Why your health care plan must be in place in 2013

The Patient Protection and Affordable Care Act goes into effect Jan. 1, 2014, but there are current aspects to health care reform that can impact your business a year from now.

Small businesses (defined as less than 50 employees) are not required to provide health care to employees under the health care mandate. However, small businesses choosing to provide health care may have a competitive advantage over employee talent and retention.

Here are the latest developments so that business owners can make an informed decision.

Planning on exchanges

By 2014, insurance exchanges will be open for both small businesses and individuals to purchase their insurance plans. The federal government required states to declare their health care exchange status by December 2012—their choices were to operate a state-based exchange program, or to form a partnership program or to default to the federal-based exchange program.

By choosing to operate a state program, the state can implement its own health plan requirements in addition to federal requirements and also contract directly with insurance providers and negotiate premiums. A state partnership exchange is a combination of state and federal oversight. The government approves the state’s proposals of which aspects of health care they will handle, such as plan management or consumer assistance with the exchanges.

The exchange experience and plan affordability could differ based on what a state has declared. As a first step, find out where your state stands here.

The government recently introduced the Small Business Health Options Program (SHOP), an exclusive exchange for small business owners to purchase employee coverage at more affordable rates. It may be wise for employers to compare rates from the SHOP exchange, though it is not required to purchase coverage through this exchange. Companies with fewer than 50 employees may take advantage of SHOP in 2014 and 2015, and by 2016, it will be open to companies with fewer than 100 employees.

Plan ahead or face penalties

All employers must notify employees of the availability of insurance exchanges by early fall 2013 (date is subject to change). This notice should outline exchange options, compliancy status of current plans, implications of coverages bought through exchanges or within an employer-sponsored group plan, and applicable federal tax credit information. The employee notification deadline suggests that small businesses will need to decide sooner than later, if they are providing insurance to employees through a group plan in 2014.

Here are a few more reasons why employers need to be thinking about health care now:

  1. Employers on the cusp of the mandate (i.e. more than or just under 50 full-time employees) need to start tracking hourly employment now to have at least three to 12 months of worker status documentation. This includes written documentation that an employee has not been determined full or part time as of yet, and hourly tracking is taking place.
  2. Plans instituted before Dec. 27, 2012 will not face applicable compliance penalties from the IRS in 2014. Compliance penalties can be levied for a variety of reasons, including affordability of plans, coverage inaccuracies and documentation issues. Those starting after that date in 2013 will face any compliance penalties on their yearly anniversary in the year 2014. One of those penalties implicates current plans that are beyond the 9.5% affordability threshold, which would have to reflect salary records from a current W-2. (See https://nariblogdotorg.wordpress.com/2012/10/13/other-big-impact-items-regarding-healthcare/ for more information on penalties.)
  3. Plans started after Sept. 23, 2012, must comply with the Summary of Benefits and Coverage requirements, clear explanation of what a plan covers and the costs. See an example of this form.
  4. Plans started after Aug. 1, 2012, must comply with women’s health coverage under the preventative care rule. Learn more about this new Essential Plan requirement.
  5. Beginning in January 2014, employers instituting wellness programs at their companies can receive rewards of up to 20 to 30 percent of the cost of health coverage, and programs emphasizing reduction in tobacco use can receive up to 50%.
  6. Employers could have reported employee insurance on W-2 Forms starting in January 2013 and are required to include that information on the January 2014 forms. Reporting this cost is not a taxable item, but it is the framework for how the federal government will begin to track health care coverage starting in 2014.
  7. Health flexible spending accounts for plans starting in 2013 will have a $2,500 limit for elective employee contributions. This cap does not limit employer contributions.

Voluntarily providing health care to employees not only puts small businesses at a competitive advantage but also a financial advantage when considering tax credits. Employers are currently eligible for tax credits of up to 35 percent of premium cost as long as they have:

  • fewer than 25 full-time employees
  • below $50,000 in annual employee wages (not including employer salaries)
  • contributions of at least 50% of premium

The same small business tax credit will be increased to 50% of the premium cost by 2014 for those who are covering employees through the Small Business Health Options Program (SHOP) exchange.

One other provision requires insurance companies to spend 80% of premium dollars on medical care, rather than advertisement or administrative costs. If an insurer doesn’t reach this ratio, they are required to submit Medical Loss Ratio Rebates to the employer. The employer then needs to determine if the rebate will be funneled back into the plan and allocate appropriate portions of the rebate to employees. Though the rebate amounts are unknown year to year, it may be another useful way to keep costs down. -Morgan Zenner

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