or $63 for the year) for each individual covered under a health care plan, with the required fee for the following two years to be somewhat lower. The fee applies to all employer-sponsored plans providing major medical coverage, including retiree programs. The U.S. Department of Labor has advised that for self-insured plans, these fees can be paid from plan assets. The IRS has stated that the fees are tax deductible for employers. The U.S. Department of Health and Human Services is expected to provide more information in the near future clarifying the details of this program.
- Workplace Wellness Programs
The ACA creates new incentives to promote employer wellness programs and encourage opportunities to support healthier workplaces. Effective January 1, 2014, the maximum reward under a health-contingent wellness program will increase from 20 percent to 30 percent of the cost of health coverage, and the maximum reward for programs designed to prevent or reduce tobacco use will be as much as 50 percent. The U.S. Department of Labor is expected to provide more information in the near future clarifying these new rules.
- Health Insurance Coverage Reporting Requirements
Beginning with health coverage provided on or after January 1, 2014, employers subject to the Employer Shared Responsibility rules must provide the IRS with information about full time employees' coverage under the health plans and the cost of benefits provided. Likewise, employers that sponsor self-insured plans must submit reports detailing information for each covered individual. The first of these reports must be filed in 2015. The IRS is expected to provide more information in the near future clarifying these requirements.