health care reform. © 2013 paychex, inc. all rights reserved. 2 “must know” information health...

Health Care Reform

© 2013 Paychex, Inc. All rights reserved.2

“Must Know” Information

Health Care Reform

Updated July 2013

Paychex, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State Boards of Accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the: National Registry of CPE Sponsors, 150 Fourth Avenue North, Suite 700, Nashville, TN 37219-2417. Web site: www.nasba.org for this Group-Live program.

The information in these materials, and that provided by the presenter, should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. It is provided for informational purposes only.

If you require legal or accounting advice, or need other professional assistance, you should always consult your licensed attorney, accountant, or other federally licensed tax professional to discuss your particular facts, circumstances, and business needs.

http://www.nasba.org/


Today’s Objectives

Review the main provisions of Health Care Reform

Discuss how this legislation affects your firm/business and clients

Identify timeframes and actions necessary to prepare for these new changes

Discuss opportunities for you to play a proactive and consultative role

Highlight important resources


Health Care Reform Overview

Health Care Reform is two laws:

Patient Protection and Affordable Care Act, signed into law by President Obama onMarch 23, 2010

Health Care and Education Reconciliation Act, signed into law by President Obama onMarch 30, 2010



Who is affected?

Small businesses

Mid-sized businesses

Large businesses

Tax-exempt businesses

Individuals



Who regulates Health Care Reform? Health and Human Services (HHS)

Treasury and Internal Revenue Service (IRS)

Department of Labor (DOL)

Health Care Reform Timeline

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© 2013 Paychex, Inc. All rights reserved.

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Prior to 2013

• Young Adult Coverage

• Non-Discrimination

• Small Business Tax Credit

• Grandfathered Plans

• Over-the-Counter Medications

• Increased HSA Penalties

• Form W-2 Reporting

• Summary of Benefits and Coverage

• Medical Loss Ratio (MLR)

2013• FSA Contribution Limit

• Additional Medicare Payroll Taxes

• Deduction for Unreimbursed Medical Expense

• Retiree Drug Subsidy

• Health Insurance Tax

2014• Individual

Coverage Mandate

• Employer Shared Responsibility Payment

• Premium Tax Credits

• Health insurance Marketplaces

2015• Employer Shared

Responsibility Payment

Beyond 2015

• Excise Tax (effective 2018)


Provisions Effective Prior to 2013


Young Adult Coverage

Group health plans that already provide coverage for children must continue to provide coverage up to the age of 26.

Effective Prior to 2013

Affects Individuals

Affects Employers


Young Adult Coverage

Participants can submit FSA claims through the end of the calendar year for expenses incurred by their adult dependents who will not reach age 27 by the end of the calendar year.


Affects Individuals

Affects Employers


Tax credits for businesses that provide health insurance:

Credits are calculated on premiums, employer contributions, and tax liability.

Not all employers qualify, and not all qualified employers are eligible for the full credit.

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Small Business Tax CreditEffective Prior to 2013

Affects Employers

Small BusinessesFull credit = 35% of employer’s contribution to health insurance

Tax-ExemptSmall BusinessesFull credit = 25% of employer’s contribution to health insurance


Small Business Tax Credit

Employers may be eligible for the maximum credit if they:

have 10 or fewer full-time equivalent employees (FTEs)

pay average annual wages of $25,000 or less, and

contribute at least 50% of total aggregate premium cost based on the cost of single coverage.

Employers may be eligible for a lesser credit if they:

have fewer than 25 full-time equivalent employees (FTEs)

pay average annual wages of less than $50,000, and

contribute at least 50% of total aggregate premium cost based on the cost of single coverage.



“Full-time equivalent” is one full-time employee or multiple part-time employees who represent a fraction of a single, full-time employee.

=+



The tax credit is claimed on Form 8941 and filed with:

the employer's annual tax returns (for non tax- exempt organizations), or

Form 990-T (for tax-exempt organizations).

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Grandfathered Provision

The Grandfathered Provision exempts plans from some, but not all, provisions of Health Care Reform.

A plan is “grandfathered” if it provided coverage to participants on or before March 23, 2010.


Affects Employers


Grandfathered Provision

Reasons to Protect Grandfathered Status Avoid adding mandated benefits

Keep plan that favors highly-compensated individuals (HCIs)

Avoid the trouble of non-discrimination testing

Reasons Not to Remain Grandfathered Reduce or eliminate benefits pending guidance and

regulations from DOL

Increase cost-sharing or employee contributions


Over-the-counter medications (OTCs) are not eligible under HSAs, FSAs, and HRAs unless they have been prescribed by a doctor.

Over-the-Counter Medications


Affects Individuals

Affects Employers


Non-qualified distributions from HSAs are now subject to a 20% tax.

Tax on HSA Distributions


Affects Individuals


Pre-existing Condition Insurance Plan (PCIP)

PCIP is an interim program to help people who are unable to obtain health insurance due to pre-existing medical conditions.

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Affects Individuals

Source: U.S. Department of Health & Human Services (http://www.healthcare.gov)

http://www.healthcare.gov/law/provisions/preexisting


Form W-2 Reporting

Employers will be required to report the aggregate cost of employer-sponsored health coverage on their employees’ Forms W-2.


Affects Employers

Source: IRS Website (http://www.irs.gov/pub/irs-pdf/fw2.pdf)

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http://www.irs.gov/pub/irs-pdf/fw2.pdf


Form W-2 Reporting

Cost excludes:

salary-reduction contributions under a section 125 health FSA

contributions to medical savings accounts (MSAs), and health savings accounts (HSAs)

cost of coverage for military personnel provided by the government (federal, state, or local), and

excess reimbursements for highly compensated individuals or payments/reimbursements made to a 2% shareholder of an S-corporation.

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Form W-2 Reporting

Methods used to calculate the value of coverage:

Premium Charged Method

COBRA Applicable Premium Method

Modified COBRA Premium Method

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Summary of Benefits & Coverage (SBC)

SBC is a summary of the plan or coverage with a focus on:

covered benefits

cost-sharing requirements

limits on coverage, and

excluded benefits.


Affects Individuals

Affects Employers

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Medical Loss Ratio (MLR)

Requires a minimum percentage of premium payments collected by health insurance carriers be applied toward medical claims and quality improvement.


Affects Individuals

Affects Employers

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Medical Loss Ratio (MLR)

Carriers that do not meet these thresholds must send a rebate of the excess premium payments to either the affected businesses or policyholders.

Employers can:

• rebate the premium back to the employees

• use it to pay for future premiums, or

• use it to enrich health plan benefits.

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Provisions Effective 2013


Medical FSA employee contributions will be limited to the lesser of a $2,500 cap for a taxable year or the company maximum.

The statutory maximum will be adjusted annually for inflation beginning in 2014.

FSA Employee Contribution Limit

Effective 2013

Affects Individuals

Affects Employers


Effective: 2013

Medicare Hospital Insurance (HI)Tax

Additional 0.9% Medicare Hospital Insurance (HI) tax:

on wages and self-employment income above the threshold

for employees only (does not increase the employer portion)

Applies to employees with wages and self-employment income:

more than $200,000 (single) more than $250,000 (joint)

Effective 2013

Affects Individuals


Effective: 2013

Medicare Tax on Unearned Income

New 3.8% Medicare tax on unearned income

Applies to the lesser of:– “net investment income” and– modified adjusted gross income

(AGI) over the threshold.

Effective 2013

Affects Individuals


Unreimbursed Medical Expense Deduction

Threshold increases to 10% of AGI.

Increase is waived for individuals age 65 and older.

Effective: 2013

Effective 2013

Affects Individuals


Retiree Drug Subsidy

Employers will not be able to take tax deductions for drug benefits provided to Medicare-eligible retirees.

FAS 106 may require expenses related to the loss of the deduction to be recognized immediately.

Effective: 2013

Effective 2013

Affects Employers


Patient Centered Outcomes Research Institute (PCORI) Fees

PCORI fees apply for plans on or after

October 1, 2012, including:

– major medical

– health reimbursement arrangements (HRAs)

– certain health flexible spending accounts

(Health FSAs)

– most dental and vision plans

– Employee Assistance Programs (EAPs), and

– wellness programs.

Insurance carriers are responsible for fees for fully-insured plans, and plan sponsors pay fees for self-insured plans.

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Effective 2013

Affects Employers


Small Business Tax CreditEffective 2014

Affects Employers Small Business Tax Credits increase:

Credit is limited to two consecutive years.

Tax-ExemptSmall BusinessesFull credit = 35% of employer’s contribution to health insurance

Small BusinessesFull credit = 50% of employer’s contribution to health insurance


Individual Tax PenaltiesEffective 2014

Affects Individuals


Individual Tax Penalties

Year Penalty

2014 $95 or 1% of taxable income

2015 $325 or 2.0% of taxable income

2016 $695 or 2.5% of taxable income

Beyond Increased annually with inflation

Effective 2014

Affects IndividualsThe penalty will be the greater of:

a fixed amount ($95 for 2014) and a percentage of household income

(1% for 2014).


Premium Tax Credits

Available to individuals with incomes between 100% and 400% of federal poverty level.

Effective 2014

Affects Individuals

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Heath Insurance Marketplace

A Health Insurance Marketplace is a state-based competitive health insurance marketplace in which individuals and small businesses can obtain health insurance.

Effective 2014

Affects Individuals

Affects Employers


States

HHS

IRS

Health Insurance Marketplace

MarketplaceIndividual/Group

Employers

Navigators

Medical Providers

Insurance Carriers

Employees

Producers

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Small Business Health Options Program

Small Business Health Options Programs (SHOPs) are designed to enable small businesses and their employees to buy health insurance at competitive rates.

A SHOP: provides simplified choices expands employee options, and preserves employer control.

Effective 2014

Affects Employers

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Employer Shared Responsibility Payment

Effective 2015

Affects EmployersLarge employers may be subject to a fee if they:

do not offer health coverage to their full-time employees, or

offer coverage that is considered unaffordable.

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Employer PenaltiesEffective 2015

Affects Employers

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Large employers who offer insurance…

Large employers who don’t offer insurance…

Large employers who offer insurance that is

considered unaffordable or fails to provide minimum

value…

…will be subject to the penalty if one or more full-time employees

receive a premium tax credit through the marketplace.

$2,000 per full-time employee (above the first 30 full-time employees).

$3,000 for each non-covered full-time employee or full-time

employee who’s coverage is inadequate or unaffordable,

and who receives a premium tax credit.


Excise TaxEffective 2018

Affects EmployersA 40% tax on the total value of group coverage more than:

$10,200 (for single coverage) $27,500 (for family coverage) $11,850 (for single high-risk

professionals and qualified retirees), or

$30,950 (for family high-risk professionals and qualified retirees).

*Dental and Vision Plans Excluded

http://www.google.com/imgres?imgurl=http://20somethingfinance.com/wp-content/uploads/2008/11/tax-cut.jpg&imgrefurl=http://20somethingfinance.com/obama-tax-cuts/&usg=__zVKjGsPNmD2P58XLRdjoZaZ56fk=&h=367&w=500&sz=121&hl=en&start=13&itbs=1&tbnid=da6wNDNnbcuaNM:&tbnh=95&tbnw=130&prev=/images?q=%22tax%22&hl=en&sa=G&gbv=2&as_st=y&tbs=isch:1


Provisions Effective Pending Guidance


Auto Enrollment

Employers must automatically enroll eligible employees in their health plans.

Applies to those with 200 or more full-time employees.

Employees may opt out.

Effective TBD

Affects Individuals

Affects Employers


Non-Discrimination Rules

Prohibits discrimination in favor of highly compensated individuals (HCIs).

An HCI is:– one of the five highest paid officers– a shareholder* of more than 10%, or– one of the 25% highest paid

employees.

* Including certain employed family members

Effective Pending Additional Guidance

Affects Individuals

Affects Employers


Discrimination Penalties

Employer penalties could be significant.

An employer could be charged $100 per day, per individual discriminated against.


SIMPLE Cafeteria Plan

Employers with 100 or fewer employees are eligible.

The plan must satisfy alternative requirements regarding:

– eligibility – participation, and– contribution.


SIMPLE Plan Requirements

Employers must employ an average of 100 orfewer employees.

Employees who worked at least 1,000 hours during the previous plan year must be eligible to participate.

Employers must contribute:– a uniform percentage (not less than 2%), or – an amount not less than the lesser of 6% and twice

the amount of the contributions of each qualified employee.


Consultative Opportunities for Accountants


Consultative Opportunitiesfor Accountants

Provide client education and awareness regarding key Health Care Reform provisions.

Individual and Employer Requirements Advise clients on costs and benefits.

Small Business Tax Credit Identify clients best suited for the credits. Model financial implications. Determine eligibility. Assist with filing. Recommend how clients can apply tax credits.


Consultative Opportunities for Accountants

Forms W-2 Assist clients with establishing and implementing

procedures to collect data from premium statements.

MLR Rebates Help clients determine how to handle rebates.

HSAs Ensure that clients with HSAs are aware that non-

qualified distributions will be taxed at 20% instead of 10%.


Consultative Opportunitiesfor Accountants

Medicare Taxes Ensure clients withhold the proper amounts.

Evaluate return on investments affected by the “investment” tax.

Provide recommendations about: the impact of plan design changes

non-discrimination rules and SIMPLE cafeteria plans, and

other tax changes.


Health Care Reform

www.irs.gov (search for “health care tax credit”)

www.healthcare.gov

www.americanbenefitscouncil.org

Paychex

www.paychexinsurance.com/healthcarereform

Additional Resources

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http://www.irs.gov/

http://www.healthcare.gov/

http://www.americanbenefitscouncil.org/

http://www.paychexinsurance.com/healthcarereform


How Paychex and Paychex Insurance Agency Can Help


How Paychex Can Help?

Paychex provides: education on the Affordable Care Act Process

and other Health Care Reform provisions

information about any legislative changes that may affect you and your clients, and

resources to help your clients comply with provisions.

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Paychex Insurance Agency Website

White Papers

Recorded Seminars

Interactive Tools

Tax Credit Estimator

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Small Business Tax Credit – Why It’s Important

Low utilization

Difficult process

Small businesses leaving money on the table

60


Small Business Tax Credit Estimator

Learn if your clients’ businesses may be eligible for federal tax credits, and see how much they may be able to save.

61


Small BusinessTax Credit Package

The Small Business Tax Credit Package provides information to help employers file for the Small Business Tax Credit.

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Health Care Reform Alerts

Sign up to receive timely email updates.

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http://www.paychexinsurance.com/healthcarereform/alerts.aspx


Thank you!

www.paychexinsurance.com

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