FAQ: Employer Requirements Under the Federal Patient Protection and Affordable Care Act

FAQ: Employer Requirements Under the Federal Patient Protection and Affordable Care Act https://wahospitality.org/wp-content/uploads/2011/07/hc-reform-273.jpg

The federal Patient Protection and Affordable Care Act (ACA) contains numerous provisions affecting health care coverage across the nation.  While large employers, specifically those with more than 50 full-time equivalent employees, have specific requirements to either provide health care coverage or pay an IRS penalty, there are three provisions that phase-in this year that all employers must comply with:

  • Discrimination:  Beginning in 2014, employers will be prohibited from precluding full-time employees from participating in their health plan based on the employee’s salary level or hourly wage; and from offering lower premium contributions or richer benefit packages to higher wage employees that are not also offered to lower wage employees.
  • W-2 Reporting:  Beginning with the 2012 tax year, employers issuing more than 250 W-2s, must include the value of health care coverage provided for the employee on the employee’s W-2.  All employers must include this information beginning with the 2013 tax year.
  • FLSA Announcement:  Beginning in 2013, all employers will be required to notify employees of the existence of a state-based health exchange from which the employee may be entitled to federal subsidies for health care coverage.

 The following Frequently Asked Questions are based on the above three requirements:

Discrimination

How does the law describe “discrimination” as it applies to the offer of health benefits/health care coverage to employees?

Section 2716 of the ACA states the following: “(a) IN GENERAL – the plan sponsor of a group health plan (other than a self-insured plan) may not establish rules relating to the health insurance coverage eligibility (including continued eligibility) of any full-time employee under the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of discriminating in favor of higher wage employees.”

What does the description of discrimination mean in plain terms?

The federal Departments of Labor and Health and Human Services are interpreting this section to mean that employers are precluded from: a) offering coverage to only those full-time employees that have hourly wages exceeding a set amount, or have annual salaries exceeding a set amount; or b) offering higher wage employees lower premium contributions or richer benefit packages if those same options are not also available to lower wage employees.

What about part-time employees – am I subject to these same restrictions if I offer coverage to my part-time employees?

Not at this time.  The discrimination restrictions currently apply to coverage provided to full-time employees only.  However, the Departments of Labor and Health and Human Services are still developing the final rules that will govern this issue and it is possible that they will choose to include additional restrictions for discrimination that extend to part-time employees as well.

What if I am a small employer and not required to provide coverage, may I still determine which employees I want to provide coverage to?

While there is no requirement for small employers to provide health care coverage, if they choose to provide coverage to their full-time employees, they still may not preclude participation in their plan based on earnings, and may not offer lower premium or richer benefit packages to higher paid employees that are not also offered to lower paid employees – doing so would be a violation of the discrimination provision.

Still under debate at the Department of Labor (DOL) is whether a small employer, not subject to employer responsibility provisions, may choose to offer coverage to only select employees, such as managers only, even though they have full-time non-management employees.  In this situation, the DOL is contemplating whether the absence of coverage for lower wage employees could be considered discriminatory.  Additional rules are expected to address this situation within the year.

What is the penalty for violating this anti-discrimination requirement?

The DOL has indicated no penalties will be issued on this provision until the rules have been finalized.

What can I do to avoid developing a discriminatory policy and perhaps subjecting my business to a penalty?

Because the rules have not been finalized, the simplest way for an employer to avoid a penalty for violating the anti-discrimination provision is to select only one health benefit plan and set one premium contribution level for all employees (or pay 100% of the premium for all employees, that will work as well).  However, since that may be unrealistic based on workforce demands and financial constraints, consider incorporating each of the following into the development of your benefit eligibility policy:

  • Establish parity in employee contributions for each health plan or benefit level offered to employees (not all contributions must be the same for each health plan or benefit level, but employees that select the same health plan or benefit level, must pay the same premium contribution based on their selected plan or benefit level).
  • Do not offer higher paid employees lower co-pays, coinsurances, deductibles or premium contribution levels
  • Do not offer higher paid employees richer benefit packages than those available to lower wage employees
  • Establish only one standard waiting period for access to coverage

W-2 Reporting

When must I start providing this information on the W-2s?

Employers issuing 250 or more W-2s for tax year 2012, must include this information on the 2012 W-2s.  All other employers will begin reporting this information during the 2013 tax cycle, on 2013 W-2s.

What information must be included on the W-2?

At this time employers are only required to include the amount paid for major medical health care coverage provided to the specific employee.  Employers may choose to include coverage for standalone dental or vision plans, employer-only contributions to employees’ flexible savings accounts; health reimbursement arrangement contributions; or Archer medical savings account contributions, but are not yet required to do so.

Must I include employee premium contributions as well?

Yes, you must report the aggregate amount of contributions made by both the employer and the employee.

Will the aggregate premium contributions be considered taxable wages for my employees?  No

Will I be taxed on the premium contributions include on the W-2s of my employees?  No

Where on the W-2 must this information be recorded? In Box 12

Will the reporting requirements for employers that must report in 2012 be the same for those who must report beginning in 2013?

Even though a substantial number of employers must begin submitting health care contribution information this year, the IRS is still in the process of finalizing the rules.  It is unlikely the final rules will have different requirements for employers of different sizes, but it is possible the rules will be different for all employers for the 2013 reporting.  It is also possible exceptions to the requirement or waivers from the requirement may be issued for certain employers beginning with the 2013 reporting as well.  The additional guidance/rules should be available soon.

If no one is taxed on this information, why I am required to report it to the IRS?

The IRS is responsible for identifying large employers (those with 50 or more full-time equivalent employees) that are not providing health care coverage to their employees, and individuals who do not have health care coverage to ensure they are complying with the federal law.  Ultimately it is the responsibility of the individual to have health care coverage.  Individuals that cannot demonstrate that they have coverage will be penalized by the IRS.  The information submitted on the W-2 will be used as a cursory validation of coverage for the employee.  Individuals for whom no employer coverage is identified, will complete additional information fields on their federal tax returns to validate that they indeed do have health care coverage.  The absence of such information will lead to a penalty.

FLSA Announcement

Why must I communicate the availability of the state exchange if I am already providing coverage to my employees?

The ACA includes the requirement for all employers, regardless of whether they provide health care coverage.  The intent is to ensure that employees are aware they may be eligible for federal health care subsidies if their employer is either not providing coverage or is providing what the federal law defines as unaffordable coverage.

What specifically must I communicate to my employees? 

The federal Departments of Labor and Health and Human Services are developing the final rules/guidance on employer responsibilities for this issue.  While legislators in Washington have chosen to develop the new government state-based health exchange, not all states have chosen to do so.  The requirements for the information that must be shared will thus be different among the states and those details are currently being finalized.

Donna Steward, President, Kiawe Public Affairs

 This publication is intended to inform employers about  provisions of the Patient Protection and Affordable Care Act and how those provisions may affect them.  This information should not be construed as legal  or tax advice, and readers should not act upon the information contained therein without professional counsel.

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