Health Care Reform: Where Do Things Stand for Employers?

Posted on January 14, 2010 by Kristen Smith

While there has been significant press coverage of the health care reform bills being considered by Congress, there has not been as much attention given to the impact that this legislation could have on employers. As widely publicized, both the House and Senate passed their own versions of a health care reform bill. The House passed the Affordable Health Care for America Act (H.R. 3962) on November 7, and the Senate passed the Patient Protection and Affordable Care Act (H.R. 3590) on December 24. Both houses promise to act quickly to reconcile these two bills, with the goal of presenting President Obama with a bill for signing early in the year.

The bills differ in many ways, and it is too early to predict which provisions of the bills will survive the conference process, but at this stage, there are a few core concepts employers should understand:
 

Employer Mandate: Commonly referred to as “pay or play,” both bills contain provisions designed to force employers to offer health care coverage to employees. In the House bill, any employer that fails to offer an acceptable health plan must pay a tax of 8% of payroll. (The tax is phased out for smaller employers.) Under the Senate bill, employers are not technically required to provide coverage, but a “free rider penalty” penalizes employers with over 50 employees in certain circumstances. Generally, if an employer does not provide coverage or offers a plan that is considered “unaffordable,” and at least one employee enrolls in an exchange plan instead (explained below) and receives a government subsidy, the employer would pay a penalty of as much as $750 per year for every full-time employee it employs (not just the number of employees who purchase coverage through an exchange and receive a subsidy.)


Individual Mandate: Subject to certain exceptions, individuals will be required to obtain health insurance coverage through their employer or on their own through an exchange, or pay a penalty. Certain low income individuals would receive subsidies to help pay for the costs of premiums and cost-sharing. The amount of the penalty differs between the two bills, with the House bill imposing a potentially larger penalty.


New Rules for Insurance Policies: Both bills specify categories of benefits that must be covered under “qualified” health plans, and impose specific cost-sharing limits, out-of-pocket spending limits, and rules regarding annual and lifetime limits. The House bill would subject all plans, including all employer-sponsored plans, to these requirements, although plans currently offered by employers would be grandfathered for five years. Under the Senate bill, only plans offered through the exchange (explained below) or in the individual or small group market would be subject to most of these requirements. Since the exchange would be open only to individuals and small businesses, plans offered by larger employers would be exempt from most of these rules.


Small Business Tax Credits: Both bills provide tax credits to small businesses that offer health insurance. Businesses with 10 or fewer employees and average taxable wages of $20,000 or less would be eligible for the credits. The credits would be phased out as average compensation increases to $40,000 (House bill) or $50,000 (Senate bill) and the number of employees increases to 25. The amount of the credit differs between the bills.


Health Insurance Exchange: Both bills set up health insurance exchanges to facilitate the purchase of insurance by individuals and small businesses. The exchange would not be an insurer, but would provide access to insurers’ plans. Exchange plans would be required to contain specified features and cover specified benefits. Individuals eligible for employer plans would not be allowed to apply their employer’s contribution toward an exchange plan (i.e., the employee would be responsible for the entire exchange premium), thus deterring individuals from dropping employer coverage for an exchange plan (although the Senate bill would require employers who provide coverage to offer “free choice vouchers” to a small segment of low-income employees to purchase insurance through the exchange.) Certain small businesses would be “exchange-eligible,” meaning the employer could make exchange plans available to employees.


Excise Tax on Certain Employer-Sponsored Plans: This controversial tax on so-called “Cadillac plans” is included only in the Senate bill and would place a 40% tax on employer-provided health insurance plans with an aggregate value of more than $8,500 for individuals and $23,000 for families (with some exceptions), and would be adjusted for inflation. Note that these amounts apply to the full value of the plan, not just the premium. This includes not only the premium of the health plan, but also any dental, vision or supplemental plan, as well as employer contributions to HSA or FSA accounts. Only the value of the plan in excess of the limit would be taxed. The tax would be imposed on the insurer, which in the case of some self-insured plans would be the employer. Opponents of this provision see it as an unfair tax on the middle-class that would drive employers to reduce coverage for their employees. Supporters see it as a tool to reduce the use of excessive health insurance plans that do not improve heath outcomes, but encourage unnecessary health care spending.


Flexible Savings Accounts: Under both bills, FSA contributions would be capped at $2,500 per year. Currently, employers have the discretion to set FSA contribution limits. In addition, employees would no longer be able to use tax-free FSA or HSA funds for non-prescription drugs and medical supplies.


These are just a few highlights of two lengthy, complex bills. All of these provisions are subject to change in the conference process.
 
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Procedures Should Be Implemented To Comply With New Self-Reporting And Excise Tax Payment Requirements For Certain Health Plan Violations

Posted on January 4, 2010 by Ted Lewkowicz

Starting January 1, 2010, employers and certain other entities that administer group health plans will be required, for the first time, to report on an Internal Revenue Service ("IRS") form certain types of group health plan violations and pay the applicable excise taxes. Violations that must be reported include a failure to satisfy health coverage continuation requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), certain requirements under the Health Insurance Portability and Accountability Act ("HIPAA"), certain mental health benefit parity requirements, childbirth hospital stay requirements, and certain health coverage continuation requirements for seriously ill higher education students. Administrators of group health plans were not required to self-report such violations when they were discovered, and the lack of such self-reporting often resulted in any applicable excise taxes not being paid. The IRS has issued regulations that will require such violations to be self-reported, and will require any applicable excise taxes to be paid in a timely manner.


Steps that should be implemented by employers to comply with these new requirements include:

making sure that employees or other persons who are involved in the administration of each applicable group health plan are informed about these new requirements;

implementing procedures that will help ensure the timely discovery of applicable group health plan violations, the timely submission of the IRS form reporting such violations, and the timely payment of all applicable excise taxes; and

to the extent an employer's group health plan is administered by another entity (e.g., a third party administrator, an insurance company or a health maintenance organization), reviewing any agreement with such entity to see if any changes are needed to help ensure compliance with these new requirements.

 

Taxpayers Required To Comply With These New Requirements

The new self-reporting and excise tax payment requirements for certain group health plan violations generally apply to: (1) employers who sponsor a group health plan that is subject to the requirements described in the following paragraph ("Covered Health Plan"); (2) unions and other employee organizations who sponsor a Covered Health Plan; (3) third party administrators of Covered Health Plans (e.g., a third party administrator of a self-insured Covered Health Plan); and (4) certain other third parties who are responsible for providing benefits under a Covered Health Plan (e.g., insurance companies or health maintenance organizations).

Types of Violations That Are Covered By These New Requirements

Violations that must be reported include a failure to comply with the following requirements:


COBRA Health Coverage Continuation Requirements -- Group health plans that are subject to COBRA are required to comply with certain coverage continuation requirements.

HIPAA Preexisting Condition, Creditable Coverage and Special Enrollment Requirements -- Group health plans that are subject to HIPAA are required to, among other things, comply with limitations on preexisting exclusions, certification of creditable coverage requirements, and special enrollment requirements.

HIPAA Nondiscrimination Requirements Based on Health Status Factors -- Group health plans that are subject to HIPAA are not allowed to discriminate based on a health status factor.

Genetic Information Nondiscrimination Requirement -- The Genetic Information Nondiscrimination Act ("GINA") prohibits, among other things, discrimination based on genetic information.

Mental Health Parity Requirements -- The Mental Health Parity and Addiction Equity Act imposes certain parity requirements between mental health benefits and medical/surgical benefits.

Childbirth Hospital Stay Requirements -- The Newborns' and Mothers' Health Protection Act imposes requirements regarding minimum hospital lengths of stay in connection with childbirth.

Health Coverage Continuation Requirements for Seriously Ill Higher Education Students -- Michelle's Law imposes certain health coverage continuation requirements for dependent university and college students with serious medical conditions.

Comparable Contribution Requirements for Health Savings Accounts and Medical Savings Accounts -- Health savings accounts ("HSAs") and Archer medical savings accounts ("MSAs") are subject to requirements that help ensure that comparable contributions are made for nonhighly compensated employees.

Excise Taxes That Apply To Such Violations

The applicable excise taxes vary depending upon the type of violation involved. An excise tax of $100 a day per affected beneficiary generally applies to a violation of the COBRA health coverage continuation requirements. An excise tax of $100 a day per affected individual generally applies to violations of: (1) HIPAA's preexisting condition, creditable coverage, and special enrollment requirements; (2) HIPAA's nondiscrimination requirements based on health status factors; (3) GINA's genetic information nondiscrimination requirement; (4) the mental health parity requirements; (5) the childbirth hospital stay requirements; and (6) the health coverage continuation requirements for seriously ill higher education students. A violation of the comparable contribution requirements for HSAs and MSAs generally will be subject to an excise tax of 35 percent of the aggregate amount contributed to the HSAs or MSAs for all employees within the applicable calendar year.

IRS Form That Must be Filed If a Violation Occurs

If a violation of one of the requirements described above occurs, the applicable employer generally will be required to report that violation on IRS Form 8928 and will be required to pay the applicable excise taxes. If a COBRA health coverage continuation requirement is involved, the applicable third party administrator or insurer could be responsible for filing Form 8928 and paying the applicable excise taxes. If a violation occurs with respect to a multiemployer plan, the plan will be responsible for filing Form 8928 and paying the applicable excise taxes.

Deadline For Filing the Required IRS Form and Paying the Applicable Excise Taxes

For all violations described above other than a violation of the comparable contribution requirements for HSAs and MSAs, a Form 8928 generally must be filed and the applicable excise tax generally must be paid by the due date for filing the federal income tax return for the applicable taxpayer. If a violation of the comparable contribution requirements for HSAs and MSAs occurs, a Form 8928 generally must be filed and the applicable excise tax generally must be paid by April 15th of the calendar year that follows the calendar year in which the violation occurred. Special requirements apply with respect to extensions, multiemployer plans, and multiple employer plans.

Exceptions To the Excise Tax Requirements

With respect to all violations described above other than a violation of the comparable contribution requirements for HSAs and MSAs, exceptions to the excise taxes apply:

if the responsible party did not know, and would not have known even if reasonable diligence had been exercised, that the violation existed; or

if the violation was due to reasonable cause and not willful neglect, and was corrected within 30 days after the first day the responsible party knew, or exercising due diligence, would have known that the violation had occurred (the violation will be considered corrected if the violation is retroactively undone to the extent reasonably possible and the affected individual is put in a financial position as beneficial as the individual would have been in had the violation not occurred).

If a violation of the comparable contribution requirements for HSAs and MSAs occurs, the IRS can waive the excise tax if it is excessive and the failure is due to reasonable cause and not willful neglect.

Penalties That Apply If These Filing and Excise Tax Requirements Are Not Satisfied

A failure to satisfy these filing and excise tax requirements could result in late penalties of up to 50 percent, and interest charges.

Effective Date of These New Filing and Excise Tax Requirements

These new filing and excise tax requirements apply to any Form 8928 that is due on or after January 1, 2010.

 
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