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Manufacturers should be adjusting their employee benefits strategies under the Patient Protection and Affordable Care Act (ACA) from a compliance and financial perspective.

Navigating health reform

Manufacturers and Health Reform: Complying With Employee Benefits Requirements

  • 6/3/2013
Update 7/8/2013: In July 2013, the Obama administration announced the employer mandate provision of the ACA would be delayed one year and not take effect until January 1, 2015. 


Manufacturers and Health Reform: Complying With Employee Benefits Requirements

Finding and retaining qualified skilled employees continues to be a challenge with many manufacturers. Providing a competitive benefits package while maintaining financial health is a balancing act that needs careful consideration. One of the biggest transformations hitting the manufacturing industry right now is health care reform. Key aspects of reform go into effect January 1, 2014, and many manufacturers will be faced with the choice of offering coverage or paying a penalty. With six months to go before some of the biggest provisions go into effect, manufacturers should be evaluating their employee benefit strategies from a compliance and financial perspective.

Summary benefits and coverage

As plan sponsors, manufacturers were required to provide a Summary of Benefits and Coverage (SBC) document to health plan participants beginning on the first day of the first open enrollment period starting on or after September 23, 2012. The SBC is intended to help consumers better understand group health insurance coverage, and must be given to plan participants and beneficiaries who enroll (or re-enroll) during open enrollment.

The SBC must include uniform standard definitions of medical and health coverage terms; a description of coverage (including the cost-sharing requirements such as deductibles, coinsurance, and copayments); and information about any exceptions, reductions, or limitations under the coverage. Examples of benefits and coverage for common scenarios are also required. A plan sponsor can enter into a contract with the plan administrator to assume responsibility for completing the SBC and distributing it to plan participants.

W-2 reporting

Employers must also report the cost of employer-sponsored health coverage on the annual Forms W-2 of plan participants for calendar year 2012. The purpose of this is to share information to employees about the cost of health coverage. The amount reported includes both the manufacturer’s and the employee participant’s contributions. It is important to explain to employees that this amount is not taxable – this is for information purposes only. Small employers — those required to file fewer than 250 Forms W-2 for the calendar year prior to the reporting year — are not subject to the requirement.

Medical loss ratio rebates

The Affordable Care Act's (ACA) Medical Loss Ratio (MLR) standard requires insurers in the individual and small group health insurance markets to spend at least 80 percent of premium dollars on medical care and quality improvement. This amount increases to 85 percent for insurers serving large groups.

Insurers that do not satisfy the MLR standards must provide rebates to their employer plan sponsors. For individual policies, the insurer must give an MLR rebate to each individual participant/employee. For group policies, the insurer must generally provide the rebate to the manufacturer as the plan sponsor, who, in turn, must ensure that the rebate is used for the benefit of plan participants. This may include temporarily reducing premiums for all participants, or giving cash rebates.

There are also financial implications to consider under reform. ACA mandates responsibilities for employers regarding coverage, including analysis of costs.

Employer mandates

Beginning in 2014, employers with 50 or more full-time employees and full-time equivalents (FTEs) will be subject to penalties if they fail to comply with ACA. Employers are required to offer coverage or pay a penalty if they have full-time employees who would qualify for premium tax credits and other cost-sharing assistance. A full-time employee is defined as someone who works an average of 30 or more hours of service per week or 130 or more hours of service a month. Companies will need to total employee hours worked in a month and divide by 120 to determine whether someone is an FTE. Our colleague Kelly Davis shares a formula for determining if you are a large employer under reform.

Also in 2014, health insurance exchanges will allow millions of individuals and small employers to access and compare insurance plans. These exchanges are also central to determining whether individuals are eligible for Medicaid or premium tax credits to assist in purchasing health insurance coverage. For example, the state of Nevada has developed the Silver State Health Insurance Exchange where individuals can currently calculate their cost for subsidized health insurance.

No coverage penalty (pay or play)

An employer is subject to a penalty of $2,000 per full-time employee (excluding the first 30 full-time employees) if three conditions are met:

  • It does not offer full-time employees the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan
  • At least one full-time employee enrolls in a health plan via a state or federally-established health insurance exchange
  • The full-time employee receives government subsidies to pay the premiums for the health insurance exchange coverage
Unaffordable coverage penalty

This penalty applies if an employer offers full-time employees the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that is either unaffordable or does not provide at least 60 percent minimum value, which means at least 60 percent of the healthcare costs are covered by the plan. Using the Internal Revenue Service safe harbor method, a plan is unaffordable if the full-time employee’s premium payments for self-only insurance coverage are more than 9.5 percent of W-2 income.

If at least one full-time employee enrolls in an exchange and is certified to receive a government subsidy, the manufacturer is subject to a penalty of $3,000 for each full-time employee who enrolls in the exchange and receives a subsidy. The government subsidies are available for individuals whose household income is between 100 percent and 400 percent of the federal poverty level — currently $92,200 for a family of four. Full-time employees whose household income is below 133 percent of the poverty level will be covered by Medicaid, unless the state opts out of this provision of the ACA.

They say that knowledge is power, and this is especially true when it comes to knowing how health reform impacts the owners of manufacturing companies, their business, and their employees. CLA can help you meet the ACA’s annual reporting requirements and manage risk.