Common Questions and Answers for Employers and Group Health Plans
This week marks the six-year anniversary of the Affordable Care Act (ACA). While much of the law is now in effect, questions remain about many of its requirements. Here’s a look at five of the most common questions and answers surrounding the law:
1. Are all 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. 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).
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.
Insured group health plans are not required to comply with certain rules prohibiting discrimination in favor of highly compensated individuals, currently applicable to self-insured plans, until after regulations or other administrative guidance is issued. Health benefits offered as part of a cafeteria plan remain subject to the nondiscrimination requirements of Section 125, and additional testing may apply depending on the types of benefits offered under the plan.
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. An “employer payment plan” is defined as an arrangement under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee. Pursuant to agency guidance, employer payment plans are generally considered group health plans that do not comply with certain ACA market reforms, and therefore may be subject to a $100 per day excise tax per applicable employee under the federal tax code.
5. How does the law impact tax-favored accounts such as HSAs, HRAs, 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 an excepted benefit 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 2016, the limit is $2,550).
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