Employee Health Care: Conforming To Reform

Happy 2013!  It took a little longer than most of us would have wanted, but at least we are coming back to work after the New Year’s holiday with a deal in place that averts the “fiscal cliff” and provides our HR departments the tax data they will need in time for calculating January paychecks.

Perhaps it was fitting that we entered the new year with so much uncertainty about how or whether these particular fiscal challenges to the economy would be addressed. After all, a number of regulatory issues affecting U.S. businesses in general — and media industry companies in particular — are already on the dockets for one or more government branches.

One of those politically-charged topics from 2012 following us into the New Year is the Affordable Care Act (ACA). No matter your opinion of how or whether it should have been passed, the legislation is on its way to broader implementation by 2014 and planning for it should be among our New Year’s resolutions.  

While there has been considerable discussion on just how dire the new law’s consequences will be, its enactment has most certainly been on more of a slope than a cliff. This means that the major impact the new health care rules will have on businesses in 2013 will be the need to plan on how to comply with the rules that take effect in another year’s time.

With that in mind, MFM asked two of the experts at Ernst & Young LLP’s national tax compensation and benefits practice, Catherine L. Creech and Helen H. Morrison, to give us an idea on what our 2013 preparations for ACA should encompass.

“The Affordable Care Act is not just about ‘health care.’ The ACA is a complex law that raises significant reporting, compliance and tax issues for U.S. companies,” Creech and Morrison pointed out in an article appearing the in the November-December edition of MFM’s The Financial Manager magazine. “To be prepared for the 2014 effective date, a company needs to analyze how the ACA’s requirements affect its particular business and the extent to which the ACA may impose additional costs, including new compliance and reporting obligations, as well as new taxes and fees.”

The experts say the best way to get started on that process is with an understanding of how the ACA will affect an individual’s decisions concerning health insurance and the legal requirements governing U.S. businesses that provide it to their employees.

Creech and Morrison remind readers that, “Beginning in 2014, most individuals in the U.S. will be required to maintain ‘minimum essential coverage’ for themselves and their dependents or pay a tax on their federal income tax return.”

They go on to explain that the U.S. court ruled the “individual mandate” to purchase insurance is legal under Congress’s power to tax. Individuals may avoid this tax by purchasing minimum essential coverage through an individual market within a state (i.e., state “exchanges,” some of which may actually be run by the federal government); obtaining coverage through an employer, or, if applicable, obtaining coverage through Medicare, Medicaid or other governmental programs.

To help offset the cost of coverage for eligible individuals, the government will provide premium tax credits to individuals who are not eligible for Medicaid or other government or employer-sponsored coverage, but whose household income falls below 400% of the federal poverty limit ($92,200 in 2012 dollars for a family of four). The credits, which are paid to a qualified insurer, cannot be used by an individual to purchase coverage from his or her employer.

In contrast, employers are not obligated to offer their employees health care coverage. However, “large employers (a company with 50 or more full-time equivalent employees) have a ‘shared responsibility’ to offer ‘affordable’ coverage that meets a minimum value standard to full-time employees and their dependents.”

Employers that choose not to provide health insurance will be required to pay a nondeductible excise tax “if any full-time employee purchases coverage on an exchange and obtains premium tax credits to assist with that coverage purchase,” they warn. “For a large employer that does not offer health care coverage to its fulltime employees and their dependents, the ‘shared responsibility’ excise tax can be as high as $2,000 multiplied by all full-time employees.”

Creech and Morrison also point out that companies could also be required to pay an excise tax in situations where a large employer offers coverage that is deemed “unaffordable,” or if the coverage doesn’t meet a minimum value standard. The excise tax in these situations is $3,000 multiplied by the number of fulltime employees who purchase coverage on an exchange and receive premium tax credits.

As a means of monitoring compliance, the ACA will expand employer reporting requirements for the information flow that must occur between employers, the Internal Revenue Service, health insurance exchanges and employees. These reporting requirements will be effective for 2014 and a part of the company’s filing with the IRS in early 2015. With that in mind, the IRS has issued proposed regulations for guidance until final regulations are issued later this year. More information may be found on its website.

As part of ACA’s slope (or climb) toward full implementation, there have been a number of requirements on employer-provided coverage that became effective for plan years beginning after Sep. 23, 2010 (the six-month anniversary of the enactment of the law). These provisions include the requirement that plans offer coverage to adult children up to age 26.

Additional rules that become effective for plan years beginning on or after Jan. 1, 2014, will include the requirement that a group health plan may impose a coverage waiting period of no more than 90 days from the date the employee becomes eligible for coverage.

“An employer’s health coverage must satisfy all of these ACA requirements that are generally referred to as the ‘insurance market reforms.’ An excise tax of $100 per day, per affected employee may be imposed for failure to comply with any of these rules,” warn our experts.

As companies analyze how they will comply with the new rules, they may explore whether or not they meet the definition of a large employer, which is based upon having 50 or more fulltime employee equivalents. Creech and Morrison say that a fulltime employee is defined as an individual working an average of 30 hours per week per month, which may be different than the definition a company currently uses for determining benefits eligibility. More details on the requirements for businesses may be found on the Department of Health and Human Services (HHS) Department’s website.

It will also be important to monitor the HHS site for additional details that remain forthcoming. These include regulatory guidance on how companies will be notified if any employees who are eligible for advanced payments of the premium tax credit decide to purchase their health insurance from a health exchange instead. In fact, much of the  current focus is on the formation of the new heath exchanges, which must be up and running by the fall enrollment period for 2014.

An example of an ACA provision that was recently finalized is a fee of $5.25 per month per employee that will be used to offset the added expense of extending health insurance to individuals who were previously ineligible as the result of a pre-existing condition. As explained in a recent Huffington Post article, the fee, which is scheduled to phase out after three years, will be assessed on all “major medical” insurance plans, including those provided by employers and those purchased individually by consumers..  Another recent article appearing in The Wall Street Journal (“New Year Brings Health-Overhaul Changes”) outlines ACA-related tax changes taking affect this year, which include an increase in Medicare taxes for higher earners and limits on tax-free medical spending.

As the E&Y experts conclude in their article: “The breadth and complexity of the ACA taxes and fees and the reporting and compliance requirements necessitates a heightened level of coordinated communication among the human resources, finance, tax and payroll departments. Companies will need to ensure that they have the data necessary to determine compliance and that the proper procedures and controls are in place to quantify costs and verify potential tax liabilities.”

MFM will continue to assist media companies with that process by providing updates on ACA and other developments that can affect the financial performance of media companies in the coming year and beyond. Our next update on ACA will be as part of a broader session addressing Managing Your Health Care Costs at our annual CFO Summit, which will be held Feb. 21-22 at The Atlantic Hotel in Fort Lauderdale, Fla. More info may be found on our website. We are also working on either a Distance Learning Seminar or a session at Media Finance Focus 2013, coming up in May in New Orleans, to expand upon the information included in the TFM article.

In the meantime, here’s to your good health and a happy and prosperous New Year.   

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.