The 2013 Clock is Ticking on Health Care Plans

Last June, the Supreme Court upheld President Obama’s health care reform act--The Patient Protection and Affordable Care Act-- by characterizing the requirement that Americans obtain insurance or pay a penalty as a tax and citing the power of Congress to levy taxes. While Barack Obama is just a few days away from being sworn in for his second term as the 44^th President of the United States, the 2013 clock is ticking on both government agencies and employers as they only have 12 months left to prepare before the Patient Protection and Affordable Care Act is scheduled to take effect.

State Healthcare Exchanges: Under the concept of “pay or play”, employers with 50 or more employees must confront the decision on whether they will provide health insurance or pay a penalty tax. A key provision of the new law requires that individuals and employees of employers will have access to affordable coverage through a new competitive private health insurance market – state-based affordable health care insurance exchanges. If a state does not establish its own health insurance exchange, a federal health care exchange program will become available.

In the Washington DC metro area, Maryland has initiated plans to implement their program as early as October 1, 2013 and will call their exchange the Maryland Health Connection.  With the expectation that they will be ready October 2013, Mayor Gray received conditional approval in December 2012 from the Department of Health and Human Services to establish a State–based insurance exchange in the District of Columbia. In Virginia, Governor Bob McDonnell announced in December 2012 that the state would not continue to plan for a state-based health insurance exchange and would opt for a federal health care exchange program.

By March 1, 2013, health care plans must provide notice to employees and new hires of the upcoming existence of state insurance exchanges. By October 2013, the law requires that people can start signing up for their health care coverage through either the state healthcare exchange of the federal health care exchange program.

Summary of Benefits and Coverage: One of the notable changes that will affect everyone with private insurance actually took place back in September 2012. Most people will not notice until they renew during open enrollment or apply for new health insurance in 2013.  This new change is called the Summary of Benefits and Coverage. This summary document will help people make a better educated decision about their benefits through an easy to understand summary of the health plan benefits and coverage.  Health plans will also have to provide a glossary of benefit terms if  employees ask for this document.

While federal and state agencies are focused on developing healthcare exchange programs, year 2013 will be a period where employers are also preparing for a variety of the new regulations associated with the Patient Protection Affordable Care Act.  Most of the changes that occur will actually be initiated to help pay for the changes in 2014.  This means tax reporting, tax increases and a limit on tax deductions.

Form W-2 wage and tax statement: For employers, January is a period to start issuing employees Form W-2, wage and tax statement. Beginning in January 2013, employers are required to report the value of group health benefits on the employee’s 2012 Form W-2 form.

FICA Medicare Tax Increase: For tax years beginning after December 31, 2012, the FICA Medicare tax rate will increase by 0.9% for wages over $200,000 ($250,000 for married couples filing jointly). An employer will be required to collect the employee’s portion of this FICA Medicare tax.

Health Flexible Spending Accounts: Beginning in January 2013, the maximum pre-tax amount that employees will be able to contribute to their Health Flexible Spending Account is $2,500. In the past, there was no statutory cap on these accounts, although most employers set caps of $5,000.

Loss of Medicare Part D Subsidy Deduction: Beginning in 2013, an employer’s tax liability will increase as they will no longer receive the deduction for the portion of health care expenses that are reimbursed to the employer through the Medicare Part D subsidy program.  The Retiree Drug Subsidy will remain in existence, however and employer’s ability to deduct the amount of the subsidy will end. This applies to insured and self –insured health plans regardless of their grandfathered status.

Under the concept of “pay or play”, employers with 50 or more employees must confront the decision on whether they will provide health insurance or pay a penalty tax.  Regardless of the decision, the 2013 clock is ticking and now is the time to start planning for the Patient Protection and Affordable Care Act before it takes effect on January 1, 2014.