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This Colorado Human Resources Manual is offered to you for free. Find state specific laws and regulations below.

Health insurance reform — Colorado

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:

Grandfathered plans

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:

  • reduction in benefits (that is, elimination of all or substantially all benefits to diagnose or treat a particular condition)
  • any increase in a percentage cost-sharing requirement
  • increases in fixed-amount, cost-sharing requirements other than co-payments (that is, any increase after March 23, 2010, greater than medical inflation plus 15%)
  • increases in fixed-amount copayments (that is, any increase after March 23, 2010, exceeding the greater of medical inflation plus 15% or $5 increased by medical inflation)
  • decrease in employer contribution rate of more than 5%
  • reductions in annual limits.

Small business health insurance tax credit

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:

  1. employers must pay at least 50% of premium cost
  1. employees must have annual full time equivalent wages that average no more than $50,000.

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.

Automatic enrollment

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.

Plan years beginning on or after September 23, 2010

Dependent coverage extended

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.

Lifetime and annual limits

Plans and insurers cannot impose lifetime limits on coverage of “essential health benefits.”

Preventative health services

Plans (not including grandfathered plans) must provide coverage for preventative services and immunizations with no cost sharing.

Prohibitions on rescissions

Plans and insurers may not rescind coverage, exception in cases of fraud or misrepresentation.

Pre-existing conditions

No pre-existing condition limitations for children under age 19.

Appeal procedures

Plans and insurers must implement an appeals process for appeals of both coverage determinations and claims. This process must include all of the following:

  • an internal claims appeal process
  • provide notice of the appeals process and of the availability of assistance
  • allow the participant to review his/her file and present testimony
  • allow participants to receive continued coverage while appeal is pending

This provision is not applicable to grandfathered plans.

Nondiscrimination

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.

Reporting on Form W-2

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.

HSA/FSA/HRA changes

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%.

Simple cafeteria plans

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:

  1. 2% or more of compensation whether or not the employee makes salary reduction contributions to the plan
  1. a matching contribution equal to 200% of each participant’s salary reduction contribution to the plan, capped at 6% of compensation.
    • Note: The new simple cafeteria plan provisions do not change the rule that sole proprietors, partners, members of LLCs, and 2% shareholders in S corporations are not eligible to participate in cafeteria plans.

Medicare Part D subsidy

Employers will no longer be allowed to deduct expenses allocable to Medicare Part D subsidies.

Pre-existing conditions

Plans and insurers may not impose any pre-existing condition limitations.

Waiting periods

Plans and insurers cannot impose a waiting period that exceeds 90 days.

Cost sharing

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.

Reporting

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.

Free choice vouchers

The free-choice voucher requirement has been repealed.

"Pay or play" penalties

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:

  • enrolled in a qualified health plan offered through an Exchange
  • received a premium tax credit or cost-sharing reduction.

The amount of the penalty depends on whether the employer offers minimum essential coverage under an employer-sponsored plan.

  • If coverage is not offered, the annual penalty is $2,750 (indexed) per full time employee, except that the number of employees is reduced by 30 in calculating the penalty.
    • Example 1 - Employer ABC has 50 full time employees and does not offer coverage. The penalty is calculated as follows: 50 – 30 = 20 x $2,750 = $55,000.
  • If coverage is offered, but such coverage does not meet the “minimum value” and/or “affordability” standards, the annual penalty is $4,120 for each GAFTE. The penalty cannot exceed the amount of the penalty the employer would have incurred if it did not offer coverage.
    • Example 2 - The employer in Example 1 offers coverage, but 15 GAFTEs decline. This penalty would be: 15 x $4,120 = $61,800, but the penalty is $55,000 (as calculated in Example 1) due to the penalty limitation.

Coverage mandate

Most individuals will be required to maintain healthcare coverage or pay a penalty. This is separate from the employer mandate, however.

 

Individual coverage health reimbursement account

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.