While the new health care reform law does not require employers to provide employee health benefits, the law does impose penalties and offers incentives to encourage employer participation.
Small Business Health Option Programs, or SHOP Marketplaces,
employers with fewer than 50 full-time employees the option of buying health
insurance for their employees as part of a "purchasing pool" in an effort to
lower premium costs.
Health-Care Reform Changes Affecting Employers
The 2010 Patient Protection and Affordable Care Act (ACA) includes provisions that directly affect employers and business owners. The
following is a brief overview of some of the ACA provisions that
employers should be aware of.
The ACA created the Small Business Health Options Program (SHOPs) to help small businesses provide health coverage to their employees. The SHOP Marketplace is available to employers with 50 or fewer full-time equivalent employees and provides a forum for employers to compare health insurance coverage based on price and benefits offered, and purchase suitable insurance for employees.
Small employer tax credit
If you employ fewer than 25 full-time
equivalent employees (FTEs) with average annual wages of less than $532,000, and
you contribute at least 50% toward the cost of your employees' health
insurance that is purchased through a Marketplace, you may qualify for a small employer tax credit. The
credit is up to 50% (35% for qualified charitable employers) of the lesser
of your actual cost for health insurance coverage, or the amount of
contributions you would have made during the taxable year if each employee had
enrolled in coverage based on a benchmark premium.
The full credit is available if you have 10 or fewer FTEs
with average annual wages below $26,600. The credit is reduced if you have more
than 10 FTEs (but less than 25 FTEs) and/or pay average annual wages greater
than $25,000 (but less than $50,000).
In any case, the credit is only available for two consecutive years.
Play or pay
Employers are generally not required to offer coverage, but those that don't may be subject to a penalty tax. In 2018, the penalty tax applies to employers with 50 or more full-time equivalent employees (FTE) who do not offer qualifying health coverage to at least 95% of their
FTEs and dependent children up to age 26 (spouses are not considered dependents and coverage does not have to be offered to spouses of FTEs). The penalty is assessed to eligible employers that do not offer coverage if at least one FTE receives a federal premium tax credit or cost-sharing subsidy for
coverage purchased through a health insurance Marketplace. In 2018, the employer penalty is $2,320 per FTE divided by 12, excluding the first 30 FTEs.
In addition, if an eligible employer offers health insurance that is not considered affordable or does not provide minimum value, the penalty for each month is $3,480 divided by 12, for each FTE receiving a premium tax credit, up to a maximum of $2,320 per FTE, excluding the first 30 FTEs, divided by 12. Health insurance provides minimum value if it
pays for at least 60% of covered health care expenses for a standard population. Health insurance is affordable when the cost of coverage is no more than 9.56% of an employee's family income.
Employers with more than 200
full-time employees that offer health insurance must automatically enroll new
full-time employees, subject to a waiting period of no longer than 90 days.
Other employer incentives
In an effort to promote wellness and decrease
health insurance costs, employers may offer employees rewards, such
as premium discounts and added benefits, for participating in wellness programs
and meeting certain health-related standards. The value of the rewards can equal
as much as 30% of the cost of coverage and may even reach 50% in some cases.
Group health plan coverage requirements
Group health plan requirements under the health-care
legislation directly apply to insurers. However, most of these provisions are
incorporated by reference into ERISA and the Internal Revenue Code, extending
their application to employers offering group health insurance. Some important group health plan requirements include:
- Group plans that offer coverage for dependent
children must extend the age for dependent coverage to age 26. For plans in
existence prior to March 23, 2010 (the date of legislative enactment), the
extension of dependent coverage applies only if an adult child is not eligible
to enroll in any other eligible employer-sponsored health plan.
- Coverage for a plan participant cannot be
rescinded except for fraud or intentional misrepresentation, and plans may not
impose pre-existing condition exclusions on any plan participant or beneficiary.
- Plans may not impose lifetime limits on
the dollar value of essential health benefits for plan participants and
beneficiaries. Essential health benefits are intended to include those benefits
customarily provided under a typical employer health plan, as defined by the
Secretary of Health and Human Services. Also, plans cannot impose
annual coverage limits for essential health benefits.
- Most preventive care services and immunizations
recommended by the U.S. Preventive Services Task Force will not be subject to
deductibles, co-pays, and co-insurance. (Plans in existence on or before March
23, 2010, are exempt from this provision.)
- Most employers must meet certain reporting and
disclosure requirements, which include providing a summary of plan benefits and
annual reports to participants; reporting annual enrollment and claims
practices to the Secretary of Health and Human Services; and providing premium
and coverage information to the IRS.
Employers who filed more than 250 Forms W-2 for the preceding calendar year, must
include the aggregate cost of group health plan benefits (with some exclusions)
provided to employees on Form W-2.
Health-care legislation makes changes to health savings
accounts (HSAs), Archer medical savings accounts (MSAs), flexible spending
accounts (FSAs), and health reimbursement accounts (HRAs) that affect both plan
participants and employers. Over-the-counter drugs
no longer qualify for distributions/reimbursements under HSAs, Archer MSAs,
health FSAs, and HRAs. In addition, the tax on nonqualified distributions from
HSAs or Archer MSAs is 20%. Also, contributions
to health FSAs are limited to $2,650 per year.
In 2022, a 40% excise tax is imposed on certain group health
plans (excluding long-term care, vision, and dental plans) if the annual cost
exceeds $10,200 for single coverage and $27,500 for family coverage, indexed