Next month marks the five-year anniversary of the Affordable Care Act (ACA). While many of the requirements for employers and group health plans are already in effect, the questions continue to roll in. Here’s a look at five of the most common questions and answers surrounding the law:
1. Are small employers required to provide health insurance to full-time employees?
Under the ACA, small employers–generally those with fewer than 50 full-time employees, including full-time equivalents–are not penalized for choosing not to offer coverage to any employee. Effective as of January 1, 2015, large employers subject to “pay or play” may be liable for a penalty tax if they do not offer affordable health insurance that provides a minimum level of coverage to full-time employees (and their dependents, unless transition relief applies).
2. Do employers need to offer the same coverage to all employees?
Similarly situated individuals must be treated equally. Distinctions among groups of similarly situated employees may be permitted if they are based on bona-fide employment-based classifications consistent with the employer’s usual business practice–for example, full- and part-time employees.
The IRS has delayed the requirement under the ACA that fully insured group plans comply with rules “similar” to the rules prohibiting discrimination in favor of highly compensated individuals that currently apply to self-insured plans. However, health benefits offered as part of a cafeteria plan (a plan which meets specific requirements to allow employees to receive certain benefits on a pre-tax basis) generally will be subject to the nondiscrimination requirements of Internal Revenue Code section 125.
3. Will an employer be liable for a “pay or play” penalty if one of its employees purchases health insurance through a Marketplace?
A large employer will only be liable for a penalty if at least one full-time employee receives a premium tax credit. In general, an employee will not be eligible for a premium tax credit if the employer has offered the employee health coverage that is affordable and that provides minimum value, even if the employee rejects the offer of coverage and instead enrolls in coverage through a Marketplace.
4. Can employers reimburse employees for premiums paid for individual health insurance policies?
No. Arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or arrangements under which the employer uses funds to directly pay the premium for an individual health policy covering the employee, will violate the ACA and may be subject to a $100/day excise tax per employee. An employer-sponsored arrangement under which employees may choose either cash or an after-tax amount to be applied toward health coverage is permissible.
5. How does the law impact tax-favored accounts such as HSAs and health FSAs?
The ACA prohibits tax-favored distributions from health savings accounts (HSAs) to reimburse the cost of over-the-counter medicines or drugs that are not prescribed, except for insulin. A similar rule applies to health reimbursement arrangements (HRAs) and health flexible spending accounts (FSAs).
HRAs must be “integrated” with other group health plan coverage in order to satisfy certain ACA requirements, and may no longer be used for an employee’s individual insurance policy premiums.
A health FSA must qualify as excepted benefits and be offered through a cafeteria plan to comply with the law. In addition, the ACA requires that salary reduction contributions to health FSAs be limited to $2,500 annually, indexed for inflation (for taxable years beginning in 2015, the limit is $2,550).