Here’s something you probably haven’t heard about healthcare reform: It’ll significantly affect your company’s payroll operations.
In fact, there’s probably not an employee in your company who won’t be touched by this legislation in some way. The Patient Protection and Affordable Care Act (HR 3590; P.L. 111-148) and the Health Care and Education Reconciliation Act of 2010 (HR 4872), passed by Congress and awaiting the President’s signature, include:
- a mandate that most Americans get health insurance – or face penalties
- a requirement that employers provide adequate, affordable health insurance – or pay a penalty
- the creation of “exchanges,” state-run marketplaces that allow certain people and their families (and some small employers) to buy insurance with federal subsidies
- new taxes on insurance plans with high premiums, and
- revenue-raising provisions targeting specific health-related industries, such as medical devices.
The good news is that, for the most part, these changes won’t happen for a few years, giving employers a chance to prepare. Here’s a timeline of how payroll operations will be affected, and what must be done to comply with the new law:
Continue certain payroll deductions longer. Employees will be able to keep dependent children on their health plans up to age 26.
Health plans can’t impose:
- preexisting condition exclusions on children, or
- lifetime limits on the value of coverage.
Effective: six months after enactment.
Adjust systems to allow for a bigger income exclusion for qualified adoption assistance. The maximum adoption tax credit and income exclusion for employer-provided adoption assistance increases to $13,170 (indexed for inflation). The Economic Growth Tax Relief Reconciliation Act (EGTRRA) sunset date for adoption assistance is extended to 12/31/11.
Provide data needed to qualify for employer subsidies – specifically, the number of employees on the payroll. There’s a tax credit for company-provided coverage for firms with:
- no more than 25 employees, and
- less than $50,000 in average wages.
The credit equals 35% of an employer’s contribution if it pays at least 50% of the premium. Effective: 2010 – 2013.
Then, the credit equals up to 50% of an eligible small employer’s contribution for coverage bought through state exchanges, a new program designed to help individuals and some smaller firms to buy subsidized insurance. Effective: 2014 – 2015.
New reporting duties. Payroll will report the value of each employee’s employer-provided health coverage, along with other info, on Forms W-2.
Adjust payroll deductions. Employees may decide to set less money aside through their employers’ healthcare spending plans. Beginning next year, employees won’t be able to buy over-the-counter drugs tax-free through a:
- flexible spending account
- health reimbursement account, or
- health savings account.
Deduct more taxes from some. The Medicare portion of the FICA tax increases to 2.35% (up from 1.45%) for those earning more than $200,000 ($250,00 for couples).
Set payroll deductions to reflect new limits on pre-tax contributions to health accounts. Employees will be able to set aside through payroll deduction up to $2,500 (subject to inflation) for health flexible spending accounts.
Provide higher-ups info on head count. In 2014, employers must begin offering a minimum level of health coverage. If an employer offers basic coverage that’s “unaffordable,” the company pays the lesser of:
- $250/month ($3,000/year) for all full-time workers receiving a government subsidy, or
- $166.67/month ($2,000/year) for all full-time workers.
Employers that don’t offer coverage at all will pay a $2,000 penalty per full-time worker – even if just one employee receives a tax credit to buy insurance.
Note that employees are eligible for the government subsidy if:
- employer-provided coverage that has “an actuarial value of at least 60%” is unavailable or
- an employee’s cost exceeds 9.5% of household income.
Start new payroll deductions for employees who’ve been automatically enrolled in larger employers’ health plans. Soon, many workers will be required to get health coverage. In 2014 (possibly earlier, the language in the bill isn’t clear) employers with more than 200 employees will automatically enroll anyone without insurance in the company health plan.
As with many other auto-enrollment plans (think retirement), workers may opt out of the plan and then either:
- get coverage on their own (and show proof of doing so), or
- pay an individual penalty.
Employees who can’t prove a minimum level of coverage will have to pay the government a penalty.
The amounts will increase over three years, ranging from:
- 2014 – $95 per year or 1% of income, and
- 2016 – $695/year or 2.5% of income.
Families won’t pay more than $2,085.
Of course there are always exceptions:
- American Indians are exempt from buying insurance.
- Anyone willing to pay more than 8% of their income for the cheapest plan won’t pay the penalty.
- Those exempt or under age 30 can buy a catastrophic medical cost policy only.