Health Care Reform


Business Professional

The health care law, also known as the Patient Protection and Affordable Care Act, will affect employers differently. The precise impacts depend on the size of your company, how much your employees are paid, the type of coverage you currently provide, and whether your plan qualified for grandfathered status.

The health care law does not mandate that you provide health care coverage to your employees, but if you do provide coverage but do not provide coverage that meets the laws requirements your company may be subject to penalties.

This provision of the health care law is called the Employer Mandate. It states that employers with 50 or more employees must provide coverage to their employees or face a fine. There are two types of penalties one for not providing coverage at all, and one for not providing the minimal level of coverage or affordable coverage. It is important to discuss the specific requirements for your company with your legal advisor.

The law may also impact your health insurance products and rates, coverage requirements, administration, reporting, and more. Here are some of the key parts of the health care law that may affect your business:

Group size

The size of your business is an important factor that determines how your benefits or rates are constructed, and whether or not you will be penalized for not offering coverage. The health care law defines small groups as those with a total of 2-100 full-time and full-time equivalent (FTE) employees.

But the law allows states to modify the FTE number for small businesses to 2-50 for 2014 and 2015. Most states, including the State of New Jersey, are choosing that option and will classify small business as those with 2-50 FTEs.

Starting in 2016, businesses in every state with 2-100 employees will be classified as small business.

How to determine group size

Starting in 2014, the federal government will define full-time workers as those who work 30 hours per week or more. Part-time employees will be counted as part of the total employee count.

To do this, you add the total hours worked by part-time employees per month and divide the number by 120 (the minimum amount of hours an employee must work per month to qualify as a full-time employee). Add the full time equivalent number to the number of full-time employees, and this is your total group size.

The law specifies how to handle other types of workers, such as seasonal workers and variable hour staff, and requires you to maintain monthly records on the total number of employees

Some employers may pay penalties

The size of your company determines whether you will be assessed penalties starting in 2015 if you fail to offer affordable coverage. Groups with up to 50 full time equivalent employees are not required to offer health insurance coverage and are not penalized if they do not provide it.

Employers with 50 or more full-time equivalent employees must decide if they will continue to offer a group health plan, or instead pay the penalty for failing to offer coverage — the play or pay mandate. There are two possible penalties that the federal government could impose on a group under this provision:

  • The Mandate Penalty ($2,000) applies if an employer does not offer group health coverage. The penalty is calculated on all full-time employees, less the first 30. At least one employee has to purchase subsidized coverage on the Marketplace for this penalty to apply.
  • The Qualification Penalty ($3,000) applies if the employer fails to offer a qualifying plan (minimum and affordable) to any employee. The penalty applies if any of those employees purchase subsidized coverage through the Marketplace. This penalty is assessed based on the number of employees that are not offered qualifying coverage and subsequently purchase subsidized coverage through the Marketplace.

Tax credits

You may be eligible for a tax credit if you offer your employees health insurance. The health care law includes tax credits for businesses with fewer than 25 employees whose annual average wages are less than $50,000.

Grandfathered status

If you offer a plan that existed on March 23, 2010, your plan may be eligible for grandfathered status. That means your health plan would have to comply with some — but not all — provisions of the health care law. Your plan could lose that status, however, if you make significant changes to the plan, such as the benefits it includes or the amounts employees pay in cost-sharing fees (deductibles, premiums and copayments).

Notification requirements

As part of the health care law, you are required to notify all employees about the new Health Insurance Marketplace an online shopping tool for individual health insurance. In New Jersey, the Marketplace will be administered by the federal government. With respect to current workers, employers are required to provide the notice by October 1, 2013. The notice must be provided automatically, free of charge, and written in language that the average employee can understand. Beginning no later than October1, 2013, employers must provide the Marketplace notice to each new employee at the time of hiring. For 2014, the government will consider a notice to have been timely delivered if it is provided within 14 days of an employees start date.

The notice you provide your employees must:

  • Provide a description of the services the Marketplace offers
  • Provide instructions about how to contact the Marketplace and request assistance
  • Let employees know that they may be eligible for premium tax credits if the plan you offer pays less than 60 percent of the costs of covered services
  • Explain that if employees purchase a qualified health plan through the Marketplace they may lose any employer contribution to any health plan offered by the employer and all or a portion of the contribution may be excluded from income for Federal income tax purposes

The U.S. Department of Labor is providing guidance on issuing this notice, as well as two model documents that employers can base their communications on. One is available for employers who are offering health insurance plans to employees, and one is available for those offering no group health insurance plans.

For more information about the notification requirements, visit the U.S. Department of Labor website or contact your legal advisor.

Wellness provisions

Starting in 2014, the Department of Health and Human Services has issued rules to increase the incentives you can offer your employees who participate in wellness programs. Heres how the issued rules would affect the two types of wellness programs offered to employees.

  • Participatory wellness programs These programs are generally available to everyone, regardless of their health status. Examples of participatory wellness programs include: reimbursement for gym memberships rewards for attending no-cost health education seminars, or completing a health risk assessment without requiring any further action. The proposed rules do not alter the incentives available for these programs.
  • Health-contingent wellness programs These programs generally require individuals to meet specific standards to obtain rewards. For example, employees may receive rewards if they do not use tobacco or if they decrease the use of tobacco products; or, they may receive awards if they achieve a specified cholesterol level or weight.

The final rules would allow you to increase the rewards you offer for these programs from 20 to 30 percent of the cost of health coverage (total premium). The maximum reward could increase to as much as 50 percent for programs that prevent or reduce tobacco use.

The final rules would require health-contingent wellness programs to meet certain requirements. To qualify, you must offer rewards for programs designed to promote health or prevent diseases, offer rewards to all similarly situated individuals (the program should have provisions for those whose medical conditions make it inadvisable or difficult to participate), and notify employees about their opportunity to qualify for the rewards.

Cadillac tax

The health care law imposes a 40 percent tax on high-value health plans starting in 2018. The tax applies to an amount above established dollar thresholds and is levied on insurers for fully-insured plans, employers for health spending account (HSA) contributions, and plan sponsors for self-insured plans.

Taxes are imposed when employee health plan costs exceed $10,200 for single person plans and $27,500 for other plans, such as family plans. This limit is subject to annual adjustments. Higher benefit limits are allowed for retirees ages 55 and older who are not eligible for Medicare and for people in high-risk jobs.

The health plan costs are defined by the total cost of premiums, including employer and worker contributions to flexible spending accounts or HSAs. Stand-alone vision, dental, accident, disability and long-term care benefits are not included in the limits under the Cadillac tax rule.

New taxes and fees

The health care law includes mandated taxes and fees from nearly all health insurers to build a pool of funds for several initiatives. These funds will be used to help stabilize premiums for persons who are newly insured, and develop best practices to improve the quality of medical outcomes.

After basic medical rates are calculated, health insurers will add the following fees to employer plans:

  • Patient-centered outcomes research trust fund fee - This fee funds research to help patients and health care providers make more informed decisions. The fee started in 2011 at $1 per enrollee and doubled to $2 per enrollee in 2012. This fee will continue through 2019. Health insurance companies collect this fee -from fully-insured employers. The plan sponsor is responsible for paying the fee for self-funded groups.
  • Reinsurance program contribution - This fee will be used to fund state-based transitional reinsurance programs. The fee, which will be collected from 2014 to 2016, will be based on the number of enrollees. The contributions will be set each year by the Department of Health and Human Services. Its estimated that the amount assessed in 2014 will be from $61-$105 per enrollee.
  • Health insurance provider tax/fee - This tax helps fund the health care law. Health insurers must pay an annual non-deductible tax/fee to the Internal Revenue Service. The amount assessed is calculated by market share based on premiums written.

90-day waiting period

Coverage waiting periods of greater than 90 days are eliminated for group health plans.

New maximum out-of-pocket limits

New maximum out-of-pocket limits take effect in 2014 for non-grandfathered and small group plans. As part of the health care law, the maximum out-of-pocket expenses for members will be the same as the maximum out-of-pocket limit for high deductible health plans. The amounts for 2014 are $6,350 for individual plans and $12,700 for family coverage.