Changes in Health Care as the Patient Protection and Affordable Care Act Goes into Effect

New Requirements and Changes – See Your Accounting Professional to Prepare NOW

 

After more than two years the U.S. Supreme Court issued the final ruling on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) on June 28, 2012.

 

The Court ruled the law’s “Individual Mandate” was valid. This was the one aspect of the PPACA which could have impacted the constitutionality of the entire law; thus, the entire law stands. The Individual Mandate requires all Americans to either purchase health insurance or be fined by the federal government.

The Court’s decision to leave most other aspects of the law intact means the PPACA will go forward as planned.

 

In the ruling, the Court stated that the main claim used to argue against implementation of the law—that Congress could not impose a “financial penalty” on Americans to force them to purchase health insurance—was actually unconstitutional. However, the Court also said that it would simply read the law to say that Congress would impose a “tax” on individuals if they did not buy health insurance. In other words, fining someone is wrong, but taxing is acceptable. Indeed, since Congress already has virtually unlimited power to tax, imposing this “Individual Mandate Tax” was deemed constitutional even though that was not Congress’ stated intent when it created the law.

 

With this decision, many private companies will have increased administrative and paperwork requirements. In addition, health care costs may increase for your company. It is these issues which private companies will have to consider as this measure takes full effect over the next 18 months.

 

To help DEMA members understand the law’s effects and their new responsibilities, some of the more critical elements of the law which will have a direct or indirect impact are outlined below. It is critical that DEMA member companies review these changes with accounting professionals to determine the impact on individual companies.

 

 New W-2 Reporting Requirement – effective January 1, 2012

1. Requires companies to disclose all money spent for health insurance premiums by both the employer and employee on the employee’s 2012 W-2 form issued in 2013. Companies with fewer than 250 W-2s in 2011 are exempt from this requirement in 2012.

 New Employer Mandates – effective January 1, 2014

1. Companies with an average of 50 full-time employees during the last year must offer insurance to their full-time employees. “Full-time employee” is defined as one who is employed on average at least 30 hours/week during any month.
2. Part-time employees are to be counted when determining if your company has 50 full-timers, but you are not required to offer them insurance. The formula used to count part-time employees is as follows:
   1. Take the total hours worked by part-timers in a month and divide by 120, then
   2. Add that number to the number of full-timers to see if you reach 50.
3. Companies which meet the 50 full-time employee threshold and do not offer insurance will be fined up to $2,000 per full-timer (less the first 30 full-timers) if:
   1. One full-time employee enrolls in an Exchange plan, and
   2. That employee is eligible to receive a tax credit or subsidy.
4. Companies which meet the 50 full-time employee threshold and do offer insurance can still be fined. The fine is up to $3,000 for each full-time employee who:
   1. Enrolls in an exchange plan, and
   2.  Is eligible to receive a tax credit or subsidy.
5. If a company has 50 full-time employees, then its full-time seasonal workers must also be offered insurance.
6. If a company has less than 50 full-time employees but its full-time seasonal workers push it over the threshold, then:
   1. The company must offer insurance to its full-time employees if it reaches the threshold for more than 120 days.
   2. The company is not required to offer insurance to its full-time employees if it reaches the threshold for 120 days or less.
7. “Seasonal worker” is defined as one who performs labor or services on a seasonal basis.
8. Companies with 200 or less full-time employees may have up to a 90-day probationary period before offering new full-time employees insurance.
9. Companies with more than 200 full-time employees do not have a probationary period which delays enrollment in an insurance plan. They must automatically enroll new full-timers in their insurance plan and give the new employee an opportunity to opt-out. 

 New American Health Benefit Exchanges – effective January 1, 2014

1. Each State must establish an Exchange that makes qualified health plans available for purchase by qualified employers.
2. An Exchange may operate in more than one State if each State agrees.
3. An Exchange must:
   1.  Certify that plans meet government requirements,
   2. Provide a comparative analysis of the offered plans,
   3. Provide cost information for each plan, and
   4. Assign a rating to each plan.
4. The new law requires health insurance providers to consider all enrollees in health plans offered in the small group market – those in the Exchange and not in the Exchange – to be members of one, single risk pool.
5. Starting January 1, 2013, each company must notify all of its employees about the Exchange:
   1. How they may contact the Exchange for further information,
   2. What services it provides,
   3. That employees may be eligible for a tax credit or subsidy if they purchase their insurance through the Exchange, and
   4. That they will lose their employer’s contribution for insurance but anything they spend on insurance will be tax exempt.

New and Increased Taxes on Private Company Members – effective January 1, 2013

Before these tax changes take place, private company leaders should consider how much of an impact this could have on a company’s revenue.

1. A new3.8% Medicare tax on interest, investment and dividend income for those individuals making $200,000 or more per year and for those couples making $250,000 or more per year. This tax is in addition to any capital gains tax and income tax already levied against those funds.
2. An increase in the Medicare payroll tax by 0.9% for those individuals making $200,000 or more per year and couples making $250,000 or more per year. If a company has 50 families making $500,000 per year, then this comparatively small payroll tax increase could cost it over $100,000.

New Fees and Taxes Affecting Current Health Insurance Premiums

Private companies should be prepared for a potential health insurance rate increase which may arise from the expected pass-through of the new taxes/fees, including:

1. Fees levied on pharmaceutical manufacturers for all items sold.
2. A 2.3% tax on medical device manufacturers for all products sold – beginning January 1, 2013.
3. An insurance company fee for all policies sold (the Health Insurance Tax – HIT) – beginning January 1, 2014.
4. A 40% tax on health insurance policies costing more than $10,200 for an individual plan or $27,500 for a family plan – beginning January 1, 2018.  This tax is levied only on the amount above the threshold limit.

For Businesses with 50 or Fewer Employees

The Patient Protection and Affordable Care Act includes a tax credit for businesses employing fewer than 50 full-time equivalent employees. The tax credit, which is in effect now, can cover up to 35 percent of the premiums a small business pays to cover its workers. In 2014, the rate will increase to 50 percent.

1. Qualifying firms must have fewer than the equivalent of 25 full-time workers (e.g., a firm with fewer than 50 half-time workers would be eligible), pay average annual wages below $50,000, and cover at least 50 percent of the cost of health care coverage for their workers.
2. The tax credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
3. To avoid an incentive to choose a high-cost plan, an employer’s eligible contribution is limited to the average cost of health insurance in that state.

These were just some of the more critical elements of the law which will have a direct or indirect impact on DEMA Member companies. It is critical for each business to review these changes in detail with the appropriate accounting professionals to determine its actual impact.