Navigating the New Health Insurance Environment The Affordable Care Act and Professional Employer Organizations (PEOs) This white paper is an overview of eight building blocks of an effective small-business HR program: payroll, employee communications, benefits, safety, compliance, hiring, motivation, and separation.
Navigating the New Health Insurance Environment: The Affordable Care Act and PEOs Executive Summary The Affordable Care Act, commonly know as health care reform, affects how businesses administer and report health care information for employer-sponsored health plans. Because it may take some time to become familiar with the specifics of the new regulations, the following overview will help explain: The effect of the new law on your business and employees. Human resource and health insurance options that can relieve the administrative burdens and potential penalties of the law. This paper will provide you with the following: An overview of health care law provisions past, present, and future. Familiarity with the major components of the law. The advantages of working with a professional employer organization (PEO) in the new health insurance environment. 2010 through 2013 Today s comprehensive health care reform law was enacted in two parts. The Patient Protection and Affordable Care Act, signed into law March 23, 2010, was amended a week later by the Health Care and Education Reconciliation Act. You will see the final, amended version of the law referred to in the news as the Affordable Care Act, ACA, PPACA, or simply health care reform. We will refer to it as the ACA throughout this paper. Let s begin with a bird s-eye view of some of the major ACA provisions already in effect that, as a business owner, you may want to understand. Young Adult Coverage The ACA allows coverage for young adults who, for example, may have finished college and are still looking for a job or whose job does not provide health insurance. Previously, in some states, children of employees could be covered only up to age 19 (or 23 if they were full-time students). Under the ACA, children may be covered up to age 26, but coverage is not required to be extended to the child s spouse or children. Young adult coverage applies to plan years that began on or after September 23, 2010. W-2 Reporting Starting in tax year 2012, employers who file more than 250 Forms W-2 in the previous tax year are required to include the value of health care insurance on employees Form W-2. Employees first received this expanded form for use in preparing 2012 tax returns. FSA contributions will not be included in the reporting. Employers are not required to issue Form W-2 to non-employees currently receiving health coverage (such as a retiree, surviving spouse, or COBRA recipient). Small-Business Tax Credits Under the ACA, federal tax credits are available to help qualified small businesses pay for employee health insurance. The credits may be claimed on the employer s tax return using IRS Form 8941 Credit for Small Employer Health Insurance Premiums. To be eligible, a business must: 1) Employ fewer than 25 full-time-equivalent employees; 2) Pay less than $50,800 ($50,800 in 2014 and annually increased for inflation) in average annual wages; and 3) Contribute at least 50 percent of the single rate for each employee s health insurance premium. Not all businesses that qualify will receive credit. The maximum credit is phased out as wages increase beyond $25,000 and the number of full-time-equivalent employees increases beyond 10. 1
Non-Discrimination The ACA is intended to prevent policies that previously caused people to lose or be denied insurance because of their health status. Under the ACA: Businesses may not drop eligible individuals from coverage due to illness. Businesses may not deny coverage to children under age nineteen with pre-existing conditions. Businesses may not impose lifetime or unreasonable annual limits on essential health benefits, including physician visits, hospitalizations, and prescriptions. FSAs, HSAs, and Over-the-Counter Medicines The ACA established new guidelines many became effective January 1, 2011 for flexible spending accounts (FSAs) and health savings accounts (HSAs). Most of the provisions of these plans remain the same as before, with some notable exceptions. Participants can submit FSA claims for eligible expenses incurred by their adult children through the end of the calendar year in which the dependent turns 26. The penalty for HSA distributions for unqualified medical expenses increased from 10 to 20 percent. Over-the-counter medicines or drugs (other than insulin) are no longer eligible for tax-free reimbursement or distribution under a health FSA, HSA or health reimbursement arrangements (HRAs) unless prescribed by a medical practitioner. Health FSA contributions are limited to $2,500 or the company maximum, whichever is less. Navigating the New Health Insurance Environment: The Affordable Care Act and PEOs 2014 and Beyond Now, let s take a look at what is on the horizon. All of the following provisions are effective January 1, 2014, with the exception of the employer shared responsibility provision, which will be effective for some employers on January 1, 2015. Employer Shared Responsibility Sometimes referred to as pay or play, employer shared responsibility is an ACA provision that applies to companies with 50 or more full-time employees, including full-time-equivalent (FTE) employees. The provision requires employers to offer coverage to all but 5 percent (or all but five) of their full-time employees, or be potentially subject to a penalty for not offering minimum essential coverage, if at lease one full-time employee obtains a tax credit for coverage through a public health insurance marketplace. If employers do not offer minimum essential coverage, or the coverage they offer is deemed inadequate or unaffordable and at least one full-time employee obtains a tax credit for coverage through a public health insurance marketplace, a penalty may apply. A full-time employee is an employee defined as working an average of 30 hours or more per week or 130 hours per month. Coverage is determined inadequate if the plan share of costs is less than 60 percent of the total medical cost allowed under the plan. Coverage is determined unaffordable if it costs more than 9.5 percent of an employee s household income, or employers may use an employee s W-2 income from Box 1 to make this calculation (there may be other safe harbors an employer may use). The federal government s announcement on July 2, 2013, suspended the enforcement of this provision from January 2014 to January 2015 for all employers. A subsequent announcement in February 2014 gave transition relief for employers with 50-99 full-time employees until 2016. 2
Navigating the New Health Insurance Environment: The Affordable Care Act and PEOs 90-Day Waiting Period The waiting period for coverage for a group health plan cannot exceed 90 days (weekends and holidays count toward the 90-day period). Health Insurance Marketplaces All states must establish a marketplace to facilitate the purchase of qualified health plans. At their state marketplace, individuals can compare their insurance options based on price, benefits, quality, and other features that may be important to them. The Small Business Health Options Program (SHOP) helps employers find health insurance that fits their small business. For 2014, employers are limited to one plan for all employees through the SHOP. Employers are required to notify all new employees about health insurance marketplaces. Sample marketplace notices are available on the DOL website at http://www.dol.gov/ebsa. Mandatory Insurance Coverage for Employees (Individuals) Most individuals must carry insurance for themselves and their dependents, or potentially pay a tax. Tax for noncompliance is based on a fixed amount or percentage of household income (whichever is greater), and progressively increases each calendar year. This penalty is capped at the cost of the national average premium of bronze-level coverage on the marketplace. Plans in the marketplace are separated into four health plan categories bronze, silver, gold, or platinum based on the percentage the plan pays of the average overall cost of providing essential health benefits. The plan category selected affects the total amount people will likely pay for essential benefits during the year. In general, the percentages the plans will spend are: 60% (Bronze) 70% (Silver) 80% (Gold) 90% (Platinum) This is not the same as coinsurance, in which an individual will pay a specific percentage of the cost of a specific service. Essential Health Benefits Insurance policies must cover a set of certified health care service categories and offer them in marketplaces as well as in all Medicaid state plans. Insurance policies must cover these essential benefits to be certified and offered in a marketplace. Essential benefits may vary somewhat by state, but must include: Ambulatory patient services. Emergency services. Hospitalization. Maternity and newborn care. Mental health and substance use disorder services, including behavioral health treatment. Prescription drugs. Rehabilitative and habilitative services and devices. Laboratory services. Preventive and wellness services and chronic disease management. Pediatric services, including dental and vision care. 3
ACA Timeline Navigating the New Health Insurance Environment: The Affordable Care Act and PEOs The following chart will give you a high-level snapshot of ACA provisions and their implementation dates from 2010 through 2016. Of course, health care reform regulations are a work in progress, and provisions and dates are subject to change. Effective 2010 through 2013 Young-adult coverage. Grandfathered plans. Over-the-counter medications. Increased HSA penalties. Form W-2 reporting. Small-business tax credit. PCORI fees. SBC and uniform glossary. FSA contribution limits. Employer requirement to provide notices on health insurance marketplaces. Additional Medicare tax on high-income earners. Effective 2014 Effective 2015 Effective 2016 Health insurance marketplaces. Individual insurance requirement. Guaranteed issue of health insurance. Essential health benefits. 90-day waiting period for coverage. Health insurer fees. Employer shared responsibility (pay or play) for employers with 100 or more full-time employees, including full-time equivalents. Employer shared responsibility (pay or play) for employers with 50-99 full-time emplyees, including full-time equivalent employees. Benefits of a Professional Employer Organization There are many advantages to working with a PEO in the new ACA environment. Some tasks PEOs can handle include: Administration of employee benefits. Payroll processing. Payroll tax filing. Risk management. HR services. Specific examples of how a PEO can assist with administration and regulatory compliance include: Reporting of qualified medical coverage. Size calculations for exposure to tax penalties. W-2 reporting. Employee communications (marketplace notices for example). Calculating the number of full-time-equivalent (FTE) employees. Determining benefits eligibility, contributions, and employee classifications. On an annual basis employers may be required to perform complex calculations to determine their company s size and status under the ACA. They may find themselves exposed to penalties for failing to provide adequate and affordable coverage to all full-time employees. On the other hand, because PEOs act as co-employers, they have access to the information necessary to more easily comply with the applicable laws and regulations. Government marketplaces will only provide medical and stand-alone dental benefits. This means that businesses that want a full suite of benefits must look elsewhere for separate solutions and administration. Co-employees of a 4
Navigating the New Health Insurance Environment: The Affordable Care Act and PEOs PEO enjoy access to the PEO s benefit plans. In addition, the PEO employs a large number of co-employees and can qualify as a large group (where legally permissible under state insurance laws) affording it the opportunity to leverage its size when negotiating rates and plans. In general, PEOs sponsoring their own benefits can provide you with the opportunity to fulfill most, if not all, of your company s benefit and insurance needs, including: Medical Dental Life Disability Vision Other insurance, such as workers compensation. the country. We provide service to more than 600,000 worksite employees, and with many locations across the country, we are a local company wherever you may be. To find out more, visit www.paychex.com, or call 877-872-7534. Professional employer organization (PEO) services are sold and provided by Paychex Business Solutions, LLC (PBS) and its affiliates, which are registered and licensed to sell and provide PEO services, including in Florida. PBS FL license numbers are Paychex Business Solutions, LLC, GL7, PBS of Central Florida, LLC, GM14, PBS of America, LLC, GM46, Paychex PEO I, LLC, GM455, Paychex PEO II, LLC, GM456, Paychex PEO III, LLC, GL193, Paychex PEO IV, LLC, GM519, and Paychex PEO V, LLC, GM 522. About Paychex PEO In addition to the traditional benefits of a professional employer organization, Paychex PEO offers businesses access to an HR representative an experienced professional who is available to visit onsite and work with owners, managers, and employees as a member of the business team. Some of the things your HR representative can assist you with include: Various aspects of the employment lifecycle, from hiring and managing employees to employee termination. Administering employee benefits. Training. Running annual enrollments and orientations. Helping to ensure that paperwork, compliance issues, and informational training sessions are handled properly. Participating in our PEO-sponsored plan may provide you with access to more plan designs at competitive prices. For ease of administration and assistance with compliance, our PEO offers services, choices, and value that are not often found elsewhere in the market. Paychex has 21 years of experience in HR, and we know small business. We administer one in every ten 401(k) plans in the U.S. and are the 30th largest insurance agency in This information is furnished with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert service is required, the service of a competent professional should be sought. 2014, Paychex, Inc. Paychex, Inc., 911 Panorama Trail South Rochester, New York 14625 877-872-7534 paychex.com 5