Immediate Reform Implementation Is Revenue-reporting and Tax-related (apart from SBC)

With the Supreme Court’s June 28 ruling affirming health reform, its legal requirements on employer health plans are a green light. Plans therefore continue to face important requirements this calendar year. Fortunately, they’re the same ones employers have known about for some time. But if an employer has been holding off from comprehensive implementation, a reminder of the four most important health reform requirements with looming adoption dates could be helpful.

Two of the four pressing matters have to do with estimating the value of coverage and reporting it to the IRS and to plan participants.

Summary of Benefits and Coverage

Employers that sponsor health plans must issue a new uniform four-page SBC (both sides of the page may be used). They must be provided to participants and beneficiaries who enroll or re-enroll, starting on open enrollment periods that start on or after Sept. 23, 2012. Basis: 77 Fed. Reg. 8668 (Feb. 14, 2012).

SBCs are to be distributed by insurers to health plan sponsors and by health plan sponsors to participants and beneficiaries. Only in the case of individual policies are they required to be distributed to dependents.

Reporting Health Coverage on Forms W-2

Employers must begin reporting the value of health coverage as an information item (but not a taxable income item) on employees’ W-2 forms at the end of the year. The W-2 reporting requirement was originally scheduled to become effective for the 2011 tax year, but the IRS delayed the mandatory compliance date to the 2012 tax year.

All employers that provide “applicable employer-sponsored coverage” during a calendar year are subject to the requirement. This includes federal, state and local government entities, churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements.

On April 26, 2012, IRS issued Notices 2012-32 and 2012-33, which invited comments to help inform the development of guidance on annual information reporting related to health insurance coverage. More IRS information about W-2 reporting can be found here.

Determining Whether Coverage Is Minimum-Value

Notice 2012-31, issued by the IRS on April 26, 2012, calls for comment from the public in determining what kind of strategy it will recognize when plans present evidence that their coverage meets or exceeds coverage norms set by the government. It says it prefers to choose from among these three:

(1)   an actuarial value calculator (AV calculator) to be provided by the agencies;

(2)   design-based questionnaires and checklists that would certify that a plan passes muster without actuarial calculations; or

(3)   certification from an actuary when a plan’s feaures escape measurement by either of the first two methods.

On Feb 24, 2012, HHS issued an actuarial value bulletin) describing the assumptions and methodology that HHS anticipates will govern the calculation of actuarial value.

Here is a link to the IRS page with the latest guidance on IRS’ revenue reporting and tax-assessment provisions.

Written Notice of an Exchange

All employers covered by the health reform law have to give employees written notice of an health insurance exchange, for all new hires starting March 1, 2013, and for all existing employees on or by that date. Exchange notices must provide written information:

• that an exchange exists, including a description of the services provided by the exchange and contact information to request assistance;
• that if the employer plan’s share of the total allowed costs of plan benefits is less than 60 percent of the costs, then the employee may be eligible for a premium tax credit and a cost-sharing reduction if the employee gets coverage through the exchange; and that
• if the employee purchases coverage through the exchange, he or she may lose the employer contribution to employer-sponsored coverage and that there might be tax implications for the employee in that case.

Future regulations may impose additional requirements.

Pay or Play Questions Will be Asked

The biggest analysis employers will be asking is about whether to “pay or play.” Employer penalties for not providing coverage may turn out to be less costly then actually providing coverage (particularly if health costs continue to rise as they have in the last 15 years). If that is the case, employers may choose to pay the penalties and stop providing insurance to workers.

Once employers finish assessing the value of their plans as per IRS rules, they then can move on to considering whether to:

• drop plans or options;
• keep plans the way they are even if it exposes them to new taxes; or
• make only those changes necessary to comply with the law’s new provisions.