To diffuse much of the confusion of what is actually coming up for 2013 in relation to the Health Care Reform Act (Obamacare), below is a quick guide for businesses in relation to their employees. Keep in mind, this guide does address some of the other major changes in 2014 and changes to individual tax returns. For example, that employer dreaded mandate that applies to companies with 50 full-time equivalent employees does not take effect until January 1, 2014.
Flexible Spending Account Now Limited
Effective January 1, 2013, Flexible Spending Accounts (FSA) has a limit of $2,500. Prior to this restriction, employers had some voluntarily imposed limits but otherwise employees could defer an unlimited amount into their FSA plan.
An FSA, also known as a flexible spending arrangement, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee's pay into an FSA is not subject to payroll taxes, resulting in substantial payroll tax savings. One significant disadvantage to using an FSA is that funds not used by the end of the plan year are lost to the employee, known as the "use it or lose it" rule.
Notice of Insurance Exchanges
Starting March 1, 2013 employers will be required to provide a notice to its employees explaining the right to purchase health care coverage on an exchange. These notices yet to have clear requirements, but we expect to see those specifications from the federal government soon.
Part of the health care reform is the implementation of insurance exchange. This exchange is a set of a state-regulated and standardized health care plans from which individuals may purchase health insurance eligible for federal subsidies. These exchanges must be certified by January 1, 2014.
Annual Limits of Health Benefits Being Phased Out
Starting January 1, 2013, annual limits for essential health benefits cannot be less than $2 million leading up to an eventual phase out in 2014. Most benefits of major medical coverage comes under this category including prescription drug coverage and mental health coverage.
Before the health care law, many health plans set an annual limit. Many plans also set a lifetime limit. You were required to pay the cost of all care exceeding those limits. According to the act, essential health benefits must include items and services within at least the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.
W-2 Reporting Health Coverage
Starting January 2013, employers with more than 250 W-2's filed for 2012 must report the cost of health coverage provided to each employee for reporting of the 2012 calendar year. This includes employer-paid and employee-paid coverage. Currently, this reporting is merely informational and does not have a penalty at the writing of this article.
Medicare Part D Subsidy Deduction Removed
Effective January 1, 2013, employers may no longer deduct expenses covered by the federal subsidy that some employers receive for providing retiree prescription drug coverage. This deduction used to apply to all retiree prescription drug expenses without a reduction for the subsidy and the subsidy is not included in the employer's taxable income.
Fee on Comparative Effectiveness Research
With an initial fee due by July 31, 2013, the new health care law imposes a fee on group health plans to promote research comparing effectiveness and risks of medical treatments. The insurer is responsible for calculating and paying the fee for insured plans and the plan sponsor for self-insured plans. In 2013, the fee is one dollar multiplied by the average number of covered lives. For 2014, this goes up to two dollars and then increased by inflation until 2019.