Employer's guide to health care reform

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1 Employer's guide to health care reform

2 Employer's guide to health care reform: the complete small business resource With the Affordable Care Act (ACA) in full swing, it s important you understand what that means for your business. This guide will help to answer the questions facing small businesses with solutions to help strike the right benefits balance one that is budget friendly while also meeting the health care needs of your employees. Table of contents 03 Important dates and milestones 04 Details on how your business can pay, play or play differently 06 IRS reporting for employers with self-funded plans 08 Tax rules you need to know 09 Cadillac Tax FAQs

3 Important dates and milestones Open enrollment for 2017 will begin on November 1, 2016, and will end on January 31, In most states, the deadline to enroll in a plan with a January 1, 2017, effective date will be December 15, 2016 (Massachusetts, Rhode Island, and Washington state all allow enrollments to be completed as late as December 23 and still have coverage effective January 1). Nov. 1, 2016 Open enrollment for 2017 begins Dec. 15, 2016 Deadline to enroll in a plan with a January 1, 2017 effective date Jan. 31, 2017 Open enrollment for 2017 ends Employer's guide to health care reform Page 3

4 How your business can pay, play or play differently There s plenty of talk surrounding health care reform and whether employers should pay or play. The popular phrase refers to the choice to either offer health care benefits that meet the law s standards or yield to fines for dropping coverage. Though savvy employers know their benefits package can help boost workplace retention, satisfaction and productivity, many are faced with a difficult decision as health care costs continue to rise. In the current health care system with rising health care costs, employers facing the pay or play decision can: Stay the course: Keep group health insurance and pay inevitable annual renewable rates, while looking for options to keep costs down through employee cost. Pay and exit: Drop group health insurance and all employer-sponsored health benefits and pay the penalty. Employers of all sizes who discontinue health insurance offerings may pay with difficulty in recruitment and retention. Play differently: Choose a different course of action to allow their company to provide health care options the workforce needs while also minimizing health care costs. What are your alternative options: Employer-sponsored account-based health plans An account-based health plan is a consumer-directed strategy that can pair a choice of group health insurance plans with a tax-advantaged medical spending account. Options include: HEALTH SAVINGS ACCOUNT (HSA) HSAs are individual bank accounts owned by employees that allow tax-free medical expense reimbursement. It s required to be paired with a high-deductible health plan. HEALTH REIMBURSEMENT ARRANGEMENT (HRA) An HRA is an employer-funded tax-advantaged employer health benefit plan that reimburses employees for out-of-pocket medical expenses. HEALTH FLEXIBLE SPENDING ACCOUNT (FSA) Health FSAs offer a tax-free way for employees to save for qualified medical expenses during a single year. FSAs can be paired with any health plan or used alone. HEALTH INCENTIVE ACCOUNT (HIA) HIAs are designed for the employee to solely earn funding for out-of-pocket health care expenses by participating in and completing a health rewards program. Employer's guide to health care reform Page 4

5 Private and public exchanges Health insurance exchanges (also called marketplaces) are web portals where individuals and businesses can shop for and buy health insurance. They re gaining popularity and can make benefits administration easier for businesses. Plus, they give employees the option to purchase health care coverage that fits their needs and their budget. Regardless of your company s size, private exchanges can help your company offer a variety of benefits options, including major medical and voluntary products. And if your company has fewer than 25 full-time equivalent (FTE) employees, you may qualify for the Small Business Health Care Tax Credit and state premium assistance programs. These can help to lower the cost of health insurance premiums. Your employees also may be eligible to get state premium assistance payments and tax credits. Voluntary insurance Another way employers can help provide an extra layer of financial benefits protection and a broader benefits package to their employees is by adding voluntary benefits options to their employees benefits package. Unlike major medical insurance, voluntary policies pay cash benefits directly to the policyholder (unless assigned otherwise) if they get sick or injured. Research shows that employees who are offered and enrolled in voluntary benefits options by their employer are more likely to say their current benefits package meets their family s needs extremely or very well, than those who aren t offered voluntary benefits through their employer. Outcomes-based initiatives (wellness incentives) Companies are beginning to establish ways to keep medical providers (health professionals) and employees accountable for health outcomes. For medical providers, employers can look to bundled pricing arrangements with their insurer so employees get the best rates with doctors and hospitals with proven track records for success. For employees, companies are increasingly looking to health screenings and incentives. In 2015, 19 percent of small companies said they have a company-sponsored wellness program; and 75 percent said they are able to offer lower health insurance premiums as a result of their wellness programs. 1 Employer's guide to health care reform Page 5

6 IRS reporting for employers with self-funded plans Under the Affordable Care Act (ACA), employers who self-fund their employee health care plans are required to submit informational reporting about minimum essential coverage to the Internal Revenue Service beginning January Below are details to help you comply with this requirement. Who is required to submit information reporting of minimum essential coverage? Self-funded employers Insurers What does the report include? Employers are required to submit a separate report for each individual health care recipient on Forms 1095-B and 1094-B that specifically provides: The name of each individual enrolled in minimum essential coverage as well as the name and address of the primary insured or other related person (for example, a parent or spouse) who submits the application for coverage. The return also must report the taxpayer identification number (TIN) and months of coverage for each individual who is covered under the policy or program. The name, address and employer identification number (EIN) of the employer maintaining the plan and whether coverage was enrolled in through the government marketplace. The employer must also provide a written statement to the covered individual(s) that includes: The policy number The name, address and a contact number for the reporting entity The information required to be reported to the IRS What is the deadline? Statements are to be provided annually to employees by Jan. 31. Forms must be provided to the IRS by Feb. 28 (March 31 if filed electronically) for the previous calendar year. Employers are encouraged to voluntarily report starting in 2015 for the 2014 plan year, but official annual reporting begins in 2016 for the 2015 plan year. Employer's guide to health care reform Page 6

7 How do I submit the report? Employers are required to provide the IRS with Form 1094-C, which is the transmittal form, and Form 1095-C, which is the employee statement. Employers can file electronically, and draft forms are expected to be available from the IRS as the reporting deadline approaches. Can a third-party organization file the report? Yes, the law allows employers to use a third party to assist with filing IRS reporting and providing statements to individuals insured by the health plan. Is there a penalty for not filing the report? Currently, employers may face penalties for not filing informational reporting. However, the law explains that these fines may be waived for employers that do not file due to reasonable cause, or fines reduced for errors that are corrected in a timely manner that are not due to reasonable cause. Employer's guide to health care reform Page 7

8 Tax rules you need to know The Affordable Care Act (ACA) is primarily intended to apply to group health plans and health insurers offering group or individual health insurance coverage. Because Aflac policies are classified under the law as excepted benefits, many of the regulations don t apply. Below are frequently asked questions and answers about taxes related to offering these products to employees. Can employees apply for supplemental, voluntary health care coverage on a pretax basis under health care reform? Yes. Voluntary benefits options such as accident, cancer, hospital indemnity and other excepted benefit coverage (e.g., vision and dental) can be funded through a pretax arrangement offered by an employer. While market reforms apply to certain types of group health plans, they don t impact an individual s ability to payroll deduct premiums for voluntary products on a pretax basis. IRS Notice takes away an employer s ability to provide individual health insurance coverage on a pretax basis to active employees. Does this apply to Aflac policies? No. Supplemental insurance coverage, such as Aflac s policies, is not subject to the ACA market reforms. This means individual supplemental products such as accident, cancer, hospital indemnity and other excepted benefit coverage (e.g., vision and dental) can still be funded on a pretax basis. This particular IRS notice restricts employers from using payment plans and group health plans to purchase individual major medical insurance, among other things, but is not applicable to Aflac policies. Is there a change in the taxability of employer-paid premiums on Aflac policies? No. Employer-paid premiums for Aflac policies are still exempt from income tax. ACA regulations apply mainly to primary health insurance providers and coverage. Employer's guide to health care reform Page 8

9 Cadillac Tax FAQs Named after America s luxury automobile, a 40 percent Cadillac Tax is scheduled to take effect for applicable coverage with plan years beginning on or after Jan. 1, Although the tax is still several years away and regulations may evolve before it is implemented, employers can begin to determine how their plans may be affected when the tax goes into effect. Below are common questions and answers about the tax and its potential effect on businesses. Q: How is the tax calculated? A: The tax is calculated based on premiums spent on applicable employer-sponsored coverage. In 2020, the 40 percent tax is applied to the value of an employer s plan that exceeds the thresholds of $10,200 for individual coverage, and $27,500 for other than self-only coverage. These thresholds will increase in future years since they are indexed for inflation. Q: What products are included in the calculation? A: The tax applies to pretax group employer-sponsored coverage, including employer- and employee-paid portions. This includes: Health coverage, including medical, behavioral and prescription drugs Health flexible spending accounts (FSAs) Health savings accounts (HSAs) Archer Medical Savings Accounts (MSAs) Governmental plans, with the exception of military coverage On-site medical clinics, with exception of clinics that provide minimal medical care Retiree coverage Multiemployer plans Specified disease or illness and hospital indemnity or other fixed indemnity insurance Q: Which Aflac products are included? A: Aflac specified disease and hospital indemnity products are currently included in the tax calculation if paid on a pretax basis, but an account may opt to have their employees pay these premiums on an after-tax basis, which would exclude the premiums from the tax calculation. Employer's guide to health care reform Page 9

10 Q: What products are included in the calculation? A: The following insurance products are not factored into the tax: Accident Insurance Disability insurance Life insurance Supplemental liability insurance Liability insurance, including general and automobile liability insurance Workers compensation or similar insurance Automobile medical payment insurance Credit-only insurance Stand-alone Vision Stand-alone Dental Specified Disease and Hospital Fixed Indemnity are excluded only if not sponsored by the employer and paid for on an after-tax basis Q: Who is responsible for paying the tax? A: The tax is technically paid by the insurance provider or carrier. If there is more than one carrier, each carrier pays the percentage of the excise tax commensurate with their percentage of the total premiums. And if a group is self-insured, then they are responsible for their portion of the tax based on the self-insured premiums. The details surrounding how the tax is reported and paid are awaiting clarification and final regulations, but since the tax is based on their employees total benefits packages, employers are currently responsible for calculating the tax and reporting each benefits administrator s portion of the tax to the IRS. Employers, not benefits providers, may be penalized for incorrectly calculating the tax. Q: Will my plan be affected? A: Since the tax is still several years away, there s a real possibility that the scope, application and time frame may change. For now, it s estimated that approximately 16 percent of all plans could be affected by the excise tax when it takes effect. The tax thresholds are linked to inflation, and medical spending and premiums historically grow faster than inflation, so eventually more plans will likely be affected. As the law stands, 75 percent of plans could be influenced by the tax within a decade. 2 Q: What can my company do now? A: Employers can begin to assess their current health plans and talk with their benefits providers or brokers and tax professionals about cost-saving and cost-accountability measures. Long-term solutions will be critical to managing health plan costs. Employer's guide to health care reform Page 10

11 Example Cadillac Tax calculation in 2020 Employee A has the following benefits package that is individual coverage, paid for on a pretax basis. In this example, the Aflac accident insurance policy would be excluded from the applicable premiums, but the Aflac cancer insurance policy is included as it is paid for on a pretax basis. COVERAGE CARRIER ANNUAL PREMIUMS CADILLAC TAX APPLICABLE PREMIUMS Major medical... Carrier X... $10, $10, Voluntary accident policy... Aflac... $ $0... Voluntary cancer policy purchased after tax... Aflac... $ $0... Total $11,700 $10,500 Total Applicable Premiums $10,500 Annual Limit $10,200 Premiums $300 The excise tax will be 40 percent of $1,000, or $400. Each carrier s responsibility for the tax is as follows: CARRIER PERCENT OF APPLICABLE PREMIUMS CALCULATION EXCISE TAX DUE Carrier X... $10,500/$10,500 = 100 percent... $120 x 100 percent... $ Aflac... $0/$10,500 = 0 percent... $120 x 0 percent... $0... Total $120 For the full IRS notice, visit Visit aflac.com/smallbusiness for more resources, tips and advice to make the best health insurance decision for you and your employees. Employer's guide to health care reform Page 11

12 FOOTNOTES 1. The 2016 Aflac WorkForces Report, conducted on behalf of Aflac in January and February 2016 by Lightspeed/GMI, captured responses from 1,500 benefits decisionmakers and 5,000 employees from across the United States. To learn more about the Aflac WorkForces Report, visit AflacWorkForcesReport.com 2. Health Affairs (2013). Excise Tax on Cadillac Plans. Accessed on June 26, 2015, from DISCLAIMER This material is intended to provide general information about an evolving topic and does not constitute legal, tax or accounting advice regarding any specific situation. Aflac cannot anticipate all the facts that a particular employer or individual will have to consider in their benefits decision-making process. We strongly encourage readers to discuss their HCR situations with their advisors to determine the actions they need to take or to visit healthcare.gov (which may also be contacted at ) for additional information. HCR /16

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