The Affordable Care Act (ACA) has made a number of significant changes to group health plans since the law was enacted over four years ago. Many of these key reforms became effective in 2014, including health plan design changes, increased wellness program incentives, and reinsurance fees.
Additional reforms take effect in 2015 for employers sponsoring group health plans. In 2015, the most significant ACA development impacting employers is the shared responsibility penalty and related reporting requirements for applicable large employers.
This article provides a short overview of the ACA’s key reforms that will take effect in 2015. Employers should review these key points to help confirm they are ready to comply with the ACA’s 2015 reforms.
Plan Design Changes
Grandfathered Plan Status: A grandfathered plan is one that was in existence when the ACA was enacted on March 23, 2010. If you make certain changes to your plan that go beyond permitted guidelines, your plan is no longer grandfathered.
Cost-sharing Limits: Effective for plan years beginning on or after Jan. 1, 2014, non-grandfathered health plans must comply with an overall annual limit (or an out-of-pocket maximum) on cost-sharing for essential health benefits (EHB). The cost-sharing limit is updated by the Department of Health and Human Services (HHS) each year.
Health FSA Contributions: Effective for plan years beginning on or after Jan. 1, 2013, the ACA placed an annual limit on an employee’s pre-tax salary reduction contributions to a health flexible spending account (FSA). The health FSA limit was $2,500 for 2013 and 2014, but it will increase to $2,550 for 2015.
Health insurance issuers and self-funded group health plans that provide major medical coverage must pay fees to a reinsurance program for the first three years of the Exchanges’ operation (2014-2016). Fully insured plan sponsors do not have to pay the fee directly.
Certain self-insured plans are exempt from the reinsurance fees, such as health FSAs and health reimbursement arrangements (HRAs) that are integrated with major medical coverage.
For 2015 and 2016, self-insured health plans are exempt from the reinsurance fees if they do not use a third-party administrator in connection with the core administrative functions of claims processing or adjudication or plan enrollment.
Health plans must file a statement with HHS certifying their compliance with HIPAA’s electronic transaction standards and operating rules. The first certification deadline is Dec. 31, 2015.
Controlling health plans (CHPs) are responsible for providing the initial HIPAA certification on behalf of themselves and their subhealth plans, if any. Based on HHS’ definition of CHPs, an employer’s self-insured plan will likely qualify as a CHP, even if it does not directly conduct HIPAA-covered transactions. For employers with insured health plans, the health insurance issuer will likely be the CHP responsible for providing the certification.
It is likely that HHS will issue additional guidance on the HIPAA certification requirement in the future.
Employer Penalty Rules
Under the ACA’s employer penalty rules, applicable large employers (ALEs) that do not offer health coverage to their full-time employees (and dependent children) that is affordable and provides minimum value will be subject to penalties if any full-time employee receives a government subsidy for health coverage through an Exchange. The ACA sections that contain the employer penalty requirements are known as the “employer shared responsibility” provisions or “pay or play” rules.
An ALE is only liable for a penalty under the pay or play rules if at least one full-time employee receives a subsidy for coverage purchased through an Exchange. Employees who are offered health coverage that is affordable and provides minimum value are generally not eligible for these Exchange subsidies.
Applicable Large Employer Status: The ACA’s employer penalty rules apply only to ALEs. ALEs are employers with 50 or more full-time employees (including full-time equivalent employees, or FTEs) on business days during the preceding calendar year.
Employers determine each year, based on their current number of employees, whether they will be considered an ALE for the following year. Under a special rule to determine ALE status for 2015, an employer may select a period of at least six consecutive calendar months during the 2014 calendar year (rather than the entire 2014 calendar year) to count its full-time employees (including FTEs).
One Year Delay for Medium Size Employers: Eligible ALEs with fewer than 100 full-time employees (including FTEs) have an additional year, until 2016, to comply with the shared responsibility rules. This delay applies for all calendar months of 2015 plus any calendar months of 2016 that fall within the 2015 plan year.
Transition Relief for Non-calendar Year Plans: IRS transition relief allows eligible sponsors of non-calendar plans to begin complying with the pay or play rules at the start of their 2015 plan years, rather than on Jan. 1, 2015. The transition relief applies to employers that maintained non-calendar year plans as of Dec. 27, 2012, if the plan year was not modified after Dec. 27, 2012, to begin at a later date.
Full-time Employees: A full-time employee is an employee who was employed on average for at least 30 hours of service per week. The IRS has provided two methods for determining full-time employee status—the monthly measurement method and the look-back measurement method.
Health Plan Affordability: An employer’s health coverage is considered affordable if the employee’s required contribution to the plan does not exceed 9.5 percent of the employee’s household income for the taxable year (adjusted to 9.56 percent for plan years beginning in 2015).
Minimum Value Coverage: A plan provides minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is at least 60 percent of those costs. The IRS and HHS provided the following approaches for determining minimum value: a Minimum Value Calculator; design-based safe harbor checklists; and actuarial certification. In addition, any plan in the small group market that meets any of the “metal levels” of coverage (that is, bronze, silver, gold or platinum) provides minimum value.
Reporting of Coverage
The ACA requires ALEs to report information to the IRS and to employees regarding the employer-sponsored health coverage. This reporting requirement is found in Code section 6056. All ALEs with full-time employees—even medium-sized ALEs that qualify for the additional one-year delay from the pay or play rules—must report under section 6056 for 2015.
In addition, the ACA requires health insurance issuers and sponsors of self-insured health plans to file an annual return with the IRS reporting information for each individual who is provided with this coverage. Related statements must also be provided to individuals. This reporting requirement is found in Code section 6055.
Both of these reporting requirements become effective in 2015. The first returns will be due in 2016 for health plan coverage provided in 2015. ALEs with self-funded plans will be required to comply with both reporting obligations, while ALEs with insured plans will only need to comply with section 6056. To simplify the reporting process, the IRS will allow ALEs with self-insured plans to use a single combined form for reporting the information required under both section 6055 and 6056.
Please contact HUB International if you would like more information about the ACA’s reforms.
Author: Corbin Wade, Vice President, HUB International