The Patient Protection and Affordable Care Act, better known as the Affordable Care Act (ACA), was enacted in 2010. It is exceedingly complex and raises innumerable issues for employers.
Many of the rules for employers vary depending on the number of employees. The threshold for an applicable provision may be 25, 50, 100, or 200 employees, depending on the provision.
This is a brief summary of key employer obligations under the PPACA. This area is complex and substantial additional guidance from the Internal Revenue Service (IRS) and other regulatory agencies is yet to be issued. For more information, see the official website for healthcare reform:
A “grandfathered plan” is a group health plan or individual health policy that was in effect on the date of enactment (March 23, 2010). Grandfathered plans are exempt from some of the new rules and have later effective dates for others. The rules relating to grandfathered plans are complex.
In general, in order to maintain grandfathered status, a plan must include a statement in its plan materials describing the benefits under the plan and stating that the plan is believed to be grandfathered. The employer must also maintain records of plan provisions and benefits that were in effect on March 23, 2010. The loss of grandfathered status will be triggered by any of the following:
The small business healthcare tax credit is limited to employers with no more than 25 employees (based on full time equivalent). (For instance, employers with fewer than 50 half-time employees may be eligible.) To be eligible both of the following criteria must be met:
Full credit is available only to employers with 10 or fewer FTEs with average wages less than $25,000.
Available credit is as follows:
for a taxable employer Is 50% of employer’s premium contributions
for a tax-exempt employer is a payroll tax credit of 35% of employer’s premium contributions.
The IRS has a chart for determining eligibility at its website:
Credits phase out as company size and average wages increase, and may be limited based on statewide average premium costs.
Large employers who maintain one or more group health plan must automatically enroll new employees in one of the plans (subject to permissible waiting periods). Employers must give the affected employees adequate notice and the opportunity to opt out of coverage.
This provision applies only to employers of 200+ employees and has been delayed indefinitely subject to issuance of regulations.
Group health plans (plans) and insurers that offer dependent coverage must allow uninsured children to remain on parent’s health insurance until age 26, regardless of student or marital status.
For years prior to 2014, this provision applies to grandfathered plans only to extent the “child” is not eligible for another employer-sponsored health plan.
Plans and insurers cannot impose lifetime limits on coverage of “essential health benefits.”
Plans (not including grandfathered plans) must provide coverage for preventative services and immunizations with no cost sharing.
Plans and insurers may not rescind coverage, exception in cases of fraud or misrepresentation.
No pre-existing condition limitations for children under age 19.
Plans and insurers must implement an appeals process for appeals of both coverage determinations and claims. This process must include all of the following:
This provision is not applicable to grandfathered plans.
Insured group health plans are subject to the non-discrimination rules of the IRC, which previously applied only to self-insured plans. Those rules generally prohibit discrimination in favor of the top paid 25% of employees with regard to both eligibility and benefits.
This is a key requirement, since the penalty for discrimination is severe. An employer who sponsors a discriminatory health plan will be subject to an excise tax of $100 per day per employee discriminated against. The excise tax is capped at the lesser of $500,000 or 10% of the total premium cost of the plan. Injunctive relief through the courts will also be available to employees.
This provision has been delayed, subject to regulations, and does not apply to grandfathered plans.
All employers must reflect the value of health insurance provided to an employee on the employee’s W-2 Form.
Note: This does not mean that the benefit is taxable. The reporting is informational only.
The definition of qualified medical expense for health savings accounts (HSAs), flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs) is amended to exclude over-the-counter medicine (except for insulin) unless obtained with a prescription.
The excise tax on distributions from HSAs not used for qualified medical expense is increased to 20%.
Small employers (fewer than 100 employees) may establish a “simple cafeteria plan.” A simple cafeteria plan is deemed to satisfy the non-discrimination requirements that otherwise apply to cafeteria plans. The concept is similar to that of a safe harbor 401(k) plan. A simple cafeteria plan must provide for minimum employer contributions of either one of the following:
Employers will no longer be allowed to deduct expenses allocable to Medicare Part D subsidies.
Plans and insurers may not impose any pre-existing condition limitations.
Plans and insurers cannot impose a waiting period that exceeds 90 days.
Plans cannot have out-of-pocket limits greater than the limits for high-deductible health plans, which are paired with HSAs (currently $7,050 for individual coverage and $14,100 for family coverage). This is not applicable to grandfathered plans.
Plans must report to the IRS and provide a statement to employees regarding whether the employee was covered under the employer’s plan for minimum essential health coverage.
This deadline is the same as for Form W-2.
The free-choice voucher requirement has been repealed.
Large employers, those with more than 50 employees, generally must offer “minimum essential coverage” that is “affordable” to their full time employees (generally those who work 30 or more hours per week) or pay a penalty. There is no requirement for small employers to offer coverage.
A penalty applies if at least one full time employee is a Government Assistance Full-Time Employee (GAFTE). That is an employee who both:
The amount of the penalty depends on whether the employer offers minimum essential coverage under an employer-sponsored plan.
Most individuals will be required to maintain healthcare coverage or pay a penalty. This is separate from the employer mandate, however.
Effective January 1, 2020, employers of any size may sponsor an individual coverage health reimbursement account (ICHRA). ICHRAs reimburse employees’ premiums for major medical insurance purchased in the individual market and other qualified medical expenses. ICHRAs generally must be offered on the same terms and conditions to all employees within a class and cannot be offered to employees who are also offered coverage under a “traditional” group health plan. However, employers can offer traditional group health coverage to one class of employees and an ICHRA to another class – employees just can’t have an option between the two. Permitted classes of employees include full-time employees, part-time employees, salaried employees, hourly employees, temporary employees, employees covered by collective bargaining agreements and others.
To obtain reimbursement, employees must provide proof that they are (or will be) enrolled in either individual, nonexcepted benefit coverage purchased in the individual market or Medicare. ICHRAs are not subject to ERISA if the purchase of insurance is completely voluntary for participants and beneficiaries, the employer does not select or endorse any particular insurer or coverage or receive any consideration in connection with the employee’s selection or renewal of coverage, and participants are notified annually that the coverage is not subject to ERISA. Employers sponsoring an ICHRA must also provide a notice to eligible employees at least 90 days before the beginning of each plan year describing the terms of participation and other required information.
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