In this Q&A with Jim O'Connell, executive consultant on government relations for Ceridian, you'll find the answers to frequently asked questions about compliance with the health care reform provisions that impact employers and HR professionals over the next several years.  

A health care reform compliance Q&A with Jim O'Connell

In this Q&A with Jim O'Connell, executive consultant on government relations for Ceridian, you'll find the answers to frequently asked questions about compliance with the health care reform provisions that impact employers and HR professionals over the next several years. 

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Summaries of Benefits & Coverage

Health plans must provide employees a standard summary of benefits, starting in 2012.

Q: Are our insurance carriers responsible for providing SBCs?

A: Our understanding is that it is the responsibility of the group health plan to provide the SBC to participants and beneficiaries. For fully insured plans, the health insurance issuer must provide the SBC to the group health plan. Please see question 5 of these Department of Labor FAQs.

See also the following from the SBC regulations:

"Paragraph (a) of the final regulations implements the general disclosure requirement and sets forth the standards for who provides an SBC, to whom, and when. PHS Act section 2715 generally requires that an SBC be provided to applicants, enrollees, and policyholders or certificate holders. PHS Act section 2715(d)(3) places the responsibility to provide an SBC on ``(A) a health insurance issuer (including a group health plan that is not a self-insured plan) offering health insurance coverage within the United States; or (B) in the case of a self-insured group health plan, the plan sponsor or designated administrator of the plan (as such terms are defined in section 3(16) of ERISA).'' \4\ Accordingly, the final regulations interpret PHS Act section 2715 to apply to both group health plans and health insurance issuers offering group or individual health insurance coverage. In addition, consistent with the statute, the final regulations hold the plan administrator of a group health plan responsible for providing an SBC. Under the final regulations, the SBC must be provided in writing and free of charge."

Q: What if we already held our 2012 - 2013 open enrollment?

A: See this answer to question #1 in the DOL/EBSA FAQ

"For group health plan coverage, the regulations provide that, for disclosures with respect to participants and beneficiaries who enroll or re-enroll through an open enrollment period (including late enrollees and re-enrollees), the SBC must be provided beginning on the first day of the first open enrollment period that begins on or after September 23, 2012. For disclosures with respect to participants and beneficiaries who enroll in coverage other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees), the SBC must be provided beginning on the first day of the first plan year that begins on or after September 23, 2012."

Q: Where can I find an SBC template?

A: The following are SBC template resources from the Department of Labor.

W-2 reporting

Employers must report the cost of employee health care on Form W-2, starting in 2013.

Q: Which health care costs do we include?

A: In general, what must be reported on the W-2 is the "aggregate cost" of all "applicable employer-provided coverage," i.e., coverage that is or would be excludible from employee's gross income. For example, the employer must report the employer and employee shares of major medical premiums because both are excludible from employee taxes.

Q: Does this apply to small employers in 2013?

A: Employers filing fewer than 250 Forms W-2 for the previous calendar year (i.e., employers filing fewer than 250 Forms W-2 with the SSA for the calendar year 2011, generally in early 2012) will not be required to report the cost of coverage on the 2012 Forms W-2 (generally filed in early 2013). Please see details of the notice which suggest that this exemption will continue until further notice. 

Q: How accurate does our reporting have to be? Are there penalties for inaccuracy?

A: This question is difficult to answer. The IRS has standard employer penalties for failure to report information accurately on the employee W-2. However, the new requirement is for employee transparency purposes only and has no tax consequences. Moreover, this is the first year of applicability. The IRS would probably handle inadvertent errors on a case-by-case basis and subject to audit. 

Q: Does this requirement start with the 2012 W-2s, or the 2013 W-2s?

A: The requirement is effective for 2012 W-2s to be issued to employees in early 2013.

Q: Do we report the value beginning January 1, 2013, or beginning when the plan year begins if later in the year?

A: Employers must report the value of 2012 employee health coverage on the W-2s to be issued in early 2013. Review questions 29-30 of this IRS Q&A for more information.

FSA cap and "use it or lose it" rule

Employees must limit FSA contributions to $2,500 per year, starting in 2013.

Q: Does this apply to individuals only, or is it the same for family coverage?

A: The FSA "cap" is an employee-by-employee limit on health FSA elections. Two spouses who work for the same employer may each have their own $2,500 FSA election. An employee who elects family coverage may contribute a maximum of $2,500 to her FSA.

Q: Does this impact dependent care plans?

A: No, the FSA limit included in the Patient Protection & Affordable Care Act applies only to health FSAs.

Increased Medicare tax

Wages in excess of $200,000 are subject to an increased 2.35% Medicare tax, starting in 2013.

Q: If my employee makes $250,000, does the increased tax apply to all $250,000 or just $50,000?

A: It only applies to wages exceeding $200,000. Therefore in this example, your employee would be taxed at the higher rate of 2.35% only on the $50,000 that exceeds the threshold, as well as on any additional wages earned in that year. 

Q: Does the employer have to withhold the additional tax, or is it the employee's responsibility to pay the difference on their 1040?

A: The employer is required to withhold the additional Medicare tax.

Q: How does this apply for married couples?

A: The higher Medicare tax rate of 2.35% applies to wages in excess of $200,000 for individuals and $250,000 for married couples filing jointly. An employer need look only at the wages of an individual employee in determining whether their Medicare covered wages exceed the $200,000 threshold. Therefore it is possible for two spouses, both earning $150,000, to have no additional Medicare tax withheld by their employers but to still owe higher Medicare taxes on their joint wages in excess of $250,000.

Q: What are the "non-cash fringe benefits" that are included in the wage calculation? 

A: The "non-cash fringe benefits" included in the calculation of Medicare covered wages are identical to the fringe benefits now subject to Medicare tax withholding, e.g., group term life insurance.

Health insurance exchange notices

Employers must notify employees of state exchange availability, starting in 2013.

Q: Must we still comply with notice requirements if our state is refusing to set up an exchange?

A: Many of the questions relating to the requirement to inform employees of certain details in connection with state health insurance exchanges remain to be clarified by federal regulatory guidance. One can only hope that an employer would not be required to inform employees if the state has not yet established a health insurance exchange. 

Q: For multistate employers, do exchange-related requirements apply to each employee's location, or the company's headquarters location?

A: We still await guidance from HHS on this question. Assuming the employee's state of residence has set up a health insurance exchange, the employer presumably would be required to inform the employee of his or her state's exchange. 

Employer 'Play or Pay' mandate

Employers must provide minimum health care coverage, or pay penalties, starting in 2014.

Q: Does this apply to small employers?

A: The health care reform law provides for an exemption for employers that employ fewer than 50 full-time equivalent employees.

Q: How does the provision define a full-time employee?

A: A "full-time employee" is an employee who is employed on average at least 30 hours per week. 
IRS Notice 2011-36 requested comments on an approach that would use a "look-back measurement period," of possibly as much as three months, that employers might use in determining whether current employees are full-time for purposes of this mandate. Many details remain to be addressed in subsequent regulations.

Q: Can penalties ever apply to part-time or temporary employees?

A: Based on the preliminary regulatory guidance HHS has issued, it appears unlikely employers will face penalties for not offering coverage, or for offering insufficient coverage, to part-time or temporary employees.

Q: Does this apply to dependent coverage?

A: The dependent coverage issue is one of the most important in the employer "play or pay" mandate and regulatory guidance on the statutory provision is forthcoming. In essence, according to the statutory language, the employer must offer "Minimum Essential Coverage" to employees and their dependents, but it appears that only employees must be offered minimum essential coverage that is both "affordable" and of "minimum value." It's possible to interpret the statutory language as not requiring employers to offer affordable and minimum value coverage also to dependents. Stay tuned for further developments on this key point.

Q: What is the frequency of penalties?

A: State health insurance exchanges would impose penalties on employers not in compliance with this mandate on an annual basis. What is not clear, at least to me, is what happens if an employee is receiving federal subsidies to buy exchange-based coverage and after, say, three months gets another job with qualifying employer coverage and leaves the exchange. Are the penalties imposed on the previous employer refunded?

Q: If my state doesn't have an exchange, am I exempt from penalties or will the federal exchange enforce them?

A: For now, this is unknown. However, presumably a federal exchange would enforce penalties in that state.

Q: For the maximum health plan cost of 9.5% of an employee's income:

Does it include just the employee's wages or their household income?

A: The employee's Box 1, W-2 wages only.

How do we calculate this for hourly employees, tips, etc.?

A: Again, the relevant figure is what is reported on the W-2, in Box 1.

Does this apply to family/dependent coverage?

A: Our understanding is that the employer calculates the employee premium share for self-only coverage as a percent of the employee's Box 1, W-2 wages. 

What about pretax deductions that lower income, like 401(k) contributions?

A: Only amounts reported in Box 1 should be used in determining whether an employee's premium share exceeds 9.5% of wages.

Q: Will employers offering HSAs with high-deductible health plans generally meet the minimum coverage requirements?

A: The question of HSAs and high-deductible coverage definitely falls under the future regulatory guidance heading. Nevertheless, it's safe to assume that at the end of the day high-deductible health plans with HSAs will qualify as minimum essential coverage that meets the "minimum value" test. 


Q: Are special employer and employee types such as unions, non-profits, government employers and commonly-owned companies treated differently for any health care reform requirements?

A: Yes, the Patient Protection & Affordable Care Act (PPACA) contains some exceptions and special consideration for collectively bargained plans, union health plans, multi-employer plans and affiliated employers. Refer to PPACA and its regulatory guidance for more information on those specific situations.

Q: Do any health care reform regulations apply to dental and vision plans?

A: Yes, for example, the cost of dental and vision plans that are integrated with health insurance plans, i.e., not stand-alone, must be included in W-2 reporting of health care costs. Also, pediatric dental and vision care is included in the definition of essential health benefits.