The Patient Protection and Affordable Care Act (PPACA) represents a major regulatory overhaul of the American health care system. Signed into law in 2010 with phases to be implemented through 2020, the PPACA states that most Americans must either buy health insurance or pay a penalty tax, with exceptions only for financial hardship or membership in certain religious sects. Individuals can obtain coverage through their employers, government programs such as Medicare and Medicaid, or new state health insurance exchanges.
It is important to understand the PPACA roll-out and how each phase impacts your business. In 2012, the Summary of Benefits and Coverage requirement and new W-2 reporting rules went into effect. Are you prepared for the associated reporting requirements? Let’s take a look:
What is an SBC and Who Should Receive One?
To address the complexities of choosing a health care plan, the PPACA requires that insurance companies or plan sponsors provide a Summary of Benefits and Coverage document to assist in the process. An SBC is a brief, standardized, plain-language outline of a particular health plan. While only a summary, an SBC provides:
- What the plan does and does not cover.
- Break downs of cost sharing between the beneficiary and the plan including deductibles and coinsurance fees.
- Specific examples of coverage for two conditions—Type 2 diabetes and childbirth.
- A uniform glossary that defines many commonly used terms.
The SBC requirement took effect on September 23rd, 2012. For fully-insured plans, the insurance company creates and distributes SBCs to employers or enrollees, the later referring to any individuals signed up to receive benefits under a particular plan. However, employers who choose to self-insure are themselves responsible for producing SBCs. The federal government offers an SBC template, a sample SBC, and the uniform glossary to assist in the process. Self-insuring employers should be aware of several important requirements regarding distribution of SBCs.
If an enrollee and his dependents live in the same home, a single copy of the SBC is considered sufficient to satisfy distribution requirements. However, if a dependent lives elsewhere, he must be provided with a copy of the SBC as well, subject to the requirements detailed above.
Additional IRS Reporting Requirements of the PPACA
In addition to requiring the creation of SBCs, the PPACA also states that employers must report their health care costs to the IRS. Full instructions were issued by the tax agency in Notice 2011-28, and updated in Notice 2012-9. Beginning in the 2012 tax year, most employers must include on each W-2 the cost of that employee’s sponsored healthcare. This generally covers all employer-sponsored healthcare that does not count toward an employee’s gross income. What is the purpose of the W-2 reporting requirement? The IRS has said it is purely informational, designed to allow employees to compare coverage and increase their choices as consumers. Notice 2012-9 explicitly states that employer provided health coverage would not become taxable as a result of the reporting requirement. Small businesses are currently exempt from the reporting requirement. If an employer filed fewer than 250 W-2s the previous year, they need not include health care costs on this year’s W-2s. The requirement also does not affect federally recognized Indian tribes. In addition, many forms of coverage that fall outside the realm of standard employer sponsored health care are currently not subject to the reporting requirement. Some of the policies excluded include long-term care, separate vision and dental, and workers compensation.
More Changes are Coming
Additional provisions of the PPACA will become effective semi-annually through 2015, then annually until 2020. Among the changes still to come is a tax increase on income over $200,000, annual penalty payments for anyone opting out of the mandatory health coverage, and the establishment of health care exchanges by the states to help in finding coverage. To ensure you have the correct reporting requirements for 2012, we have experts available to answer questions and provide payroll and benefits administration expertise.
Official Federal Healthcare website: http://www.healthcare.gov/
IRS Q&A on 2012-9: http://www.irs.gov/uac/Employer-Provided-Health-Coverage-Informational-Reporting-Requirements:-Questions-and-Answers
IRS W-2 Reporting Requirements Chart: http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage
- Health plan sponsors must provide SBCs to both enrollees and their dependents.
- For first-time enrollees who are eligible for more than one plan, an SBC must be provided for each plan. However, if an individual is renewing enrollment, he or she need only be given the SBC for the current plan. SBCs must also be provided when changes are made to the plan, as the result of a HIPAA Special Enrollment, or upon request.
- Companies may offer the SBC in either paper or electronic form. However, any electronic delivery must comply with electronic disclosure regulations put forth by the Department of Labor (DOL). The DOL regulations state that an employee must either have online access as a major component of his or her job, or consent to electronic delivery. A paper copy of the SBC must also always be made available, free of charge, upon request.