By Amy J. Traub, Gretchen Harders, Anna Kolontyrsky, and Margaret C. Thering
With the reelection of President Obama, it is clear that employers should be preparing to comply with all of the applicable provisions of the Patient Protection and Affordable Care 
Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”). As employers well know, the Affordable Care Act contains comprehensive healthcare reform provisions, including, among other things, the mandate that larger employers face penalties starting in 2014 if they do not make affordable healthcare coverage available to their workers, the so-called “pay or play” mandate. We have already seen efforts by the Department of Labor (“DOL”) to audit employers’ group health plans for compliance with the Affordable Care Act. Given that we expect the Obama Administration’s DOL to continue its audit efforts, we recommend that all employers conduct a self-audit of their compliance efforts with healthcare reform. Even small employers should assess the size of their work force to determine whether they fall within the threshold requirements for the pay or play mandate. How many employers have actually conducted self-audits of their group health plans and taken other recommended steps towards compliance? The DOL wants to know.
As an initial matter, employers should immediately be preparing for the following upcoming requirements and changes:
- Form W-2 Reporting. Beginning with the 2012 tax year, employers issuing 250 or more Form W-2s must include the cost of employer-sponsored health coverage on each worker’s Form W-2. This must be prepared and provided to employees in January 2013.
- Notice of Exchange. No later than March 1, 2013, employers must provide employees and new hires with a written notice of the availability of the healthcare exchanges. The notice must describe the services provided by the exchange and inform employees of their potential eligibility for a premium tax credit or a cost-sharing reduction. The Department of Health and Human Services is expected to issue a model notice.
- Limit on FSA Salary Reductions. For Plan years commencing after December 31, 2012, a $2,500 annual limit on salary reduction contributions applies to health flexible spending accounts (health FSAs).
- Elimination of Employer Deduction. Commencing January 1, 2013, the employer deduction for subsidized retiree prescription drug expenses is eliminated.
- FICA Tax Increase (Unearned Income Medicare Contribution). FICA tax for 2013 will increase by 3.8% on certain unearned income (e.g., capital gains, dividends, proceeds from sale of a home) of high-income individuals with adjusted gross income (AGI) over $200,000 annually; $250,000 if married filing jointly; or $125,000 if married filing separately.
- Medicare Tax Increase. In 2013, the employee portion of Medicare tax on wages will increase by 0.9% for high-income individuals earning wages over $200,000 annually; $250,000 if married filing jointly and $125,000 if married filing separately. The Medicare tax increase will apply to wages in excess of such thresholds.
Additional Affordable Care Act mandates become effective as of January 1, 2014, including, among other things, the employer “pay or play” mandate, limits on waiting periods to 90 days and the elimination of annual dollar limits on essential health benefits.
As far as the existing rules under the Affordable Care Act are concerned, we understand the DOL already has begun issuing audit letter requests to audit employer’s group health plans. As is typical of a DOL group health plan audit, the DOL is requesting documentation that demonstrates an employer’s compliance with the Affordable Care Act. For example, the following information has been requested from both grandfathered and non-grandfathered health plans:
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For plans with dependent care coverage, a sample of the notice describing enrollment opportunities relating to coverage of children up to age 26;
- A list of participants who have had their coverage rescinded and the reasons for any such rescissions; and
- If the Plan imposes a lifetime limit, documents relating to that limit for each plan year.
For non-grandfathered health plans, DOL has requested the following information:
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The Plan’s claims and appeals procedures, including notices regarding adverse benefit determinations and final external review determination notices. This request is meant to demonstrate that the Plan has adopted the new internal and external claims procedures pursuant to the Affordable Care Act;
- Contracts with independent review organizations (“IROs”) or third-party administrators providing external review. The Affordable Care Act requires non-grandfathered health plans to contract with three Independent Review Organizations (IROs) to handle external claims appeals;
- Documents related to preventive health services. Under the Affordable Care Act, non-grandfathered plans must cover certain preventive care services without cost sharing, including the new standards for women’s preventive care services (which includes coverage of contraceptives); and
- Documents relating to the Plan’s emergency services benefit. This request allows the DOL to verify that emergency hospital services are provided without requiring prior authorization or higher cost sharing amounts.
For group health plans that claim grandfathered status, the DOL has requested records documenting the terms of the Plan, the participant notice of grandfathered status and any additional documents to confirm the Plan’s grandfathered status.
An insufficient response to a DOL audit request could lead to additional inquiries and even lawsuits. Additionally, various penalties could be imposed by the DOL and/or the Internal Revenue Service for failure to implement certain Affordable Care Act-related coverage mandates.
Employers therefore are again reminded to perform a healthcare reform self-audit as their first order of business and continue their compliance efforts. Employers should further take steps to be sure that their efforts are well-documented by: (1) preserving all records relating to the Plan administration, design, and maintenance, including contracts with third-party service providers; (2) preserving all documents distributed to employees that provide notice of the Affordable Care Act’s provisions; and (3) ensuring that all written policies that implement any Affordable Care Act mandates are easily obtainable for production.
In a previous blog, we have provided a timeline of what provisions of the Affordable Care Act are applicable to most employers and the deadlines or expected deadlines for compliance. We also have blogged on the most recent guidelines on the upcoming pay or play penalties and the 90 day waiting period limitation.
As the Obama Administration takes steps to enforce the Affordable Care Act, self-audits of employers’ group health plans are critical.