So What Does That Mean for Massachusetts Employers?In its most significant decision of the year, and arguably the last decade, the U.S. Supreme Court recently upheld most of the Patient Protection and Affordable Care Act (PPACA), the controversial health care legislation also known as ‘Obamacare.’
But a blessing from the Supreme Court only seemed to take the health care debate to more contentious levels as Republican politicians, including presidential hopeful Mitt Romney, have promised to repeal the law. Even so, businesses cannot wait for a ceasefire in Washington. Employers must forge ahead and continue efforts to implement the law as provisions pertaining to the employer-employee relationship become effective.
The Court’s Ruling
At the forefront of the dispute over the PPACA’s legality was a constitutional challenge to the so-called individual mandate, which requires individuals to carry health insurance or pay a penalty. Opponents argued that Congress overstepped its authority when it enacted this part of the law. The Supreme Court majority disagreed, concluding that the individual mandate is a valid exercise of Congressional power to tax. “Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness,” wrote Chief Justice John Roberts, author of the majority opinion.
Notably, the Supreme Court rejected the Obama administration’s principal argument in support of the individual mandate. Trying to avoid labeling the provision a tax, the government contended throughout that the mandate was a valid exercise of Congress’ power to regulate interstate commerce. That contention failed. “The individual mandate forces individuals into commerce precisely because they elected to refrain from commercial activity,” declared Roberts. “Such a law cannot be sustained under a clause authorizing Congress to regulate commerce.”
Massachusetts is viewed by many as the birthplace of the individual mandate. The state health care reform law includes a similar provision requiring residents of the Commonwealth to carry health insurance or pay a fine, although the formula for calculating the penalty is different from the method used under federal law.
Next Steps for Employers
Now that the uncertainty surrounding health care reform has been resolved, at least from a legal perspective, employers must be prepared to comply with significant provisions of the PPACA that kick in over the coming months. Starting this year, employer-sponsored group health plans will need to provide employees with a summary of benefits and coverage (SBC), which must include certain coverage details. Insurance carriers may provide the SBC notification for fully insured group plans, but plan administrators will have to provide the notification for self-funded plans.
The PPACA also requires employers to report the aggregate cost of employer-sponsored health coverage on Forms W-2. Employers that filed more than 250 Forms W-2 for tax year 2011 must ensure that the cost of coverage is reported next year. Smaller employers may be off the hook until 2014.
Beginning Jan. 1, 2013, the PPACA limits employee contributions to an FSA to $2,500 per year. The $2,500 FSA cap applies only to employee pre-tax contributions to a health care FSA, and does not affect employer contributions toward health care premiums, health savings accounts, health reimbursement arrangements, or other similar accounts.
In addition, savvy employers should begin planning to implement parts of the law set to take effect in 2014, including an employer mandate that penalizes businesses for failing to offer adequate health-insurance coverage.
The controversial employer mandate kicks in a little over a year from now. Starting in 2014, employers with more than 50 full-time employees must provide a minimum level of health-insurance coverage or pay a $2,000 penalty per full-time employee. As noted above, this concept is not entirely new to Massachusetts employers, many of which have been required to provide health insurance to employees since 2006, when the Commonwealth enacted its own version of health care reform. However, Massachusetts employers need to be aware that the penalty for failing to offer coverage is far greater under federal law.
The PPACA also requires that the coverage be ‘affordable’ and provide ‘minimum value.’ Coverage is considered affordable if the employee’s required contribution does not exceed 9.5% of household income. An employer provides a ‘minimum-value’ plan if the plan covers at least 60% of the participant’s covered expenses. If the coverage fails to meet these requirements, the employer may be subject to an excise tax of $3,000 if an employee declines to enroll in the plan.
Calls to repeal the PPACA will echo throughout the 2012 electoral season. But rescinding the law is no small task. For starters, it will almost certainly take a makeover in the Oval Office. Until that day comes, employers need to be sure they are in compliance with the provisions of the PPACA that are set to go into effect this year and next. They also need start planning for the critical employer mandate set for 2014.
John Gannon is an associate in the Springfield labor and employment law firm of Skoler, Abbott & Presser, P.C., which represents employers exclusively and specializes in helping employers understand their obligations under state and federal employment law; (413) 737-4753; [email protected]