Health reform requirements getting serious
Healthcare penalties to know
Ever since healthcare reform became law in 2010, employers have had new requirements imposed on how they offer healthcare coverage to their employees. In the early years, these requirements were generally pretty light. Now, however, as some of the more arduous requirements begin to kick in, employers may feel the strain.
Early years of reform
The first requirements of the Affordable Care Act (ACA) to roll out were relatively easy to comply with. The law specified, among other things, that dependents should be insured until age 26 and preventive care should be 100 percent covered. Fully-insured employers did not have to do anything to comply with these new requirements — insurance companies adjusted the plans for them. Even self-insured employers who had to change their plan designs did not see much of a change from a cost standpoint.
Later requirements asked employers to do things that were more of a hassle. For example, the law required employers to distribute healthcare exchange notices to employees or adjust their waiting periods to be no longer than 90 days. These adjustments were largely seen as inconvenient, however, and did not require a large amount of money to implement.
Now it’s getting serious
The ACA requirements kicking in now are different. They’re more serious than previous requirements, both in potential cost and administrative complexity. Following are five examples of these new requirements.
1. The employer penalty
Historically, employers provided health coverage as an extra benefit to employees. Going forward, employers with more than 50 full-time equivalent employees are required to offer it on pain of a penalty. To avoid the penalty, employers must offer a plan that is both “good enough” and "cheap enough” for employees. The government decides what is “good enough” and what is “cheap enough.” This is a well-known provision of reform and is causing many industries that historically did not offer health coverage to change at high expense.
2. Penalty for individual reimbursement
In the past, many small employers offered a reimbursement for individual health premiums instead of a group health plan due to cost and administrative complexity. The ACA’s provision of subsidies in the individual market for lower-income workers made this approach even more appealing. Earlier this year, the IRS implemented a penalty of up to $36,500 per year per worker on small employers who do this.
3. The healthcare W-2
The government has required employers to report employee compensation since 1943. This report, today called the W-2, helps the IRS make sure everyone is paying their taxes. Now that the government is requiring employers to offer health insurance and employees to have health insurance, it needs employers to report what health insurance plans were available to employees during the year and which team members actually signed up for coverage. This new report, called the 1095-C, is required to be issued for the first time in January 2016 for all employers who have more than 50 employees. Because of the comprehensive nature of the information required for the form, many industry analysts expect the 1095-C will cause employers to completely re-think how they manage their HR systems.
5. Cadillac tax
Before healthcare reform, employers who offered really great benefits were applauded. Soon, they will be penalized. This penalty comes in the form of a 40 percent excise tax on the portion of benefits that the government deems to be “too good.” This creates what many industry analysts call a “benefit window” within which employers need to stay. The bottom of the window is whatever the government deems is “good enough” to avoid the penalty and the top of the window is the level at which the government deems benefits to be “too good” and enforces the excise tax.
The timing for when many of these more difficult requirements will kick in coincides with the beginning of a new administration’s term. As a result, it’s possible some mandates will be rolled back or adjusted in some way. For example, bills have already been introduced in Congress to reduce the penalties on employers who reimburse employees for individual coverage. It will be interesting to see how reform continues to unfold over the next few years.
This column originally appeared in the August 26th edition of The Tennessean.
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