The new federal healthcare law, formally known as the Patient Protection and Affordable Care Act, imposes a number of different requirements on employers. Some of these requirements already are in effect, while others are scheduled to phase in over the next few years. Yet, as the nation awaits the Supreme Court’s decision regarding the Act’s individual mandate, the impact of these employer requirements remains highly uncertain because of the many ways the case could be decided. Although the Supreme Court’s decision is expected by the end of this month, employers should take steps now to prepare for the range of possible outcomes rather than waiting to see what happens first.
It is possible the Supreme Court could find the individual mandate constitutional and uphold the remainder of the Act in its entirety. This would leave all of the employer requirements in place. As a result, employers should make sure their plans meet current requirements under the Act, including its prohibitions on lifetime limits and rescissions, its maximum waiting period of 90-days for enrollment eligibility, and its requirement to provide coverage for non-dependent children up to age 26.
In addition, employers should continue to prepare themselves for new requirements that are scheduled to go into effect in the near future. These requirements include:
- Coverage for Employees - beginning on January 1, 2014, employers with 50 or more full-time employees must offer minimum essential coverage to their employees or risk paying a penalty.
- Automatic Enrollment - employers with 200 or more full-time employees will have to automatically enroll new employees in one of their plans. The statute does not specify an effective date, but the DOL has said it does not expect employers to comply until it issues regulations that are expected in 2014.
- Summary of Benefits and Coverage - beginning September 23, 2012, health insurers and self-insured group health plans will be required to provide a standard Summary of Benefits and Coverage to all individuals enrolling in medical coverage.
- W-2 Reporting - beginning with the 2012 tax year (i.e. W-2’s that will be issued in January 2013), employers filing more than 250 W-2’s must report the aggregate cost of their employer-sponsored coverage on employee W-2’s. This requirement will be extended to smaller employers in later years.
- Notice of Exchanges - beginning March 1, 2013, employers must provide written notice to employees of the existence of an exchange, including a description of services offered, and that employees may be eligible for a premium tax credit or cost subsidy if the company’s plan does not pay 60 percent of their costs.
- Information Returns - beginning after 2013, employers must file annual information returns with the IRS and the Secretary of the Treasury providing information about the coverage provided to employees, the portion of premium paid by the employer, and the employees covered by their plans.
The Supreme Court also could hold the individual mandate unconstitutional, and strike down a limited number of other provisions that are not severable from the individual mandate. Based on the Justices’ questions at oral argument, many are predicting this is the most likely outcome and the question they are having the most difficulty deciding. This means that some or all of the employer requirements could be left in place. As a result, employers should continue to prepare for all requirements under the Act because unprepared employers, and particularly those with calendar year plans, may have to act quickly if the decision requires changes in the terms of their plans and they have not yet taken steps toward compliance.
Struck Down In Its Entirety
The final possibility is that the Supreme Court could strike down the Act in its entirety. This would mean that employers no longer have to comply with any of the Act’s upcoming mandates, such as the W-2 reporting requirement and the requirement to distribute Summaries of Benefits and Coverage. In addition, the prohibition on discriminating in favor of highly compensated employees through fully insured health benefits (currently in a non-enforcement period) will be moot.
If the entire law is struck down, it also would free employers from the requirements currently in place. In that event, employers may wish to revisit changes made to their plans based on already effective requirements. These changes may include issues such as:
- Extended coverage to non-dependent children up to age 26;
- $2,500 cap on annual contributions to health FSAs;
- Mandated coverage of certain preventative care measures; and
- Prohibitions on existing conditions exclusions, lifetime limits, and rescissions.
In order to prepare for the possibility of this outcome, employers should review their plans and consider whether they would want to make changes and, if so, when those changes would become effective. Doing this now while waiting for the Supreme Court’s decision will help employers make considered decisions and act quickly in order to make changes for the current or next plan year, instead of being caught unprepared once the decision is announced.