Since before the HCRA was passed, people have been debating about how to pay for it, what it will cost and how it will impact the economy. I am not going to debate those issues. Instead, let's look at the change in cost structure the Act provides that will potentially impact employers.
The Costs
The addition of the PHSA sections referenced above lay out what the additional (or amended) requirements will be for employer sponsored health plans and multiemployer plans. They provide both administrative requirements and benefits limits. So they tell us what plans have to look like going forward and how they have to work. But they do not set out any specific requirements with respect to employers and their obligations to provide any particular group health plan.
In fact, there is no requirement that an employer offer any group health plan. Instead, there are penalties that apply if an employer DOES NOT offer qualified coverage. More importantly, there will be penalties associated with offering coverage that is not as good as what is otherwise available and employee choose not to take that coverage.
For months beginning after Dec. 31, 2013, an “applicable large employer” (generally, one that employed an average of at least 50 full-time employees during the preceding calendar year) that is not offering coverage for all its full-time employees, is offering minimum essential coverage that is unaffordable, or is offering minimum essential coverage that consists of a plan under which the plan's share of the total allowed cost of benefits is less than 60%, that employer will have to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee. The penalty for any month will be an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by one-twelfth of $2,000.
Also, an applicable large employer that offers, for any month, its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer sponsored plan will be subject to a penalty if any full-time employee is certified to the employer as having enrolled in health insurance coverage purchased through a State exchange with respect to which a premium tax credit or cost-sharing reduction is allowed or paid to such employee or employees. So if an employee elects to participate in the State exchange, and is eligible for premium tax assistance, the employer will still be subject to a penalty. This is designed to force employers to keep the employee cost of coverage down because if it is cheaper for an employee to get coverage under an exchange rather than an employer plan, the employee who elects the exchange coverage causes a penalty to the employer.
Remember back at the beginning we talked about bronze (60%) silver (70%), gold (80%) and platinum (90%) levels of coverage? This is where the concept of “qualified plan” becomes important to employers on a penalty-payment basis. The new law creates a concept called “exchanges” which has yet to be fully defined, but generally is intended to mean a vehicle whereby individuals can go and buy coverage for themselves. They level of coverage will have a set price. If a large employer has employees who purchase coverage through an exchange, that employer will be subject to the penalties if certain conditions are met:
1. The employer has more than 50 employees (computing part-time employees as a percentage of full time employees based on 30 hours per week)
2. the employee who purchases the coverage does so with tax-credits or cost sharing reductions; and
3. the employer is not offering coverage, is offering sub-bronze coverage or the coverage is unaffordable
Free choice vouchers. After Dec. 31, 2013, employers offering minimum essential coverage through an eligible employer-sponsored plan and paying a portion of that coverage will have to provide qualified employees with a voucher whose value can be applied to purchase of a health plan through the Insurance Exchange. Qualified employees are those employees:
... who do not participate in the employer's health plan;
... whose required contribution for employer sponsored minimum essential coverage (if they did participate in the plan) exceeds 8%, but does not exceed 9.5% of household income; and
... whose total household income does not exceed 400% of the poverty line for the family.
After 2014, the 8% and 9.5% will be indexed to the excess of premium growth for the preceding calendar year. The value of the voucher is equal to the dollar value of the employer contribution to the employer offered health plan and is not includable in income to the extent it is used for the purchase of health plan coverage. If the value of the voucher exceeds the premium of the health plan chosen by the employee, the employee is paid the excess value of the voucher. The excess amount received by the employee is includable in gross income. If an individual receives a voucher, he is disqualified from receiving any tax credit or cost sharing credit for the purchase of a plan in the Insurance Exchange. Similarly, if any employee receives a free choice voucher, the employer is not assessed a shared responsibility payment on behalf of that employee.
Tax credits for small employers offering health coverage. For tax years beginning after Dec. 31, 2009, an eligible small employer will be given a tax credit for nonelective contributions to purchase health insurance for its employees. An eligible small employer generally is an employer with no more than 25 full-time equivalent employees (FTEs) employed during the employer's tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000. These wage limits will be indexed to the Consumer Price Index for Urban Consumers (“CPI-U”) for years beginning in 2014.
For tax years beginning in 2010 through 2013, the credit will be 35% for small employers with fewer than 25 employees and average annual wages of less than $50,000 who offer health insurance coverage to their employees. In 2014 and later, eligible small employers who purchase coverage through the Insurance Exchange will be eligible for a tax credit for two years of up to 50% of their contribution.
Excise tax on high-cost employer-sponsored health coverage. For tax years beginning after Dec. 31, 2017, a 40% nondeductible excise tax will be levied on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than the Congressional Budget Office (CBO) estimates in 2010.
Employers with age and gender demographics that result in higher premiums could value the coverage provided to employees using the rates that will apply using a national risk pool.
The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax.
Cost of employer sponsored health coverage included on Form W-2. For tax years beginning after Dec. 31, 2010, employers must disclose the value of the benefit provided by them for each employee's health insurance coverage on the employee's annual Form W-2.
Increased tax on nonqualifying HSA or Archer MSA distributions. For distributions made after Dec. 31, 2010, the additional tax for HSA withdrawals before age 65 that are used for purposes other than qualified medical expenses is increased from 10% to 20%, and the additional tax for Archer MSA withdrawals that are used for purposes other than qualified medical expenses is increased from 15% to 20%.
Deduction for employer Part D is eliminated. For tax years beginning after Dec. 31, 2012, the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees will be eliminated.
Since we have yet to see what the exchanges will look like, we can't be sure what types of plans employers will have to offer. But employers should be aware of the cost load associated with offering coverage, not offering coverage, or offering "substandard" coverage to project how their particular benefit plans might be impacted in the future.