In its landmark decision issued on June 28, 2012, the U.S. Supreme Court upheld the individual coverage mandate and rejected a provision intended to force states to expand Medicaid coverage, but left virtually all other parts of the Patient Protection and Affordable Care Act (PPACA) intact. The court’s validation of the individual mandate removes one of the major uncertainties plaguing the legislation, which still faces a contentious political outlook. Employers should continue to monitor actions by Congress and the administration, especially in light of the November elections. However, they also must stay on track in their efforts to comply with the law as enacted or face penalties.
“The Supreme Court’s ruling removes a major source of uncertainty surrounding this important national issue. With all of the law’s provisions still in place, employers will need to redouble their compliance efforts, especially regarding such immediate requirements as providing summaries of benefits and coverage (SBCs) to their employees,” said Julio A. Portalatin, president and CEO of HR consultancy Mercer.
The new SBC explanations are to be made available to participants and beneficiaries who enroll or re-enroll in group health coverage through open enrollment periods starting after Sept 22, 2012.
In 2013, employers must:
• Report the value of employer coverage on employees' 2012 Form W-2s.
• Cap dollar limits on health care flexible spending arrangements (FSAs) at $2,500.
• Increase Medicare withholding for high earners (those earning more than $200,000 per year).
They must also comply with the reforms already in effect, such as coverage of adult children up to age 26.
The individual mandate, which sparked fierce political and legal debate, requires most Americans to have adequate health coverage starting in 2014 or pay a penalty. Also in 2014, employers with 50 or more employees that fail to offer full-time employees and their dependents affordable coverage with a minimum value likewise will face penalties.
By 2014, health insurance exchanges are intended to be operating in every state, offering community-rated insurance to certain small employers and individuals, with federal premium tax credits available to help some people buy that coverage.
“Employers can expect a spike in plan enrollment for 2014 as a result of the individual mandate,” said David Rahill, president of Mercer’s health and benefits business. “But they may see enrollment level off once the state exchanges become operational.”
Decisions on Health Strategies
“Now that the court has ruled, U.S. employers will turn to executing the strategies for 2013 and 2014 that they have so far put on hold," according to J.D. Piro, national practice leader in the health law group of consultancy Aon Hewitt. "In turn, agencies such as the Department of Labor, the Internal Revenue Service and Health and Human Services, will need to work overtime to issue the significant amount of guidance employers need to implement these rules." Piro advises employers to:
• Focus on managing complex compliance issues. These include the implementation of summaries of benefits and coverage, understanding preventive care requirements for nongrandfathered plans and managing the law's reporting requirements.
• Focus on communicating with their employees. Employers need to ensure their employees understand changes associated with the PPACA, such as the new $2,500 health care FSA limit, and have the resources they need to make decisions accordingly.
• Determine a retiree health care strategy. Many employers are moving away from sponsoring retiree health care programs as they use government and private exchanges. With respect to prescription drug benefits, many employers are moving to a Medicare Part D employer group waiver plan (EGWP) in lieu of applying for the Medicare Part D retiree drug subsidy.
Waiting for Additional Guidance
While employers now have more certainty, there are still many aspects of the act that require additional guidance, concurred Julia Love and Kim Wilcoxon, partners in the employee benefits and executive compensation practice at law firm Thompson Hine. They commented in a released statement: "We know that most plans will need to provide their four-page summaries of benefits and coverage this fall, and we know that many employers will need to report the value of employer-provided group health plan coverage on Forms W-2. We still do not know how to calculate the new comparative effectiveness research fees that are due next year, how the nondiscrimination rules will apply to insured group health plans, when and how the automatic enrollment provisions will apply, or how the employer pay-or-play mandate will be administered.”
"Employer plan sponsors must move forward, and the summary of benefits and coverage will likely be the first item on everyone’s agenda," agreed Mary H. Clark, principal, health and welfare services, at Cammack LaRhette Consulting. "The looming $2,500 limitation on health care flexible spending accounts is a reality. The conservative branch of Congress could take aim at this provision first, but in the meantime employer plan sponsors will need to prepare to revise plan documents and communicate this change to employees."
Limiting Full-Time Employees
"Employers that historically employ a mix of full-time and part-time employees find they have a powerful financial incentive to restructure their workforce to limit the number of full-time employees they have and thus limit their overall labor costs," commented John McGowan, an attorney with Baker Hostetler. "Those that employ large numbers of unskilled workers will discover it is more cost effective to pay overtime, increase the number of part-time employees or have certain jobs performed off-shore (such as call centers), rather than have full-time employees who fall under the mandate."
"The change to Medicaid expansion could also complicate matters for employers," according to an alert from consulting and actuarial firm Milliman. The Supreme Court struck down a provision that, in effect, required states to provide Medicaid coverage to those with household incomes below 133 percent of the federal poverty level. "If a state does not expand Medicaid, employers above 50 lives may be subject to more plan affordability penalties than they would be were their state to pursue Medicaid expansion," since these employers might now have fewer Medicaid-eligible employees, according to Milliman. "In this sense, a state's decision to expand Medicaid may have cost implications for employers."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Court Upholds Most of Health Care Reform Law, HR News, June 2012
Special Report: What HR Professionals Should Do Now, SHRM Online Benefits Discipline, June 2012
SHRM Will Continue to Help HR Implement Reform, SHRM Government Affairs, June 2012
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page