Issue 42: Roadmap for 2012 and Beyond

Summary of Benefits and Coverage

Group health plans will need to provide participants and applicants a Summary of Benefits and Coverage (“SBC”). The SBC will need to describe any cost-sharing (such as deductibles, co-pays and coinsurance), exceptions, and limitations on coverage, as well as provide examples to illustrate common benefit scenarios.

SBCs must conform to specific formatting requirements and be presented in a culturally and linguistically appropriate manner.

SBCs must be provided prior to enrollment (open enrollment and new hires), upon request, and following special enrollment event.

• Effective the first day of the first open enrollment period beginning on or after September 23, 2012, SBCs must be provided to participants who enroll or reenroll through open enrollment.
• Effective the first day of the first plan year that begins on or after September 23, 2012, SBCs must be provided to newly eligible individuals.
• SBCs may be distributed electronically to new hires and individuals not enrolled, and to current participants and beneficiaries if open enrollment materials are distributed electronically, with certain conditions
• For more information on SBCs, click to access Issues 24, 30, 33 and 37 of our Health Care Reform Alert series.

Advance Notice of Changes

Notice of any material modifications (that would impact the SBC) during the plan year must be provided no later than 60 days prior to the effective date.

• Applies to mid-year changes, so plan ahead and review bargaining changes

Patient-Centered Outcomes Research Institute (PCORI) Fee

Sponsors of self-funded group health plans and insurers of fully-insured group health plans are subject to an annual PCORI fee. The fee is imposed for each plan year ending after September 30, 2012 (meaning calendar year plans are subject to the fee in 2012). The fee sunsets in 2018.

For plan years ending during the period of October 1, 2012 through September 30, 2013, the fee is one dollar times the average number of covered lives.

For each plan year ending after September 30, 2013, the fee is equal to two dollars times the average number of covered lives under the policy.

• The fee must be paid annually by using IRS Form 720. The fee must be paid by July 31 each year, beginning July 31, 2013 for most plan sponsors.
• Plan sponsors need to determine the number of covered lives.
• For information on calculating the number of covered lives, click here to access Issue 39 of our Health Care Reform Alert series.

Form W-2 Reporting

Group health plans must report the aggregate cost of employer-sponsored coverage on the employee’s Form W-2.

Employer-sponsored coverage means group health plan coverage (other than certain listed excluded benefits).

Cost is calculated under rules similar to COBRA.

• Employers must include the cost of coverage provided in 2012 in Box 12 of the W-2 issued in January 2013 (using Code DD).
• For additional information on the W-2 reporting requirement, click here to access Issues 19 and 31 of our Health Care Reform Alert series.

Medical Loss Ratio (MLR) Rebates for Insured Plans

Insurers must provide rebates to enrollees when their spending for the benefit of policyholders for clinical services and health care quality improving activities, in relation to the premiums charged, is less than the MLR standards.

• Rebates are provided by August 1 each year, beginning August 1, 2012.
• Plan sponsors must determine if the rebate is a plan asset, and if so, how the rebate will be allocated.

$2,500 Cap On Health FSAs

An employee may not contribute more than $2,500 to their healthcare flexible spending account (“Health FSA”).

The cap does not apply to employer contributions to a Health FSA.

• For plan years beginning after December 31, 2012, limit employee Health FSA contributions to $2,500.
• Employers must ensure that their plan documents have been amended no later than December 31, 2014.
• For more information on the $2,500 limit, click here to access Issue 40 of our Health Care Reform Alert series.

Notice of Exchange

ACA requires that most employers provide to employees at the time of hiring (and to current employees, not later than March 1, 2013) written notice informing employees:

• About the existence of a local Health Benefit Exchange (“Exchange”), including a description of and contact information for the Exchange, and
• That they may be eligible for a tax credit or cost-sharing reduction to purchase health insurance through an Exchange if the employer’s share of the costs of coverage is less than 60%, and
• If they purchase coverage through an Exchange, they may lose any employer contribution toward the cost of coverage.

• Effective March 1, 2013, provide employees required notices.
• Model Notices may be developed.

Medicare Part A Tax

Certain employees are subject to an additional Medicare Hospital Insurance (“HI”) tax. All employees are already subject to the HI tax at a 1.45% rate on all wages regardless of amount.

The HI tax is increased by 0.9% for earnings over $250,000 for joint returns and $200,000 for single taxpayers effective January 1, 2013. Threshold amounts are not indexed for inflation.

Employers are responsible for tax withholding on an employee’s wages in excess of $200,000 at 2.35% (1.45% + 0.9%) for the additional HI tax.

There is also an additional 3.8% tax on unearned income (dividends, interest, annuities, royalties, rents and capital gains) for earnings in excess of $250,000 for joint returns and $200,000 for a single taxpayer. Threshold amounts are also not indexed for inflation.

The 0.9% HI tax is on wages is in addition to the 3.8% Medicare contribution tax on net investment income.

• Effective January 1, 2013, employers will need to withhold on employee’s wages in excess of $200,000 at a rate of 2.35% for the HI tax.

Taxation of Medicare Part D Subsidy

Employers receiving a Federal subsidy for providing retiree prescription drug coverage at least as favorable as Medicare Part D coverage will be taxed on the amount of the subsidy (previously, the subsidy was tax-deductible).

Employers may have already realized this change in tax treatment for account purposes.

• Effective January 1, 2013.

No Waiting Period in Excess of 90 Days

A group health plan may not require any waiting period that exceeds 90 days.

Remove any waiting period that exceeds 90 days, effective for plan years beginning on or after January 1, 2014.

No Annual Limits

Group health plans may not establish ANY annual limits on the dollar amount of essential health benefits. The limitation on annual limits began in 2011.

Remove all annual limits on essential health benefits, effective for plan years beginning on or after January 1, 2014.

No Pre-Existing Condition Exclusions

Group health plans may not impose ANY pre-existing condition exclusions or limitations. In 2011, pre-existing conditions were not allow for participants under age 19.

Remove any pre-existing condition exclusions or limitations, effective for plan years beginning on or after January 1, 2014.

Employer Mandate

Starting January 1, 2014, an employer with more than 50 full-time equivalent employees must either provide employees with “minimum essential coverage” or pay a penalty. In addition, the coverage must be affordable and provide minimum value.

“Affordable” means that employee’s required contribution cannot exceed 9.5% of the individual’s household income.

“Minimum value” means that the plans’ share of the total cost of the benefits must be at least 60%.

• The Plan will need to either offer “affordable” minimum essential coverage and cover at least 60% of the cost of that coverage to full-time employees, or pay an excise tax.
• For more information on the employer mandate, including determining minimum value and the number of full-time employees, click here to access Issues 20, 26, 34 and 38 of our Health Care Reform Alert series.

Annual Reporting
(Employer Reporting)

Large employers must report certain health insurance coverage information to both its full-time employees and the IRS.

Employers who offer minimum essential coverage have additional reporting requirements.

Employers will be required to give a written statement to each individual whose name was included in the report disclosing the information in the report relating to that employee, along with the name, address and contact information of the reporting employer.

• The reporting requirements apply to coverage provided on or after January 1, 2014. The first information returns will be filed in 2015.
• The written statement must be furnished to employees on or before January 31 of the year following the calendar year for which the information was required to be reported to the IRS.

Reinsurance Fee

Insurers and third party administrators (on behalf of self-funded group health plans) must contribute to a temporary reinsurance program established by a state operating an Exchange.

If a state chooses not to establish a reinsurance program, HHS will establish the program and perform the reinsurance functions for that state.

• Reinsurance payments will be paid to the State or HHS on a quarterly basis, beginning Jan 15, 2014.
• The program will be in operation from 2014 - 2016.
• Although the fee or assessment is paid by third-party administrators of self-funded plans, it will likely be passed on to the plan.