The Patient Protection and Affordable Care Act (PPACA) and the resulting U.S. Supreme Court decision made headlines for most of 2012. PPACA requires important changes for plan sponsors in 2013. Here are a few highlights.
PPACA requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, “Wage and Tax Statement.” This reporting is for informational purposes only to show employees the value of their health care benefits so they can be more informed consumers.
Many employers are eligible for transition relief for the 2012 tax year until the IRS issues final guidance for this reporting requirement. The amount reported doesn’t affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee’s income, and it’s not taxable.
More information about the reporting can be found on the IRS website at
Flexible Spending Accounts
Employees will be limited to contributing no more than $2,500 pretax dollars to their health Flexible Spending Accounts (FSAs) per year. Prior plan year contributions, because of PPACA’s grace period, don’t count toward the limit.
Most employers will need to amend their plan documents to reflect this change. These amendments can be made as late as Dec. 31, 2014, but employers must operate the plan in compliance with the law as of January 2013. Be sure to communicate this information to participants during the enrollment period when participants make their 2013 plan year elections.
Summary of benefits and coverage
A group health plan (and its administrator) must provide a summary of benefits and coverage (SBC) for each benefit package free of charge to entities and individuals for open enrollment periods starting on or after Sept. 23, 2012. The plan must provide the SBC as part of any written application materials it distributes for enrollment.
If the plan doesn’t distribute written application materials for enrollment, it must distribute the SBC no later than the first date on which the participant is eligible to enroll in coverage for the participant or any beneficiaries. If there’s any change to the information required to be in the SBC that was provided on application and before the first day of coverage, the plan must update and provide a current SBC to a participant or beneficiary no later than the first day of coverage.
Among the items to be included in the SBC are:
• Uniform definitions of standard insurance terms and medical terms so that consumers may compare health coverage and understand the terms of (or exceptions to) their coverage,
• A description of the coverage, including cost sharing, for each category of benefits identified by the secretary in guidance,
• The exceptions, reductions and limitations of the coverage,
• The cost-sharing provisions of the coverage, including deductible, coinsurance and copayment obligations, and
• The renewability and continuation of coverage provisions.
SBC templates can be found on the DOL website at http://www.dol.gov/ebsa/healthreform/.
Employer notice of health insurance exchanges
If an employer doesn’t offer health insurance, starting in 2014, an individual will be able to buy health insurance directly in a health insurance exchange. The exchange will offer affordable and qualified health benefit plans. The insurance through the exchange must offer certain benefits and meet cost standards.
Starting March 1, 2013, employers must provide employees written notice describing the existence of government health insurance exchanges which will be in operation by January 2014.
The notice must describe the employee’s eligibility for federal assistance if the employer’s health plan doesn’t meet PPACA’s affordability and minimum-value criteria and if the employee’s household income is below certain thresholds. Finally, the notice must tell employees that they may lose the employer’s contribution to health coverage if they purchase health insurance through the health insurance exchange.
For the 2013 tax year, the government will impose an additional 0.9% Medicare tax on wages and self-employment income over $200,000 ($250,000 for married taxpayers filing jointly). In addition, a 3.8% tax on unearned income will be imposed on taxpayers with income over $200,000 ($250,000 for married taxpayers filing jointly).
For taxpayers who itemize deductions on IRS Form 1040 Schedule A, the threshold for unreimbursed medical expenses will increase from 7.5% to 10% of adjusted gross income. However, for taxpayers age 65 and older, the threshold remains at 7.5% through 2016.
Start the year right
These are just some of the highlights of the PPACA provisions that affect employers in 2013. More provisions will go into effect in 2014 and following years. If you haven’t done so already, contact your benefits specialist to ensure you’re in compliance.
Retiree prescription drug coverage deduction
Through the end of 2012, employers can receive a subsidy for the costs of providing prescription drug benefits for their retirees. Employers can also make an income tax deduction on receipt of the subsidy.
Under the Patient Protection and Affordable Care Act, employers who provide prescription drug coverage as part of the Medicare Part D retiree subsidy will no longer be able to take a tax deduction for the amount for which they receive a federal subsidy.
The elimination of the deduction will increase the employer’s tax liability. In addition, the cost of providing this benefit to retirees will increase. In deciding whether to maintain this benefit, review all plan documents and contact your benefits specialist.