Implementation of the Affordable Care Act occurs in stages, with many of the reforms and requirements taking effect in 2013 and 2014.  While many of the requirements, mandates and media coverage of the Act are directed towards employers with over 50 employees, there are also many significant provisions for smaller employers with up to 50 employers.

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Andrew Presti, General Partner: E-mail Andy for more information.

Below is a summary of major provisions, requirements and opportunities going into effect in the next few years.

Small Business Health Care Tax Credits

The small business Health Care Tax Credit is designed to help small businesses afford the cost of health care coverage for their employees and is specifically targeted for those businesses with low- and moderate-income workers. The credit went into effect in 2010, and applies to businesses that have fewer than 25 full-time equivalent employees, pay average annual wages below $50,000, and contribute 50% or more toward employees’ health insurance premiums. In 2013, these employers may qualify for a small business tax credit of up to 35% to help offset the costs of insurance.  In 2014, the credit goes up to 50% and is available to qualified small businesses that participate in the Small Business Health Options Program (SHOP).  Eligible employers can claim the current 35% credit through 2013, and the enhanced 50% credit can be claimed for any two consecutive taxable years beginning in 2014 through the SHOP.

Small Business Health Options Program (SHOP)

Starting in 2014, small businesses with up to 50 employees will have access to health care insurance marketplaces through the Small Business Health Options Program (SHOP).  SHOP is supposed to offer small businesses increased purchasing power to obtain a better choice of high-quality coverage at a lower cost.  Costs are expected to be lowered because small businesses can pool their risk. Eligible employers must have an office within the service area of the SHOP and offer SHOP coverage to all full-time employees.  In 2016, employers with up to 100 employees will be able to participate in SHOP.

Employer Notification of the New Health Insurance Marketplace

Beginning January 1, 2014, individuals, self-employed, and small businesses will have access to the new health insurance Marketplace. Under the Affordable Care Act, employers covered by the Fair Labor Standards Act (generally, those firms that have at least one employee and at least $500,000 in annual dollar volume of business), must provide notification to their employees of coverage options available through the Marketplace. Employers are required to provide this notice to all current employees no later than October 1, 2013, and to each new employee at the time of hire beginning October 1, 2013, regardless of plan enrollment status (if applicable) or of part-time or full-time status.

Summary of Benefits and Coverage (SBCs) Disclosure Rules

Employers are required to provide employees with a standard “Summary of Benefits and Coverage” form explaining what their plan covers and what it costs.  The purpose of the SBC form is to help employees better understand and evaluate their health insurance options.  Penalties may be imposed for non-compliance.

Medical Loss Ratio Rebates

Under ACA, insurance companies must spend at least 80% of premium dollars on medical care rather than administrative costs.  Insurers who do not meet this ratio are required to provide rebates to their policyholders, which is typically an employer who provides a group health plan.  Employers who receive these premium rebates must determine whether the rebates constitute plan assets.

Limits on Flexible Spending Account Contributions

For plan years beginning on or after January 2013, the maximum amount an employee may elect to contribute to health care flexible spending arrangements (FSAs) for any year will be capped at $2500, subject to cost-of-living adjustments.  This limit only applies to elective employee contributions and does not extend to employer contributions.

Additional Medicare Surtax on Wages

Beginning January 1, 2013, ACA increases the employee portion of the Medicare withholdings by .9% on employees with incomes of over $200,000 for single filers and $250,000 for married joint filers.  It is the employer’s obligation to withhold this additional tax, which applies only to wages in excess of these thresholds.  The employer portion of the tax will remain unchanged at 1.45%.

New Medicare Assessment on Net Investment Income

Beginning January 1, 2013, a 3.8% tax will be assessed on net investment income such as taxable capital gains, dividends, rents, royalties, and interest for taxpayers with Modified Adjusted Gross Income over $200,000 for single filers and $250,000 for married joint filers.

90-Day Maximum Waiting Period

Beginning January 1, 2014, individuals who are eligible for employer-provided health coverage will not have to wait more than 90 days to begin coverage.  The IRS has provided temporary guidance.

Workplace Wellness Programs

The Affordable Care Act creates new incentives to promote employer wellness programs and encourage employers to take more opportunities to support healthier workplaces. Health-contingent wellness programs generally require individuals to meet a specific standard related to their health to obtain a reward, such as programs that provide a reward to employees who don’t use, or decrease their use of, tobacco, and programs that reward employees who achieve a specified level or lower cholesterol. Under final rules that take effect on January 1, 2014, the maximum reward to employers using a health-contingent wellness program will increase from 20 percent to 30 percent of the cost of health coverage. Additionally, the maximum reward for programs designed to prevent or reduce tobacco use will be as much as 50 percent. The final rules also allow for flexibility in the types of wellness programs employers can offer.

Health Insurance Coverage Reporting Requirements

Beginning with health coverage provided on or after January 1, 2014, employers that sponsor self-insured plans must submit reports to the IRS detailing information for each covered individual.  The first of these reports must be filed in 2015.  The IRS is expected to provide more information in the near future clarifying these requirements.

E-mail Andrew for more information. andypresti@pntax.com