The recent ruling on the Patient Protection and Affordable Care Act (PPACA) by the U.S. Supreme Court has given employers a lot to consider for the future of their sponsored health care plans. The good news is that employers have another 12-plus months to map out their strategies relative to the “pay or play” mandate (and corresponding tax/penalties) and the forthcoming health care exchanges. However, there are health care reform issues that employers should be aware of for 2013. These include:
- The $2,500 salary reduction limitation on health flexible spending accounts (FSAs) under a cafeteria plan.
- The requirement to distribute and make available Summaries of Benefits and Coverage (SBCs).
- Covering women’s preventive health services at 100 percent (i.e., no copays or deductibles).
- Reporting the value of the health plan on Form W-2.
This article will focus on the salary reduction limitation and SBCs, as well as the 2014 items you should begin planning for early next year.
Beginning with plan years after December 31, 2012, there is a contribution limit of $2,500 on health FSAs. This new limitation may require you, as an employer, to revise your Section 125 plan document and communicate this limitation to employees. IRS Notice 2012-40 clarified that this limitation would be effective based on plan year rather than taxable year. This means that employers with plan years that do not run concurrent with the calendar year should consider the effective date of the limitation.
SBCs must be provided or made available to all applicants and participants in the employer-sponsored health plan beginning with the first open enrollment on or after Sept. 23, 2012. This is mostly an administrative task; however, there are specific differences with the responsible party depending upon whether the plan is fully insured or self-insured. Furthermore, there are a number of specific details regarding how the SBC must be distributed. Lastly, employers will need to consider how the SBC requirements are met relative to carve-out prescription drug plans, health reimbursement arrangements (HRAs), and other similar arrangements. It should be noted that the SBC requirement cannot be met simply by distributing existing benefit summaries or summary plan descriptions.
In addition to the language used, the SBC must be drafted using a specific number of pages, spacing, and font requirements. Examples and templates can be found on the Department of Labor’s website. Employers should talk with their advisors and/or carrier partners to make sure they are compliant with the SBC requirements.
For fully-insured plans the insurance company has the responsibility for compliance. For self-insured plans, the responsibility to comply with SBC notices is that of the plan sponsor (the employer). For those employers that have both fully-insured and self-insured plans, the matter is a bit more complex, and compliance responsibility falls to both carrier and plan sponsor/employer. This is especially complex for those employers that have adopted HRAs or “wrap plans.” Employers with such design structures need to be aware that there are actually two plans, one fully insured and one self-insured. The self-insured plan is the HRA or “wrap,” and the fully-insured plan is the underlying medical plan. Each of these is considered a plan and, as such, requires an SBC.
We recommend employers begin considering the impacts of the 2014 health care reform changes early in 2013. There are a number of things to consider including:
- How many full-time equivalents are employed?
- Which penalties might apply?
- What is the net cost impact of the penalties?
- Are you considering any compensation adjustments to compensate for the potential to eliminate employer-sponsored benefits?
- What is the net cost impact of any compensation adjustments?
- From an employee’s perspective, what is the net buying power of a compensation adjustment?
- What is the recruiting/retention impact of any benefit and compensation changes?
- Are the health care exchanges accessible for the employer?
It’s likely that health care reform is going to impact each employer differently in 2014. Things such as average family income and part-time vs. full-time employee counts will influence the strategies employers should consider. While health care reform has changed the landscape of employer-sponsored health plans significantly, one thing has not changed: a single solution applicable to all employers simply does not exist.
PMGBA II is an independent benefit consultant and agency that works with employers of all industries to establish a cost effective benefit plan strategy that works best for each employer. PMGBA II has the ability to design plans, seek competitive carrier pricing, assist an employer in the selection, implementation, and ongoing stewardship needed to operate group life, disability, medical, dental, vision, and cafeteria plans, and Health Savings and Health Reimbursement Accounts.