In a surprise ruling, the U.S. Supreme Court has upheld all material provisions of the Patient Protection and Affordable Care Act of 2010 (the “ACA”), including the controversial individual mandate that requires taxpayers to obtain health insurance or pay a penalty tax starting in 2014. With much of the uncertainty about the future prospects of the law now lifted, employers should prepare for compliance with upcoming ACA requirements.
Writing for a 5-4 majority in National Federation of Independent Business et al. v. Sebelius, conservative Chief Justice John G. Roberts, Jr., found that the ACA individual mandate is a permissible exercise of Congressional taxing authority. The ruling came as a surprise to many observers as it had been widely assumed that the individual mandate would be found unconstitutional, leaving questions about whether the remaining provisions of the law would also be invalidated by the Court. The ruling instead upheld all material provisions of the ACA (other than a Medicaid-specific issue that should not be relevant to employers).
What’s Next for Employers?
Now that the ACA has been upheld, sponsors of employer group health plans must focus on the pressing tasks for compliance under the act. Barring repeal or amendment of the ACA by Congress, a number of requirements, including the following, will go into effect in the near future:
- W-2 Reporting: Starting with the 2012 taxable year, wages reported on Form W-2 must include the value of employer-provided group health insurance. Employers should determine if they are appropriately tracking group health plan valuation data in order to comply with this new reporting requirement.
- Cap on Flexible Spending Account Contributions: Beginning with plan years starting in 2013, salary deferral contributions to a health flexible spending account (“FSA”) will be capped at $2,500. This cap should be communicated to participants in open enrollment materials applicable to the 2013 plan year, and appropriate changes should be made to payroll and administrative systems.
- Medical Loss Ratio Rebates: Beginning in 2011, health insurance companies were required to devote no less than a specified percentage of premiums to the provision of health care (as opposed to overhead or profit margin). Insurers who fail to meet this requirement are required to issue rebates to insured customers. Plans may soon begin receiving rebates associated with 2011 insured health coverage and employers should accordingly determine how to properly distribute or apply the rebates, keeping in mind that these funds will likely be considered to constitute plan assets and that the fiduciary provisions of the Employee Retirement Income Security Act (“ERISA”) will accordingly apply to how the rebates are handled.
- Summary of Benefits and Coverage: Starting with the first open enrollment period beginning after September 2012, plan sponsors will be required to include a plain-language Summary of Benefits and Coverage (“SBC”) with plan enrollment materials. Employers should watch for guidance and samples to be issued by the Department of Labor and should prepare to draft a SBC for inclusion with 2013 open enrollment materials.
- Affordable Health Coverage Requirement: Beginning in 2014, employers (other than certain exempt small employers) will be required to make “affordable” health coverage available to all full-time employees or face a “shared responsibility” tax penalty. Future guidance should more precisely define the kind of coverage that must be offered to avoid the penalty. Employers should watch for this guidance, which could require the addition of a low-cost coverage option available to a larger group of employees than are eligible to participate in any current health plans.
- Cadillac Tax: Beginning in 2018, employers offering health plan coverage that exceeds a threshold value (to be determined in future guidance) will face a punitive “Cadillac Tax.” Employers should watch for guidance defining what level of coverage will trigger the Cadillac Tax and prepare to make any appropriate changes to their health coverage options in order to avoid the tax.
The Supreme Court’s decision is likely to be just the first in a string of federal discussions and actions relating to health care reform. The federal debate will now move to the November elections, where the ACA is expected to serve as a key topic for both parties. For the moment, however, it is premature to expect any quick legislative repeal of any of the ACA’s requirements. Employers should operate under the assumption that all provisions of the ACA will go into effect and should plan accordingly to ensure timely compliance.