On June 28, 2012 the U.S. Supreme Court ruled that the Patient Protection and Affordable Care Act (“ACA”), as amended by the Health Care and Education Reconciliation Act of 2010, is constitutional.  This ruling has caused searing, ongoing political debate and has left many employers wondering how the law will affect their businesses now and in the future.

While generally straightforward, there are certain aspects of the ACA that might not fit with employers’ expectations and thus require special attention.

The ACA applies to employers that have 50 full-time equivalent employees.  A full time employee under the ACA is any employee who works an average of 30 hours per week.  The ACA also takes into consideration part-time employees in its calculations. Human resource managers will need to do some math.  For example, the aggregate number of hours of service of employees who are not employed 30 hours a week by an employer in a month must be added together and divided by 120.  That total is added to the total number of employees working over 30 hours for the purposes of determining whether an employer employs 50 or more “full-time” employees.

In addition, the ACA requires large employers to provide an “affordable” health care plan.  Again, some calculations and attention to detail is required. A health care plan is “affordable” if either: 1) the employee’s share of the cost of the coverage does not exceed 9.5 percent of the employee’s household income; or 2) the plan’s share of the actuarial value of covered benefits (i.e. the amount that the plan would pay toward the actuarially projected cost of covered services) is less than 60 percent of the cost of coverage.  Beginning in 2014, large employers not offering health benefits will be subject to a tax if any of its full-time employees opt out or receive a premium credit toward their exchange plan.  The tax assessed is $2,000 for each full-time employee.  Employers will not be required to pay the tax for the first 30 full-time employees.

Employers should note that the ACA has very specific definitions of “full time” employees. Employers, pay attention!  You will need to carefully review each employee’s hours to determine whether the ACA applies to your business.  Additionally, if you’re a large employer offering group health plans, you must analyze those plans to determine if they are “affordable” as defined by the ACA.  Of course, you can decide not to offer any group health coverage.  However, be prepared to pay the tax!

Regardless of whether you are or are not a “large” employer, you’ll need to pay attention to other requirements of the ACA that apply to employer-sponsored group health plans regardless of the size.  Changes effective in 2012 include:

1)    W-2 Reporting: The value of the employee’s health insurance coverage sponsored by the employer must be included on an employee’s W-2.  Reporting must begin with W-2s issued in 2013 for the 2012 tax year.  Employers who issued fewer than 250 W-2s for the previous year are exempt.  Other exclusions may also apply to flexible spending accounts depending on when contributions occur.

2)    Summary of Benefits and Coverage: An initial 4-page summary of benefits and coverage (“SBC”) must be distributed to participants (as well as their spouse and eligible dependents) who enroll or re-enroll during open enrollment periods that begin on or after September 23, 2012.  SBCs must be provided at the time of enrollment, at special enrollment, within seven days upon request, and each year at renewal (thus making the SBC an annual notice requirement).  Updated SBCs must also be distributed prior to plan changes (60 days if there is a mid-year change to a plan or policy that material modification that affects the content of the SBC).

3)    Health care flexible spending accounts: For plan years beginning in 2013, the annual health care flexible spending account employee pre-tax contributions must be capped at $2,500 per participant.

4)    Premium Tax: Beginning July 31, 2013, insurers and employers will be required to pay a new premium tax to finance comparative clinical effectiveness research based on the number of covered lives in a plan.  The fee for 2012 is $1 for each of the “covered lives” (employees, spouses, dependents, and certain beneficiaries) under the medical plan.  The fee increases to $2 in 2013 and thereafter is indexed based on national health expenditures.  For self-insured plans, the employer sponsoring the plan is responsible for payment of the fee.  For insured plans, the insurance carrier is responsible for paying the fee.  Certain plans are exempt from these requirements, thus it is recommended employers consult with their plan provider and counsel to determine if they are responsible for this tax.

5)    Payroll Tax: Beginning January 1, 2013, employees with wages in excess of $200,000 (if single) or $250,000 (if married and filing jointly) will be subject to an additional .9 percent Medicare hospital insurance payroll tax on wages in excess of these thresholds.

Regardless of your political persuasion, the ACA is the law and as an employer, large or small, it’s important to understand how it affects your business. Many questions still exist about how the government will implement and monitor the ACA.  On the other hand, now is the time for a careful review of the benefits package you currently offer to employees, the hours each employee works, and the requirements that apply to all employers regardless of size. Because of the complexity of these new requirements, we recommend that you contact experienced legal counsel with questions and guidance regarding the applicability of the ACA to your business, and how to proceed in accordance to the law.

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