Health Care Reform 2013
Things to Consider
- · W-2 Reporting Requirements
As part of the Affordable Care Act to provide useful consumer information to employees, beginning in tax year 2012, most employers, including federal, state, and local governmental entities, that issue 250 or more W-2 forms for the preceding calendar year must report the cost of health coverage for each employee on their W-2 forms issued in 2013 and beyond. (Keep in mind that the 250 threshold is the number of W-2 forms issued, NOT the number of employees on payroll. Employers with high rates of turnover may be affected while having less than 250 employees.)
The reporting is for informational purposes only. The cost of coverage is not included in the employee's taxable income.
Transitional relief is available and reporting remains optional for employers that issue fewer than 250 W-2 forms in the preceding calendar year until further guidance is issued. Employers are not required to report the cost of coverage on interim W-2s requested by employees before the end of the calendar year.
As an Employer, What are My Responsibilities Regarding the New W-2 Reporting Requirements?
When calculating and reporting the cost of coverage, the following information should be included:
Cost of coverage paid by the employee and the employer, including the cost of dependent coverage. If an employee adds or removes a dependent during the calendar year, the cost change must be reflected on the W-2.
Dental and vision benefits if integrated with the medical benefits. The cost of dental and vision benefits should not be included if dental and vision are offered under a separate certificate.
Amount of employer's contribution, if any, to flexible spending accounts (FSAs).
The aggregate reportable cost of the coverage should be reported on the W-2 form in Box 12 using code DD. There is no additional reporting on Form W-3.
Below are benefits that are not required, but can be included in reporting the cost of coverage:
Contributions to health savings accounts (HSAs), Archer medical savings accounts (MSAs), or health reimbursement arrangements (HRAs). Note: employee contributions to flexible spending accounts (FSAs) should NOT be included.
Any indemnity policy, or HIPAA "excepted benefit" plans offered by the employer.
Coverage for long-term care plans.
Employers will not need to report the value of health benefits provided to retirees, if the employer is not otherwise required to issue the individual a W-2 form.
Employers may select among three (3) options in calculating the cost of coverage to report on W-2s:
COBRA applicable premium method - Use the COBRA premium cost.
Premium charged method - Only employers reporting cost of coverage for employees under insured plans may calculate the reportable cost using the premium charged by the insurer.
Modified COBRA premium method - If the employer subsidizes the cost of COBRA coverage, it can use a reasonable good faith estimate of the COBRA premium; or, if the current year COBRA premium is equal to a prior year COBRA rate, the prior year COBRA rate can be used to report the cost of coverage in the current year.
If an employer uses a 12-month determination period that is not a calendar year for purposes of applying the COBRA applicable premium under a plan, the reportable cost under a plan must be determined on calendar year basis.
For additional information, see IRS Notice 2011-28.
Please see the General Instructions for Forms W-2 and W-3 for potential penalties for non-compliance.
- · Women's Health Preventive Care Contraceptive Coverage Mandate & Exemptions
The Health Care Reform preventive services rule requiring in-network coverage for contraceptive services without cost-sharing has caused much conversation and confusion.
However, a recent Center for Consumer Information & Insurance Oversight (CCIIO) Bulletin in which it describes qualified exempt organizations and gives guidance on the temporary enforcement "safe harbor" for qualified non-exempt organizations should help in clearing up at least some of the confusion.
Basically, effective for plan years beginning on or after August 1, 2012, non-grandfathered, non-exempt group health plans must provided in-network contraceptive coverage and services without any cost-sharing, including deductibles or co-pays.
The full exemption from this contraceptive coverage mandate applies only to plans sponsored by qualifying religious employers, defined as one that: 1) has the inculcation of its religious values as its purpose; 2) primarily employs persons who share its religious tenets; 3) primarily serves persons who share its religious tenets; and 4) is a non-profit organization as defined by the Code.
For those non-grandfathered, non-exempt non-profit organizations with religious objections to providing contraceptive coverage, there is now a one-year "safe harbor" from agency enforcement until August 1, 2013, the specifics of which are outlined in the bulletin.
For more specific information and to view the full CCIIO Bulletin, go to http://cciio.cms.gov/resources/files/prev-services-guidance-08152012.pdf.
These next two provisions are scheduled to go into effect in 2013. Unfortunately, the final details for both of them have yet to be fully determined by the governing agencies, so there is little to actually do at this moment, other than to "be ready".
- · Notice of Insurance Exchange
This is a disclosure requirement the Notice of Insurance Exchange that requires employers provide all current employees and new hires with a written notice about the health benefit Exchanges which are to become operational in 2014, along with some of the consequences if an employee decides to purchase a qualified health plan through the Exchange rather than employer-sponsored coverage.
Explanation Notice of the 2014 Exchanges
This disclosure requirement was actually an amendment to the Fair Labor Standards Act (FLSA) and is effective for employers beginning on March 1, 2013. As almost all employers are subject to the FLSA, there are very few exceptions to this requirement.
The written notice must 1) inform the employee of the existence of the Exchange, including a description of the services provided by the Exchange and how the Exchange can be contacted for assistance; 2) advise the employee that if the employer's portion of the employer-sponsored health plan is less than 60% of the total allowed cost of benefits, then the employee may be eligible for a premium tax credit and possibly a cost sharing reduction, if the employee purchases coverage through the Exchange; 3) advise the employee that if the employee chooses to purchase a qualified health plan through the Exchange and the employer does not offer a 'free choice voucher', the employer contribution for coverage may be lost.
The notice will have to be given to all current employees in March when this requirement first takes effect, then only to new employees when they are hired. Currently, there is no requirement to provide a notice on any recurring basis to employees once it has been provided to them. Also, it appears it currently applies to all employees, including part-time, temporary, and seasonal employees, regardless of whether that employee class is eligible for the employer-sponsored health plan.
At this time, Health & Human Services (HHS) has not provided a Model Notice to be used for these disclosures.
- · Fees to Fund Research for Clinically Effective Outcomes CER Fees
The second provision that will come into play next year has to do with the newly created nonprofit entity, the Patient-Centered Outcomes Research Institute. Its purpose is to support research into comparative clinical effectiveness outcomes, thereby assisting patients and the healthcare community in making more informed healthcare decisions.
Fees to Fund Research for Clinically Effective Outcomes
The Institute will be funded, at least in part, by fees paid over a seven year period by health insurers (whether for group or individual policies) and employer sponsors of self-funded health plans. These fees are typically referred to as comparative effectiveness research fees (CER fees). In addition to single employer or multiple employer plans, they also generally apply to governmental plans and retiree-only plans.
Health Reimbursement Arrangements (HRAs) are also subject to these fees. Multiple self-funded arrangements established and maintained by the same plan sponsor with the same plan year are subject to a single fee. Therefore, if a HRA is integrated with another self-funded plan that provides major medical coverage, and the HRA and that plan coverage have the same plan sponsor, the HRA is not subject to a separate fee.
HRAs that are integrated with fully insured health plans are given different treatment. A fee is imposed on the insurance carrier of the underlying health insurance policy and a separate fee is the responsibility of the plan sponsor of the HRA itself.
A limited coverage HRA (say, a dental or vision expenses only plan) would be considered an "excepted benefits" plan and would not be required to pay CER fees.
Health Flexible Spending Accounts (FSAs) that provide "excepted benefits" (most FSAs) are also not subject to these fees, nor or Health Savings Accounts (HSAs) or Archer MSAs. EAPs and other wellness programs are not subject to CER fees to the extent the program does not provide significant medical care benefits.
These CER fees are effective for each plan or policy year ending on or after October 1, 2012 and before October 1, 2019.
The fee is $2 ($1 for plan years ending before October 1, 2013), multiplied by the average number of lives covered under the plan for that plan year. For plan years ending on or after October 1, 2014, the fee is increased based on the percentage increase in the projected per capita amount of National Health Expenditures.
There are several allowable ways to calculate the number of average lives for the underlying major medical plan, whether a fully-insured or self-funded plan an actual count method, a "snapshot" method, or a Form 5500 method. However, for HRAs (or non-excepted benefit FSAs), each employee participant is deemed to be a covered life, regardless of whether or how many dependents may also be covered under the HRA so an employee participant with a spouse and child would be counted as 1 not 3 lives.
The fee is to be paid annually by July 31st of the year following the year of the assessment as an excise tax. The first CER fees will be due July 31, 2013 and are to be reported on Form 720, Quarterly Federal Excise Tax Return, which is currently being re-drafted for this purpose.
As examples: a return that reports liability for the fee imposed for a plan year ending on November 30, 2012, must be filed by July 31, 2013; a return that reports liability for the fee imposed for a plan year ending on February 28, 2013, must be filed by July 31, 2014.
The information contained in this article is not intended in any way to be legal, accounting or other professional advice. We assume no liability in connection with its use, nor are these comments directed to specific situations.