According to a study by Market Strategies International, up to 60 percent of employers in the United States were waiting for the outcome of the 2012 presidential election before preparing to respond to requirements of the Patient Protection and Affordable Care Act (PPACA).Those employers now need to move quickly to manage this new business risk.
Even though many of the taxes imposed for noncompliance with the PPACA go into effect in 2014, employers who wait until later in 2013 to respond may risk increased costs of compliance. This is particularly true for industries that employ seasonal or part-time workers, because many of the penalties and taxes are computed by multiplying a tax rate times the number of "full-time employees." Contributing to the confusion is the fact that regulations defining the term are extremely complex and can be difficult to apply to a particular work force.
Following are four significant types of fees, taxes and penalties that employers need to know.
PCOR funding fee: This fee is assessed against all health insurers — including self-funded employer health care plans — to fund the Patient-Centered Outcomes Research Institute, which was created by PPACA to perform comparative effectiveness research on medical treatment outcomes.
The initial annual fee is $1 per covered life (including employees and their participating dependents) for plan years ending between October 1, 2012, and September 30, 2013. The fee increases to $2 per covered life for plan years ending between October 1, 2013, and September 30, 2014, and is indexed for inflation thereafter.
Action: If you have a self-funded health plan, you should prepare to comply with the first filing deadline of July 31, 2013. For fully insured plans, the insurance carrier computes and remits this fee.
Increased Medicare taxes on high-income earners: Beginning in 2013, individuals who earn more than $200,000 in taxable income ($250,000 where filing jointly) are subject to an increase in their share of the Medicare tax, from 1.45 percent to 2.35 percent. While the employer's matching Medicare tax remains at 1.45 percent, employers who fail to withhold and remit the employees' increased Medicare tax may be subject to penalties and interest.
Action: Confirm now that your payroll processing area (or payroll vendor) has updated the payroll system so the correct amount of Medicare tax will be withheld and remitted to the IRS.
Transitional reinsurance fee: Beginning in 2014, employers must pay a transitional reinsurance fee to help offset the impact of high-cost enrollees who obtain health insurance. This fee will be assessed annually for a three-year period. The fee will be computed based on the number of covered lives (employees and dependents), but the amount per covered life is not yet set for 2014.
Action: Take steps during 2013 to ensure that the count of covered lives, as defined under the regulations, can be prepared and submitted in time. This may require programming and other data management steps, so lead time should be allowed.
Penalties for insufficient coverage or benefits: Effective in 2014, PPACA provides for numerous and complex penalties, applicable to employers in either of the following circumstances:
- Not offering a health plan to 95 percent or more of full-time employees;
- Offering a plan to 95 percent or more of full-time employees, but the plan fails an employee affordability test or minimum value test.
These minimum coverage and benefits rules may require significant policy discussions.
Action: Establish a formal process as soon as possible to determine a direction for your health plan. This may involve calculating the cost of a number of scenarios as well as considering non-financial human resources issues such as employee retention and recruiting.
Given the complexities of PPACA, employers need to keep the new health care law top of mind and be cognizant of developments. Work with your tax adviser and employee benefits provider now to learn more about these and other requirements.
To view an outline of the Patient Protection and Affordable Care Act, along with the full text of the law, see www.healthcare.gov/law/full/.
Ken Cameron is director of Compensation and Benefits, and Mark Ritter is managing director of Compensation and Benefits at Grant Thornton. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd., a global audit, tax and advisory organization with experience in restructuring and reorganization, process improvement, supply chain management, mergers & acquisitions, tax, audits and other matters.