Health Care Reform: FAQs from Small Employers
April 17, 2013
In March 2010, President Obama signed the Patient Protection and Affordable Care Act (Pub. L. No. 111-148) and the Health Care and Education Affordability Reconciliation Act (Pub. L. No. 111-152) into law (collectively referred to as the "ACA" or "Health Care Reform"). The ACA makes significant changes to the U.S. health care system, including new requirements for health plans and employers. Many small employers have questions about what the law means for them. Below we provide answers to some commonly asked questions.
Q: Is my company required to offer health insurance?
A: Technically, no employer is required to offer health insurance under the ACA. However, beginning January 1, 2014, large employers (defined as those with at least 50 full-time equivalent employees (FTEs)) may be subject to a shared responsibility penalty unless:
- They offer all full-time employees the opportunity to enroll in at least "minimum essential coverage"; AND
- The coverage, among other things, is "affordable" (no more than 9.5% of the employee's earnings).
The penalties apply if both of the above conditions are not met and at least one of the company's full-time employees purchases coverage through a health insurance marketplace and is eligible for and receives a premium tax subsidy to help pay for their health coverage.
Employers with fewer than 50 FTEs are not subject to such a penalty regardless of whether they offer health coverage and/or employees purchase coverage through a marketplace.
Q: What is considered "full time" when determining whether an employer meets the large employer threshold?
A: In this context, the ACA defines full time as working an average of at least 30 hours per week in any month. The large-employer threshold is met if the employer has:
- At least 50 full-time employees; or
- A combination of full-time and part-time employees that are the equivalent of at least 50 full-time employees.
See ADP's Eye on Washington for details on calculating full-time employees and full-time equivalent employees.
Q: Since the shared responsibility penalties do not apply to small employers, what are the major changes that do affect small employers?
A: Some of the major changes under the ACA that affect small employers include, but are not limited to:
- A requirement to provide a notice of the availability of health insurance marketplaces, also known as health insurances "exchanges" (this requirement has been postponed until further notice).
- A requirement to provide a Summary of Benefits and Coverage and Glossary of Terms notice to plan participants.
- A tax credit for certain small businesses that provide qualifying health coverage.
- A new Form W-2 reporting requirement (requirement postponed for small employers until further notice).
- A new requirement to provide certain information to the Department of Health and Human Services (HHS) and the IRS concerning the availability of health coverage.
- A requirement to provide breaks to nursing mothers.
- New requirements for health plans, such as 90-day limit on waiting periods and coverage for dependents up until age 26.
These changes are addressed in more detail in the questions and answers that follow.
Q: Is my company required to provide a notice regarding the availability of health insurance marketplaces?
A: Yes, all employers are required to notify employees and new hires about the availability of health insurance marketplaces, also known as "exchanges." The notification must provide the employee with a description of the state marketplace, contact information, and the potential impact on the employee if he or she purchases coverage through the marketplace (e.g., the employee may lose the employer contribution toward health insurance or that they may be eligible for a premium tax credit). Originally, the deadline for providing the notice was March 1, 2013. However, this requirement has been postponed until further notice.
Q: What are health insurance marketplaces?
A: Health insurance marketplaces, also known as "health insurance exchanges," are state or regionally-based competitive marketplaces where individuals and small employers can obtain health coverage from various health insurance carriers. States have the option of setting up their own marketplaces, working with other states, or partnering with the federal government. The marketplaces are scheduled to be operational beginning January 1, 2014. The federal government will establish a marketplace for any states that do not establish their own by 2014. Visit healthcare.gov for more information.
Q: Is my company required to purchase a health care plan through a marketplace?
A: No, participation in the health insurance marketplace is strictly voluntary. Individuals and small employers may purchase coverage through the marketplace beginning January 1, 2014. Initially, employers with up to 100 employees will be eligible to participate, although states with their own marketplaces can limit participation to businesses with up to 50 employees until 2016. Starting in 2017, the marketplace will be open to all employers.
Q: Where can I find the health care marketplace that operates in my area?
A: The marketplaces, which will operate online, are still in the process of being established. Once operational, employers can locate their state's marketplace by going to http://www.healthcare.gov/. The federal government expects that the marketplaces will begin accepting enrollments in October 2013.
Q: What are the Summary of Benefits & Coverage and Glossary notices? Who is required to provide these notices?
A: The ACA requires group health plans to provide two new notices to plan participants and beneficiaries: the summary of benefits and coverage (or "SBC") and uniform glossary of medical and coverage terms (or "glossary"). The SBC is a chart summarizing the plan's benefits, coverage, and terms. The glossary provides definitions to terms commonly used in health insurance coverage, such as "deductible" and "co-payment."
All group health plans must provide the notices. For self-insured plans, the employer is responsible for preparing the SBC notice. For fully insured plans, the insurance company is responsible. These notices must be furnished during open enrollment and within seven business days of a request. The template SBC notice and Glossary are available for download from the HR Library of HR411.
Q: What is the Small Business Health Care Tax Credit and who is eligible?
A: Small employers can receive a tax credit of up to 35% of their premium expenses if their group health plan meets the "qualifying arrangement" requirements. The maximum credit increases to 50% beginning with the 2014 tax year. To be eligible, the employer must have fewer than 25 full-time equivalent employees (FTEs) for the taxable year with average annual wages of less than $50,000 per FTE. For the 2014 tax year and beyond, in order to qualify, small employers must meet these requirements and also purchase health insurance through state-based marketplaces.
To meet the qualifying arrangement requirement, for each employee enrolled in the health plan, the employer must pay the same percentage towards his or her premium expenses. This percentage must be at least 50%. In Notice 2010-44 and Notice 2010-82, the Internal Revenue Service (IRS) provides detailed guidance to help small employers determine whether they qualify for the credit.
Q: What are the ACA's requirements for Form W-2 reporting?
A: The ACA requires employers to report the value of health insurance on each employee's Form W-2. Employers filing more than 250 W-2s were required to begin reporting this value on W-2s sent to employees in January 2013. Employers filing fewer than 250 W-2s are exempt from the requirement until the IRS provides further guidance. The value of employer-provided health insurance benefits is to be reported in Box 12, using code DD, on the W-2. The amount reported should include both the portion paid by the employer and the portion paid by the employee.
Q: What are the HHS and IRS reporting requirements?
A: Beginning in 2014, all employers must submit a certification to the U.S. Department of Health and Human Services (HHS) regarding whether their group health plan provides "minimum essential coverage." In addition, employers must report detailed information concerning their health coverage to the IRS and a copy of this information must be provided to each employee annually. Additional guidance is expected from the federal government concerning these new reporting requirements. Check HR411 and ADP.com for further developments.
Q: What are the rules for providing breaks for nursing mothers? Must the breaks be paid?
A: All employers are required to provide reasonable break time for an employee to express breast milk for her nursing child for up to one year after the child's birth, unless the employer has fewer than 50 employees and it would impose an undue hardship. There is generally no requirement for employers to compensate employees for breaks taken for the purpose of expressing milk. However, if employers already provide compensated breaks, an employee who uses that time to express milk must be compensated in the same way that other employees are compensated for break time. For example, if an employer provides two 15-minute rest breaks to its employees and an employee uses those two breaks to express breast milk, the time must be compensated. Additional time taken for this purpose may be unpaid.
Note: State and/or local laws may offer additional rights and protections for nursing mothers. Check your state law to ensure compliance.
Q: What changes does the ACA make to health plans?
A: The ACA imposes a number of requirements on health insurance providers. A summary of changes already in effect include but are not limited to:
- Health plans must cover "recommended" preventive services and "routine" immunizations (a list of preventative services and routine immunizations can be found here)
- Excluding children from coverage because of pre-existing conditions or dropping people from coverage when they get sick is prohibited
- Young adults can stay on their parents' health plans until age 26
- Employee contributions to health flexible spending accounts (FSAs) are limited to $2,500
- Medicare beneficiaries are able to get a free annual wellness visit and personalized prevention plan service
Beginning in 2014, there will also be:
- A 90-day limit on waiting periods
- An increase in permitted wellness incentives from 20% to 30%
- Guaranteed availability and renewability of insured group health plans
- Complete prohibition on preexisting condition exclusions for enrollees aged 19 or older
- Complete prohibition on annual dollar limits
Q: What is the "Cadillac" tax?
A: Beginning in 2018, health insurance issuers and sponsors of self-funded group health plans will be assessed a tax on any benefits provided to employees that exceed a predetermined threshold. In 2018, this threshold is $10,200 for single coverage and $27,500 for family coverage; thereafter the amount will be adjusted for inflation. The tax will be equal to 40% of the amount of coverage in excess of the predetermined threshold. Insurers will be required to pay the tax; however, insurers subject to the tax might pass on the additional financial burden to employers. Employers may want to consider reviewing their health plans' projections to ensure coverage does not exceed $10,200 (single) or $27,500 (family) in 2018.
Q: Where can I find more information on health care reform?
A: Health care reform requirements are extensive and regulations implementing its various provisions continue to be released. Check HR411 and the Eye on Washington section of ADP.com for continued updates concerning health care reform. Additionally, Healthcare.gov provides information for both employers and individuals.