The Patient Protection and Affordable Care Act

June 7, 2013

The Patient Protection and Affordable Care Act and its companion bill, the Health Care and Education Reconciliation Act (signed into law on March 23 and March 30, 2010, respectively) (collectively, the “Act”), substantially changes the way group health plans will operate. Many of the Act’s provisions are already effective. Other provisions, however, must be addressed soon. This Montgomery McCracken Benefits Alert summarizes those provisions of the Act that are effective in 2013 so that employers who sponsor group health plans can begin focusing on the various compliance issues. Please click here for a searchable list of prior Benefit Alerts that discuss in more detail provisions that are already in effect.

The following is a summary of the various provisions of the Act that employers with group health plans should be focusing on for 2013:

New Contribution Limits to Health Flexible Spending Accounts.
Beginning January 1, 2013, the maximum amount that a participant may contribute to a health flexible spending account is limited to $2,500. This limit does not apply to dependent care spending accounts. The plan sponsor must amend the written plan document to state the limit. In general, an amendment to a cafeteria plan may be effective prospectively only, but the IRS made an exception for amendments adding the new contribution limit. Where a cafeteria plan complies in operation with the $2,500 limit, the written plan document may be amended to state the limit at any time through the end of calendar year 2014.

Summary of Benefits & Coverage (“SBC”).
Employers who sponsor group health plans with open enrollment periods (for the 2013 plan year) starting on or after September 23, 2012 must provide SBCs to participants and beneficiaries. For employees entering a group health plan other than through open enrollment (e.g., new hires or special enrollees), the SBC rules will generally apply January 1, 2013. Self-insured health plans and insured group health plans (both grandfathered and non-grandfathered) must also comply with the SBC requirement.

The regulations contain strict formatting and distribution requirements, including a length limitation of four double-sided pages and a 12-point type requirement. The U.S. Department of Labor has issued a model SBC that employers are encouraged to follow in preparing their own SBCs.

SBCs do not replace summary plan descriptions (“SPDs”); a plan administrator must also provide the usual SPD. The SBC can either be a stand-alone document or be combined with the SPD. If combined with the SPD, the SBC must remain intact and be featured prominently at the beginning of the SPD (i.e., immediately following any table of contents). Further details are provided in a prior Benefits Alert that may be accessed by clicking here.

W-2 Reporting Requirements.
Employers with 250 or more IRS Form W-2 employees must report the aggregate cost of employer-sponsored group health coverage on employees’ W-2 Forms. While this requirement begins with the 2012 tax year, the actual W-2 Forms are typically issued in 2013. For additional details, please click here.

Annual Limits.
The Act generally prohibits group health plans (insured or self-insured, and regardless of grandfathered status) from imposing lifetime or annual dollar limits on “essential health benefits,” effective for plan years beginning on or after September 23, 2010.

However, the Act allows group health plans to phase annual limits out over a few years, so that restricted annual dollar limits may be applied for plan years beginning before January 1, 2014. The annual limit for 2013 is $2 million. No annual dollar limit is permitted for plan years beginning on or after January 1, 2014.

Notice of State Exchange.
With state health insurance exchanges expected to be operational by January 1, 2014, employers must provide written notice to all current employees (regardless of full-time/part-time status) about the coverage options available through their state’s exchange. This notice must be sent no later than October 1, 2013. The notice must inform employees about:

  • The existence of the state exchange and a description of the services provided;
  • Eligibility for a premium tax credit or a cost-sharing reduction if their employer’s plan does not meet certain requirements and the employee purchases coverage through the state exchange;
  • The potential loss of any employer contributions to an employer-sponsored health plan, noting that all or a portion of an employer contribution toward employer-provided coverage may be excludable for federal income tax purposes;
  • Whom they should contact at the state exchange for assistance; and
  • Their appeal rights.

Comparative Effectiveness Fee.
Effective for plan years beginning on or after October 1, 2012 (January 1, 2013 for calendar year plans), both self-funded group health plans and health insurance issuers must pay a $1 per covered life fee. This fee increases to $2 per covered life for 2014 plan years and is indexed for inflation after that. The Act requires this fee to fund research that determines the effectiveness of various forms of medical treatment. The first comparative effectiveness fee is due July 31, 2013. Self-funded plans and health insurers must pay this fee to the IRS using Form 720, Quarterly Federal Excise Tax Return, which has been revised to accommodate this annual fee.

Loss of Medicare Part D Subsidy Deduction.
Beginning in 2013, employers that sponsor a retiree prescription drug program will see an increase in their tax liability as they will no longer be allowed to deduct the portion of health care expenses that are reimbursed to the employer through the Medicare Part D subsidy program. The subsidy will continue, but the ability to deduct the amount of that subsidy will end. This applies to insured and self-iinsured health plans regardless of their grandfathered status.

FICA Medicare Tax Increase:
For tax years beginning January 1, 2013, the FICA Medicare tax rate will increase by 0.9% for wages over $200,000 ($250,000 for married couples filing jointly). An employer will be required to collect the employee’s portion of this FICA Medicare tax.

These are just some of the issues that sponsors of health and welfare plans must address in connection with the ACA. Plan sponsors should review all of their plans’ policies and procedures and plan documents (including SPDs) to assess their level of compliance with all of these changes. Please feel free to contact a member of the Employee Benefits Group at the number provided below to discuss further or to help schedule a meeting.