Health care reform — what does it mean for employers?

BRISTOL, TENN. — SESCO Management Consultants here has analyzed what healthcare reform will mean to employers. SESCO has been a human resources consultant for members of Quality Service Contractors, an enhanced service group of the Plumbing-Heating-Cooling Contractors – National Association.

The firm’s analysis, which follows, was first published in its monthly newsletter, The SESCO Report. Recent passage of the Affordable Care Act (the Senate bill) and the Health Care Reconciliation Act mark the most significant change to the nation's health care laws in at least four decades. Following are some of the important consequences for employers and their group health plans.

Health benefit exchanges

Effective in 2014, state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges are established and administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. States may form regional exchanges or allow more than one exchange to operate in a state as long as each exchange serves a distinct geographic area.

Small employer subsidies

Beginning this year, employers with no more than 25 employees and less than $50,000 in average wages are eligible for a tax credit for employer-provided health coverage. Through 2013, the tax credit is up to 35% of the employer's contribution if the employer contributes at least 50% of the premium. After 2013, available for two years, there will be a tax credit of up to 50% of an eligible small employer's contribution for health coverage purchased through an exchange.

Coverage mandates

Effective six months after the law is enacted, health plans must treat children up to age 26 as eligible dependents. Beginning Jan. 1, 2014, health plans may not impose annual limits on the dollar value of coverage. Also, beginning 2014, the new law starts setting maximum out-of-pocket costs for participants.

Tax withholding and reporting

A health plan reporting requirement will be imposed, requiring employers to report the aggregate value of medical benefits, vision, dental, and supplemental insurance coverage. It is expected that this requirement would apply to Forms W-2 for the year 2011 that are made available to employees in January 2012.

Effective Jan. 1, 2013, the Medicare portion of the FICA tax increases to 2.35% (from 1.45%) for earnings over $200,000 for individuals ($250,000 for couples).

Also in 2013, these "high income" earners will be required to pay a Medicare surtax of 3.8% on investment and other passive income, including rents, interest, dividends, royalties, and capital gains.

Changes to flexible spending, health savings, and health reimbursement arrangements

Beginning with 2011, the new law prohibits tax-free reimbursements for over-the-counter drugs. Effective January 1, 2013 it caps annual pre-tax contributions to health flexible spending accounts at $2,500, subject to adjustments for inflation.

Employer ‘pay or play’ mandate

Beginning Jan. 1, 2014 employers with more than 50 employees will be required to offer health care coverage to employees or pay a penalty. The penalty for failure to provide coverage — applicable if at least one full-time employee receives government-subsidized exchange coverage — is $2,000 per full-time employee in excess of 30 employees.

Automatic enrollment in employer plan and individual mandate

Beginning in 2013 an employer with more than 200 employees must automatically enroll its employees in the employer's group health plan. An employee may opt-out of the employer's group health plan coverage and either obtain other coverage or pay the individual penalty.

The new law requires individuals to purchase health insurance coverage or pay a tax penalty beginning in 2014. The penalty, which is phased in, starts at $95 or 0.5% of income per individual in 2014 and increases to $695 or 2.5% of income in 2016. The penalties for families would be capped at $2,085. Individuals are exempt from the tax penalty if their income is below the tax-filing threshold.

Retiree health care

Effective in 2013, the law eliminates the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments.

‘Cadillac coverage’ excise tax

Beginning with 2018, employers must pay a 40% excise tax on single coverage, to the extent the value (i.e., the total employee and employer cost) is in excess of $10,200, and family coverage with a value in excess of $27,500. Higher thresholds will apply to certain "high-risk" occupations.

SESCO will continue to monitor the changes to health care and will inform contractors as additional details about health care reform are available.

SESCO Management Consultants, founded in 1945, is the oldest and one of the most respected human resource and employee relations consulting firms in America today. Additional information is available at https://sescomgt.com.