HCW Benefits Blog

Contributor:
Mike Beck, Consultant
Hill, Chesson & Woody

Preparing for compliance issues is a crucial component of any healthcare reform plan. This is not just a human resources issue. Meeting the new regulations will involve every facet of your organization — finance, tax, compliance, operations, compensation and human resources.

For employers, the stakes are high. Abiding by the new reform compliance regulations could eliminate penalties that would be incurred otherwise. Whether it is the proper W-2 reporting of the value of employee health benefits, the requirements surrounding the “Play or Pay” mandate or the implications of the Cadillac Tax, employers need to plan now, or they may risk incurring large fees and fines.

Why This is Important for Employers

Originally slated to begin January 1, 2011, the IRS delayed the W-2 reporting requirements under Reform until 2012. Next year, employers will be required to report (based on COBRA premiums):

1. The aggregate value of provided health coverage, including major medical premiums, dental and vision coverage
2. Employer and employee Health Savings Account (HSA) contributions

This W-2 reporting is the basis for determining whether a business is offering benefits to its employees, and the value of those benefits. Getting the W-2 reporting correct at inception is crucial to offering benefits in the future since that will specifically be used to determine whether employers will be subject to the “Play or Pay” mandates scheduled to begin in 2014, or the Cadillac Tax calculations that are scheduled to start in 2018.

In 2014, the “Play or Pay” reporting requirements take effect. Employers with greater than 50 employees will have to offer group health insurance and must report to the Secretary of Health and Human Services whether the business offers minimum essential coverage to full-time employees and their dependents, as well as specifics of the coverage they provide, including:

1. Waiting period
2. Monthly premium for lowest cost option
3. Length of plan coverage
4. Number of full-time employees
5. Employer’s share of total cost of the plan, and more.

The Secretary will determine what information should be reported by employers and how they are to deliver the data. In addition to government reporting, employers must provide that same information to employees by January 31 of the year following the calendar year of reporting to the government. For example, 2014 government reporting will be due by January 31, 2015 to employees.

Then, there is The Cadillac Tax. On course to begin in 2018 is a 40 percent excise tax on health plans that have an aggregate value of more than $10,200 in single coverage and $27,500 for family coverage. The tax will apply to the amount of the plan value that exceeds the threshold. Costs built-in to The Cadillac Tax calculation include:

1. Health plan cost
2. Contributions to a Flexible Spending Account (FSA) or HSA
3. Health Reimbursement Account (HRA ) reimbursements

The Cadillac Tax is imposed on health insurance companies for fully-insured plans, but on employers for self-insured plans.  Current guidance suggests that it is the employer’s responsibility to calculate the amounts in excess of the aggregate values. At that point, employers must then notify the insurer and the IRS on their amounts due. Because of insurers’ responsibilities around the Cadillac Tax calculation, there is speculation that fully-insured carriers may not continue to underwrite plans that exceed various thresholds, simply to limit their liabilities.

HCW Viewpoint

In a survey of 381 senior executives, 84 percent stated that reform compliance planning is important. However, more than 40 percent indicated that they have not yet undertaken the steps they consider to be a full analysis of the implications of reform on their finances. For those in charge of controlling costs and mitigating risk at their companies, developing a strategic plan around reform should be a top priority.

The W-2 reporting requirement is a true precedent and simply the beginning of additional reporting requirements reform will bring to employer groups. The risks associated with incorrect W-2 reporting by an employer could cause an avalanche of issue that will lead the way for incurring the penalties built into the “Play or Pay” provision and The Cadillac Tax.

For those employers who are behind in their strategic planning for reform, they need to begin developing a plan of action for their organizations as soon as possible. 

Download Free Healthcare Reform Presentations

Hill, Chesson & Woody is following reform closely so employers can stay focused on their main business objective.  For more information on this topic, contact an HCW consultant or download our educational materials - Healthcare Reform: The Employers' Guide.