Note: This article was updated on June 18, 2013.
The Patient Protection and Affordable Care Act of 2010 (PPACA) was signed into law in 2010. Certain provisions were effective immediately, others 90 days or six months after enactment, and still other provisions phase in through 2020. A number of provisions become effective starting Jan. 1, 2014.
“Play or pay” mandate
The PPACA requires “large” employers to provide a “minimum value” of “affordable” health plan coverage to their full-time employees or face a potential penalty. This “play or pay” rule takes effect Jan. 1, 2014, and applies to employers with at least 50 full-time equivalent (FTE) employees.
“Affordable” is defined as costing an employee no more than 9.5% of his or her total household income. Because employers generally won’t know an employee’s household income, the IRS has three safe harbor methods to determine affordability. “Minimum value” means that a health plan covers at least 60% of the total allowed costs of benefits provided under the plan.
Full-time employees are those who work 30 hours or more per week. To determine the FTEs, the employer must total the monthly hours worked by all employees who worked less than 30 hours per week (excluding seasonal employees who work less than 120 days per year) and then divide that number by 120. The result is then added to the number of full-time employees to determine if the count totals at least 50 FTEs. The IRS provides safe harbor methods that employers may use to determine which employees are full-time employees for purposes of their shared employer responsibility. IRS Notice 2012-58 contains the specific details.
If an employer fails to offer health insurance and has at least one full-time employee who receives a premium tax credit, the employer will be subject to a penalty of $2,000 per full-time employee after the first 30 full-time employees. If the employer offers health insurance but it’s either unaffordable or inadequate (as defined by the PPACA) and the employer has at least one full-time employee who receives a premium tax credit, the employer is subject to the lesser of this same penalty or a penalty of $3,000 per employee who receives the credit.
Other 2014 requirements
In addition to the play-or-pay mandate, the PPACA has a number of other provisions that take effect in 2014, including:
Health care exchanges. Health care insurance exchanges go into effect along with subsidization of insurance premiums for individuals in households with income up to 400% of the poverty line. To qualify for the subsidy, individuals and their families can’t be eligible for other acceptable health care coverage.
Waiting periods. Group health plans or group health insurance providers can’t apply waiting periods of more than 90 days. The IRS defines the waiting period as the period of time that must pass with respect to an individual before the individual is eligible for plan benefit coverage. Ninety days starts from the date of eligibility and ends on the effective date of coverage.
Pre-existing conditions. Starting Jan. 1, health insurance plans can’t discriminate against or charge higher rates to individuals with a pre-existing condition or because of gender.
Spending caps prohibited. Annual spending caps previously established by insurers are prohibited.
Annual deductible limits. Employer-sponsored plans can have no more than a $2,000 annual deductible for single coverage and a $4,000 annual deductible for family coverage.
Flexible Spending Accounts (FSAs). The PPACA set the FSA contribution limit at $2,500 beginning with the 2013 tax year. Employers have until the end of 2014 to adopt retroactive amendments to reflect this requirement.
Individual penalties. Individuals who aren’t covered by an acceptable insurance policy may be subject to annual penalties. The penalty will be $95 or up to 1% of income over the filing minimum. It will be phased in over three years, reaching a maximum of 2.5% of family income in 2016.
Medicaid and Medicare. The PPACA expands Medicaid eligibility (in participating states) to all individuals with income up to 133% of the poverty line, including adults without dependent children. New spending will be paid for in part by spending and coverage cuts to Medicare and Medicaid.
A big year ahead
The PPACA’s mandates, subsidies and tax credits to both employers and individuals are intended to increase the rate of health insurance coverage for Americans and to reduce the overall costs of health care. Beginning on Jan. 1, 2014, many PPACA provisions will go into effect. Be sure you’re prepared.
What employers need to do to prepare
Employers need to proactively prepare for the 2014 deadlines under the Patient Protection and Affordable Care Act of 2010 (PPACA). For example, if you’re a large employer or your plan is self-funded, begin tracking hours to identify full-time employees that you must cover under your plan. Beginning in 2014, you must begin reporting certain health plan information to the IRS and to your employees.
Employers will need to make sure their health plan design meets both minimum essential coverage and provides minimum value beginning in 2014. Employers will also need to determine if their plan meets the PPACA’s affordability guidelines.
Prior to the October open enrollment for state health care exchanges, covered employers must provide employees written information about the exchanges. The U.S. Department of Labor provides model language on its website, http://www.dol.gov/ebsa/. The U.S. Department of Health and Human Services will be issuing guidance on quality of care and transparency in coverage reporting.