2014 Health Care Reform Update
February 13, 2014
2014 was anticipated to be a monumental year with respect to the implementation of the Affordable Care Act. However, with the one-year delay of the employer mandate (the provision of Health Care Reform that fines certain businesses for failing to provide health insurance), you may be wondering what, if any impacts Health Care Reform will have on employers over the course of this year. Below is a summary of the major 2014 Health Care Reform provisions that may impact your organization:
- Maximum Waiting Period – For health plans renewing on or after January 1, 2014, employers may no longer impose a waiting period that exceeds 90 calendar days (60 calendar days in California). The maximum waiting period provision applies to employers of all size. This means that if your current health insurance waiting period is “the first of the month following 90-days of employment,” you will need to adjust this duration once your plan renews in 2014. Many employers have opted to switch to a “first day of the month, following 60 days” waiting period federally, and most California employers will be changing to “the first of the month following 30 days.” If you do have to make a revision, it is important that your official benefit plan documents as well as any mention of the health insurance eligibility period in your handbook are updated accordingly.
- New Health Care Consumer Protections – While Health Care Reform places several new consumer protections on health plans beginning in 2014, below are the two major consumer protections effective in 2014:
- Pre-existing Conditions – Beginning in 2014, health insurance plans may no longer refuse to cover an individual or charge an individual a higher premium based on a pre-existing health condition. In addition, once a health insurance consumer secures a health plan, the plan may not refuse to cover treatment for pre-existing conditions (i.e. coverage for pre-existing conditions must begin immediately). There is an exception to this rule for grandfathered individual health plans (not purchased through an employer).
- Annual Limits – In 2010, the Affordable Care Act disallowed an insurance company from placing a lifetime limit on the essential benefits of the health insurance plan. Beginning in 2014, the same applies to annual limits on essential health benefits. So for plans renewing on or after January 1, 2014, no yearly dollar limits on essential health benefits are permitted. However, it is important to note that insurance companies can still place a yearly dollar limit and a lifetime dollar maximum on spending for health care services that are not considered essential health benefits. There is an exception to this rule for grandfathered individual health plans and some group health plans that have received a temporary waiver from the annual limit rules.
- Expanded Small Business Tax Credit – The maximum amount of the health care tax credit for small businesses in the 2010 – 2013 tax years was 35% of the amount an employer contributed to an employee’s health plan. This limit has increased to 50% in 2014. To be eligible for this credit, the company must have less than 25 full time equivalent employees (excluding owners), pay average annual wages of less than $50,000, pay for at least 50% of the cost of employee only health coverage and purchase coverage in the SHOP Exchange.
- State Health Care Exchanges
- Marketplace – The State Exchanges (or “Marketplace”) has opened, and individuals can log in and shop for health insurance coverage from a variety of carriers. Additionally, individuals who earn an annual salary of up to 400% of the federal poverty level (approximately $46,000 for an individual and $94,000 for a family of four) may be eligible for a federal premium subsidy if the cost of their health care coverage in the Marketplace exceeds 9.5% of household income. Open enrollment in the Marketplace closes on March 31, 2014. Remember, if an employee opts out of the company-sponsored health plan in favor of securing coverage through the Marketplace, the employee will lose any employer contribution to the plan and will no longer enjoy pre-tax deductions for health insurance premiums through the company’s Section 125 plan.
- Small Business Health Options Program (SHOP) – The SHOP Exchanges are also open for small employers (generally those with fifty or fewer employees); however, the online shopping tool for small employers is not yet available in the states that default to the federally-run Exchanges. At this time, the SHOPs in those states are only available through a health insurance broker, agent or insurer. It is important to note that no business is required to use the SHOP Exchange, it is simply an option.
- State Medicaid Expansions – The Affordable Care Act intended to expand Medicaid for most low-income Americans earning up to 138% of the federal poverty level (approximately $16,000 for an individual or $32,500 for a family of four). However, a Supreme Court decision has left the decision whether to adopt this Medicaid expansion up to each state. Currently, 26 states and the District of Columbia have opted to adopt this expansion in 2014.
- Individual Mandate – The Individual Mandate is the requirement for all Americans to secure health insurance coverage or face a penalty. It became effective January 1, 2014, and Americans will become subject to receiving fines if they are not covered by health insurance for a period of three (3) or more months. Therefore, any uninsured individuals must secure coverage on or before March 31, 2014 in order to avoid the penalty. In 2014, the Individual Mandate penalty is $95 or 1% percent of taxable income, whichever is greater.
- Employer Mandate – The Employer Mandate is the provision of Health Care Reform that requires large employers (those with 50+ full time equivalent employees) to offer health insurance to all full-time employees working 30+ hours per week or face a penalty. Although the Employer Mandate has been delayed until January 1, 2015, if you are a borderline employer (meaning, your organization has nearly 50 employees), it is time to start counting your employees now. The look-back period for determining which employers are subject to the employer mandate encompasses the 2014 calendar year. Before the delay of the Employer Mandate, the IRS had issued transitional relief allowing the employer to use any consecutive six-month period in 2013 to assess whether the company would be categorized as a large or a small employer and subject to the employer mandate in 2014. It is still unclear as to whether this transitional relief will apply in 2015. Thus, borderline e mployers must begin averaging their monthly full time equivalent employees now, as it is possible that they will be required to use a monthly average of the full twelve months of 2014 to determine whether they are large or small employers for employer mandate purposes in 2015.
- Non-Discrimination – Often overlooked, this provision of Health Care Reform will likely bring some sweeping changes to the manner in which employers offer health coverage. Basically, the non-discrimination provisions prohibit the employer from offering more generous benefits or higher contributions to highly compensated individuals (HCIs). The IRS code defines a highly compensated individual as: (1) one of the five highest paid officers; (2) a shareholder who owns more than ten percent of the stock of the employer; or (3) among the highest paid 25 percent of all employees. Some examples of provisions that may cause a company’s plan to fail the non-discrimination testing requirements are offering a management carve-out health plan, offering a richer health plan for managers/owners, having a shorter health insurance eligibility waiting periods for managers/owners, and/or offering higher contributions to managers/owners than to other employees. It is important to note that this provision of Health Care Reform has been indefinitely delayed, and we are still awaiting detailed guidance from the IRS regarding the specific parameters of this rule. It is likely that this provision will not be implemented in the 2014 calendar year.
So, as you can see, employers are facing some important items to take into account with respect to Health Care Reform this year. It is important to stay abreast of the changes, and use your team of Health Care Reform professionals (HR Consultants, ERISA Attorneys, Benefits Brokers/Agents and Health Insurance Carriers) to ensure you stay in compliance with the latest rules.