In its recent landmark decision, the Supreme Court upheld nearly all of the Patient Protection and Affordable Care Act. While having a significant business law impact, legal scholars continue to debate the Act’s merits, and presumptive Republican presidential candidate Romney has vowed to repeal it if elected, the law remains intact for now. Employers must prepare to take the necessary steps to comply with the Act’s sweeping changes.
The provisions of the Act attracting the most attention are the so called “play or pay” provisions. Beginning in 2014, employers with fifty or more full-time employees must provide them with affordable health care coverage or pay a penalty of $2,000 per worker above 30 employees. For employers already offering coverage to their employees, these provisions are not likely to result in significant changes. However, the Act now requires continued coverage of dependent children until age 26 as well as coverage of employees with pre-existing conditions. In addition, plans must eliminate lifetime limits and restrict annual limits on the dollar value of essential health benefits.
Moreover, employer health plans cannot discriminate in favor of highly compensated individuals, meaning that differences in plan features such as employer contribution levels, copays, deductibles, and waiting periods for different classes of employees are not allowed.
The new Act includes reporting requirements that affect employers issuing more than 250 W-2’s. Effective for 2012 and beyond, the cost of employer sponsored coverage must be included on an employee’s W-2. This reporting is for informational purposes only, and will help the IRS assess individual employee penalties. Employers should begin tracking employees’ health benefit coverage elections so that the proper information will be disclosed on W-2s distributed in January 2013.
To assist small businesses in offsetting the costs of providing insurance to their employees, a temporary tax credit of up to 35% of their premiums is included in the Act. However, in order to be eligible, a business must have no more than 25 employees and contribute at least half of the cost of its employees’ health care premiums. The amount of the credit depends on the number of employees and average employee compensation. As the number of full-time employees and average compensation increases, the credits decrease.
Only time will tell the fate of the Patient Protection and Affordable Care Act. In the meantime, employers should act quickly to identify the requirements and related corporate compliance deadlines applicable to them in order to avoid substantial penalties.
Author Sara Dajani is an Associate Attorney with Washington, DC business law firm Berenzweig Leonard, LLP.