Health Care Reform

Small Business Tax Credits

Who is eligible for the tax credits?

Employers may be eligible for the tax credits if they:

• have fewer than 25 employees;
• have average annual wages of less than $50,000; and
• contribute at least 50 percent of the total premium cost for each enrolled employee.

Employers should check with their tax advisor for tax advice.

Do I qualify for the tax credits?

The Health Care Reform Act provides tax credits to small businesses that offer health insurance to their employees and meet the criteria listed in Question 1. Information available on www.irs.gov can help you find out if you may qualify. However, we recommend that you consult your tax advisor for assistance in performing the calculations needed to file for the credit.

How do I receive the tax credits?

Non tax-exempt employers eligible for the tax credits can take the credits on their annual income tax returns. The mechanism by which tax-exempt organizations will receive the credit has not been identified; further guidance is forthcoming from the IRS.

Can I use tax credits to offset my payroll taxes?

Tax credits cannot be used to offset payroll taxes for non tax-exempt organizations. Tax-exempt businesses can receive the credit it based on their Medicare and employee income tax withholding, although the IRS has not yet provided specific guidance on how this credit will be administered.

Does an employer have to contribute 50 percent of the employees' premium?

Yes, however, the contribution requirement of at least a uniform 50 percent of the employees' cost is based on the premium for single coverage only. When an employee has family coverage, the requirement is met if the employer pays at least 50 percent of what single coverage would have cost for the employee.

What does full-time equivalent mean?

Full-time equivalent (FTE) refers to either a full-time employee or more than one part-time employee as fractions of a single full-time employee. For example, you have two part-time employees each working 20 hours per week in a company where 40 hours is considered full-time. In this example, each part-time employee works 50 percent of a full-time employee. So, together the two part-time employees are the equivalent of one full-time employee. The IRS has issued guidance on how to calculate FTE including how to determine number of hours. Please refer to the following link:

http://www.irs.gov/pub/irs-drop/n-10-44.pdf

For a small business that has less than 25 employees, are all employees counted for the purpose of determining full-time equivalent or are there exceptions?

There are exceptions. For example, the calculation won't include business owners and their family members. The IRS includes the following in its definition of a family member: parent/step parent, child/step child, sibling/step sibling, aunt, uncle, niece, nephew, or in-laws. Further details can be found at:

http://www.irs.gov/newsroom/article/0,,id=223577,00.html

How often may an employer be eligible for the small business tax credits?

Eligibility for small business tax credits is determined annually through 2013 and is based on tax year full-time equivalents and wages. Employers must apply each year. In 2014, the credit increases, but it is limited to two consecutive years.

Where does a staffing agency fall as far as large or small employer if they have over 100 employees "active" but not all of them work every month?

Consult your legal counsel. There is no specific guidance from the IRS on staffing agencies. Keep in mind different provisions interact separately for valuing how to count employees.

We are a Paychex HR Solutions client; can we apply for the small business credit if we use Paychex' tax ID to report wages?

Shortly after the release of the bill, Senators Nelson (D-FL), Baucus (D-MT), and Grassley (R-IA) provided a communication regarding the intent of the Small Business Tax Credit as it pertained to clients of professional employer organizations (PEOs), such as Paychex HR Solutions. The communication stated that this credit should be made available to clients of the PEO. Based on this communication, it is our understanding that clients will be able to receive this tax credit; however, further clarification is needed regarding exactly how this credit will be applied. We are continuing to monitor this situation and will notify clients as more information is available.

Does health care reform affect employers who have less that 25 employees and currently do not pay any health insurance premiums?

There are additional reporting requirements (notably Form W-2 reporting), as well as notice requirements that most employers will be subject to, although the IRS has not yet provided specifics. The tax credits are also available for small employers as incentives for offering insurance.

How is turnover accounted for in counting full-time equivalents?

Per IRS guidance, the number of an employer's full-time equivalents is determined by dividing (1) the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. Certain employees are excluded from the count. See IRS FAQs for additional clarification at http://www.irs.gov/newsroom/article/0,,id=220839,00.html.

One of our companies within a group plan has less than 25 employees and less than $50,000 in average annual wages. They participate in a plan that is a group plan with at least five companies due to common ownership, but each entity files its own tax return. Would they qualify for the tax credit?

Per IRS guidance, members of a controlled group (e.g., businesses with the same owners) or an affiliated service group (e.g., related businesses of which one performs services for the other) are treated as a single employer for purposes of the credit. For example, all employees of the controlled group or affiliated service group and all wages paid to employees by the controlled group or affiliated service group are counted in determining whether any member of the controlled group or affiliated service group is a qualified employer. Consult your tax advisor to determine if you meet the IRS definition of a controlled or affiliated group.

Where do we access the state average insurance premium listing for each state?

The average premium per state is published on the IRS Website. It was released under IRS Revenue Ruling 2010-13. You can access it here: http://www.irs.gov/pub/irs-drop/rr-10-13.pdf.

If an employer chooses to reimburse employees for a portion of their individual contracts instead of forming a group, can this employer claim a tax credit?

No guidance is available at this time from the IRS.

If an employee does not participate in the employer-provided health plan, should the employee be counted in the FTE calculation for purposes of the tax credit?

For the purpose of the tax credit, the total number of full-time equivalent employees for the tax year is counted regardless of whether or not they are participating in the health coverage.

Are an owner's wages included in the calculation of FTE for purposes of the tax credit?

Generally, a sole proprietor, a partner in a partnership, a shareholder owning more than 2 percent of an S-corporation, and any owner of more than 5 percent of other businesses are not considered employees for purposes of the credit. The wages or hours of these business owners and partners are not counted in determining either the number of full-time equivalents or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit.

If eligible for credit, can an employer apply it to previous or future years' tax liability?

For non tax-exempt organizations, the credit for a year offsets only an employer's actual income tax liability (or alternative minimum tax liability) for the year; however, as a general business credit, an unused credit amount can generally be carried back one year and carried forward 20 years. An unused credit amount cannot be carried back to a year before the effective date of the credit, so any unused credit amount for 2010 can only be carried forward.

If an employer is tax-exempt, can the employer receive a refund?

For a tax-exempt employer, the credit is a refundable credit, so even if the employer has no taxable income, the employer may receive a refund (as long as it does not exceed the income tax withholding and Medicare tax liability).

How will the credit work for flow-through entities such as S-corps?

Please consult your tax advisor for guidance.

Is the credit available for employee salaries at the $40,000 level?

The credit is based on average salary for the company not on an individual level. The amount of average annual wages is determined by first dividing (1) the total wages paid by the employer to employees during the employer's tax year by (2) the number of the employer's full-time equivalents for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000). For this purpose, wages means wages as defined for FICA purposes (without regard to the wage base limitation). Certain employees are not counted as employees for purposes of determining the amount of average annual wages. For more information see IRS FAQs at: http://www.irs.gov/newsroom/article/0,,id=220839,00.html.

Grandfathering Plans

What is a grandfathered plan?

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

If I change the waiting period or employer contribution of my grandfathered plan, will that affect the grandfathered status of my plan?

On Monday, June 14, the U.S. Department of Health and Human Services, Department of Labor, and Department of the Treasury issued interim final rules that address what changes can be made to health insurance coverage or a group health plan without causing it to lose its "grandfather" status. According to the rule, the following changes will cause a loss of a plan's grandfather state:

• Eliminating all, or a substantial number of, benefits to diagnose or treat a particular condition
• Increasing a coinsurance or other percentage-based, cost-sharing requirement above the level at which it was set on March 23, 2010
• Increasing an annual deductible or out-of-pocket limit by a total percentage — measured from March 23, 2010 — that exceeds the sum of the medical inflation rate plus fifteen percentage points
• Increasing a co-payment by an amount that exceeds the greater of (1) the amount just described for other fixed-amount, cost-sharing requirements, or (2) $5.00 increased by the medical inflation rate since March 23, 2010
• Decreasing the rate of employer contributions by more than five percentage points below the rate that was in effect on March 23, 2010
• Adopting or decreasing an annual benefit limit with the specific rules depending on whether the plan had already imposed an annual or lifetime limit as of March 23, 2010

What are the repercussions to an employer for losing "grandfathered" status?

A grandfathered health plan is exempt from many of the requirements under health care reform, including: non-discrimination rules; establishment of new appeals procedures; and cost-sharing limits. If a plan loses its grandfather status, the plan will need to meet all the new requirements created for group health plans.

If an employer is currently not paying 50 percent of the employee group coverage and passing along the majority of the cost of the premium to the employees, do they need to disclose that for purposes of grandfathering the plan?

On June 14, guidance was issued relative to grandfathered plans. Included in the regulations was a requirement that in order to maintain grandfather status, an insurer or plan must include a statement in any plan materials that describes the benefits provided under the plan, that it is "believed" that the plan meets the requirements of a grandfathered plan, and contact information for questions or complaints. The guidance also provided model language that can be used to satisfy this disclosure requirement.

We changed health care plans on May 1, 2010. Would we be considered grandfathered?

On June 14, 2010, guidance on grandfathered health plans was issued to identify that certain plan changes would cause a plan to lose its grandfather status. If a plan loses grandfather status, it will be required to follow many of the new requirements under health care reform to which it was previously exempt. These changes include significantly raising deductibles and cutting benefits, as well as changing insurance companies.

The Department of Labor's Employee Benefits Security Administration has posted the following information related to grandfathered health plans under the Affordable Care Act:

• Fact Sheet, available at: http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html
• FAQs, available at http://healthreform.gov/about/grandfathering.html

Group health plans and insurers are required to implement an "effective appeals process" for appeals of coverage determination and claims, including both internal and external appeals.

Internal appeals requirements include:

1. providing notification to employees of the available internal and external appeals process and the availability of consumer assistance or an ombudsman to assist with the process; and
2. allowing enrollees to review their files, to present evidence and testimony as part of the process, and to receive continued coverage pending the outcome of the appeal.

The requirement for the external appeals process can be satisfied by either:

• complying with the applicable state external review process; or
• establishing a process that meets the minimum standards set by the U.S. Department of Health and Human Services, and is similar to the applicable state requirements if the state has not issued guidance or if the plan is self-insured and therefore not subject to state regulation.

This is effective September 23, 2010, and does not apply to grandfathered plans.

Non-Discrimination

What is an HCE?

An HCE refers to a highly compensated employee who meets one of the following criteria: is one of the five highest paid officers of a company, is a shareholder of more than 10 percent of a company's stock (with the application of attribution under section 318), or is one of the highest paid 25 percent of all of a company's employees. Discrimination in favor of a company's HCEs is prohibited under insured plans.

Does the non-discrimination provision mean that a corporation cannot pay 100 percent for owners and management if it does not pay 100 percent for all employees?

Beginning for plan years on, or after, September 23, 2010, health plans satisfy the non-discrimination requirements if: (1) the plan does not discriminate in favor of highly compensated employees as to eligibility to participate based on certain criteria under the code; and (2) the benefits provided under the plan do not discriminate in favor of participants who are highly compensated employees.

What are the potential penalties for highly compensated employees?

The value of amounts that a discriminatory plan pays or covers for highly compensated employees is taxable to those employees. Additionally, under the Health Services Act, which was amended by the Health Care Reform Law, a $100.00 per day excise tax for each highly compensated employee (to whom the failure relates) may apply.

Can an employer have two different types of coverage so all employees have access to all plans but a certain (large) group of employees have higher employer contribution?

An employer still wants to ensure that plans do not discriminate in favor of highly compensated employees within the various classifications.

FSA, HSA, and HRA

What items are reimbursable without a prescription under my medical FSA?

Over-the-counter medicines and drugs, such as cough and cold medicine, pain relief treatment, and allergy and sinus medication, will require a prescription from a medical professional to be covered. Other items not considered a drug or medicine, such as bandages, contact lens solution, and crutches, will remain eligible for reimbursement without a prescription.

When referring to non-reimbursed plans for HSA accounts, does the HSA not pay for over-the-counter medications as of next year?

As of January 1, 2011, over-the-counter medicines or drugs (other than insulin) will no longer be eligible under a health FSA, HSA, or HRA unless they were prescribed by a medical practitioner. This would include expenses such as aspirin, over-the-counter cold or allergy medicine, or cough suppressants. It is important to stress that they are still eligible; however, participants need a prescription to accompany the purchase of these items.

Can the medical FSA cap be set at less than $2,500?

Medical FSAs will be capped at $2,500 beginning in 2013 and indexed for inflation thereafter. Employers must observe the cap; however, the maximum can be set at less than $2,500. This must be outlined in the plan documentation.

Young Adult Coverage

Does the provision for coverage of dependents up to age 26 include their children or spouses?

Coverage of dependents up to age 26 does not extend to a spouse or a child of the adult child dependent.

When is the provision to provide coverage for dependents up to age 26 effective?

Effective September 23, 2010, or January 1, 2011, for calendar year plans, employers who already offer insurance coverage for dependents must provide coverage for dependent children up to age 26 under group and individual policies. Grandfathered plans are not required to provide coverage to dependents that do have access to an employer-provided health care plan until after January 1, 2014.

Will the provision for coverage of dependents up to age 26 cause insurance rates to increase?

The law prohibits insurers from raising rates based on the age of the dependents. According to regulations released by the U.S. Department of Health and Human Services, policy holders with dependents will generally see an across-the-board increase in premiums of 0.7 percent in 2011, which will likely be followed by a 1 percent increase each year for the next two years. This is in addition to regular annual insurance rate increases.

Can plans open up and give adult child dependents coverage now, or do the plans have to wait until September 23, 2010, or January 1, 2011?

They don't have to wait. A plan can bring on adult child dependents early. Some carriers have chosen to do so, but it is also up to the employer to agree to allow the adult dependent child to be covered. Participants should consult with their employer to see if coverage will be offered. It should also be noted that employers that currently do not offer health care to dependent children will not be under any obligation to do so until January 1, 2014.

If the dependent was enrolled and then dropped at age 23, can he re-enroll for coverage up to 26?

There are special enrollment provisions for children that either lost coverage or had been denied coverage because of their age but are now eligible for coverage under the adult child rules. Eligible dependents must be provided a written notice detailing their enrollment rights, as well as a 30-day special enrollment period during which they elect coverage. These must be provided no later than the first day of the plan year beginning on, or after September 23, 2010 (January 1, 2011, for calendar year plans). The effective date of this coverage will be the first day of the plan year in which the dependent is enrolling.

Is it mandatory for dependents age 18-26 to be enrolled under their parents' health care plan or can they still enroll on their own?

The adult dependent provision does not require that dependents remain enrolled under their parents' plan.

Does the provision for coverage of dependents up to age 26 affect all businesses?

Employers that provide dependent coverage under the group health plan must continue to provide coverage to adult children until they reach age 26.

Does the provision for coverage of dependents up to age 26 apply if a 26-year-old files his own taxes and is not considered a dependent of an employee?

This adult dependent coverage is dependent upon a parent-child relationship existing between the dependent and the participant. It cannot be dependent upon any other factors, such as tax-dependent status, financial dependency, or residency. The only exception permissible is that before January 1, 2014, grandfathered plans are not required to provide coverage if the dependent is eligible for coverage under an employer-sponsored health plan (such as through their own job).

Are employers required to cover any full-time employee's adult child if requested by the employee?

Employers that provide dependent coverage under the group health plan must continue to provide coverage to adult children until they reach age 26; however, there is not a requirement for an employer to provide dependent coverage under their group health plan.

We already cover dependents up to age 25. What will we need to do when it changes and we need to cover until age 26?

Some carriers are currently providing coverage. So, you may have a choice if you wish to offer coverage earlier than your next plan year, on or after September 23, 2010. If you do want to offer coverage before that plan year, consult your carrier(s) to see if they are offering this early coverage. If so, allow them to walk you through the enrollment process. Otherwise, if you are going to offer coverage beginning at your next open enrollment, on or after September 23, 2010, the dependent child may be enrolled on the health care application as any other dependent child; however, keep in mind that the dependent cannot have healthcare available from his employer.

How does the age 26 regulation change when the adult dependent is eligible for other coverage?

Plans that offer dependent coverage must make that coverage available until the child reaches age 26. This applies to married and unmarried children, as well as children that have other coverage available to them. The only exception is for grandfathered plans, which are not required to continue coverage if the child has access to coverage through his employer; however, this exception will no longer apply beginning 2014.

What happens in the year a dependent turns 27?

Under the federal law, adult dependent coverage only applies until the date the dependent reaches age 26; however, some plans may allow for coverage to continue beyond the dependent's 26th birthday. If coverage extends beyond the dependent's birthday (for example through the end of the plan year), the value of the coverage can continue to be excluded from the employee's income for the full tax year in which the child reached age 26. In addition, some states may require that adult dependent coverage continue beyond age 26. (Please check with your state's department of insurance to see if your state has such a requirement.) Once the dependent ages off the plan, he or she may be eligible to continue coverage through federal COBRA or state continuation regulations.

We charged imputed income for adult dependent coverage. Do we have to refund the April imputed amounts?

If you are speaking of tax you withheld because this imputed value before March 30 was taxable for federal income tax, then for federal purposes (only as of March 30) adult children who have not reached the age of 27 by the end of the tax year have the value of their health coverage tax-free; however, keep in mind that this may not apply at the state level, so imputed income may need to be reported and tax withheld and paid at the state level.

I am a young adult under the age of 26, and I am on my parents' plan now. I am scheduled to lose coverage soon. How can I keep my health insurance?

You have a number of options. First, check with your insurance company. Private health insurance companies that cover the majority of Americans have volunteered to provide coverage for young adults losing coverage as a result of graduating from college or aging out of dependent coverage on a family policy. This stop-gap coverage, in many cases, is available now.

Second, watch for open enrollment. Young adults may qualify for an open enrollment period to join their parents' family plan or policy on, or after, September 23, 2010. Insurers and employers are required to provide notice for this special open enrollment period. Watch for it or ask about it.

Finally, expect an offer of continued enrollment for plans that begin on, or after, September 23, 2010. Insurers and employers that sponsor health plans will inform young adults of continued eligibility for coverage until age 26. Young adults and their parents need not do anything but sign up and pay for this option.

I work in New York and there is a provision that indicates that dependents up to the age of 29 can be added to an insurance plan. Does the federal or state regulation take precedence?

The requirements for adult dependent coverage in New York apply to individual and group policies that provide dependent coverage, are issued in New York state and subject to New York state laws, and are fully insured plans. In addition, the young adult must meet certain eligibility requirements. (Information on adult dependent coverage can be found on the New York State Department of Insurance Website at: http://www.ins.state.ny.us/faqs/faqs_S6030_Age29_make.htm). The adult dependent coverage requirements apply to all group health plans and individual health insurance policies that provide dependent coverage. The only exception is for grandfathered plans that are not required to extend coverage if the adult dependent has access to other group coverage provided by their employer until 2014. The determination of which rule will apply will be based upon your specific plan.

Reporting Value of Insurance Plans on Employee Forms W-2

How will Paychex collect the information to report the aggregate cost of employer-sponsored health coverage on employees' W-2s for 2011?

For payroll clients, Paychex will provide for the proper reporting of the total value of health coverage. The IRS has not yet provided specific guidance regarding the W-2 reporting requirement; Paychex is closely monitoring the issue and will communicate more details once we have more information from the IRS.

For clients who purchase health insurance coverage through Paychex Insurance Agency, we will be able to report the value of premiums of the plans we administer, and we are investigating possibilities for transferring the appropriate amounts to Forms W-2 at year-end.

Who is responsible for reporting insurance value on Forms W-2?

Employers are required to report the aggregate value of the benefit they provide for all health insurance coverage, excluding coverage for stand alone vision and dental plans and salary reduction contributions under health FSAs, on employees' Forms W-2.

What is the Cadillac Plan Tax?

Effective January 1, 2018, plan administrators or insurers will be charged a 40 percent excise tax if the total value of the employer-sponsored health insurance coverage is above $10,200 for single coverage or $27,500 for family coverage. For high-risk professions and qualified retirees, the figures change to $11,850 for single coverage and $30,950 for family coverage. Note that the IRS has not finalized the regulations on this provision.

What constitutes the total value of the employer premium that must be reported on the Form W-2?

Form W-2 must include the combined cost of the employer-sponsored health coverage taking into account both the amount the employer pays and the amount the employee pays. The value will then be determined under rules similar to COBRA. The aggregate cost will specifically exclude stand alone vision and dental plans and salary reduction contributions under a health FSA. The IRS will be issuing further guidance.

Is reporting the value of insurance on Form W-2 informational or a taxable component?

The Form W-2 provision for reporting the total value of health insurance is informational and does not change the taxability.

Does the W-2 Reporting Requirement mean that the value of health insurance will be taxable to employees?

The Health Care Reform Act includes a provision that all employers must report the total value of employer-sponsored insurance coverage, excluding salary reduction contributions under medical flexible spending accounts (FSAs), on employees' Forms W-2 beginning with tax year 2011.

There is much speculation in the public and political arena about how this information will affect taxable income and corresponding taxes paid by employers and employees. Paychex closely monitors health care reform developments, and currently, there is no indication or reason to believe that this reporting requirement is an indicator that insurance coverage will be taxed simply because it's reportable on Form W-2.

Certain employer contributions to discriminatory health plans may result in taxable income to the employee; however, this is not a result of the W-2 reporting requirement included in the Health Care Reform Act. Neither the Secretary of Health and Human Services nor the Internal Revenue Service (IRS) has provided specifics regarding the W-2 reporting requirement for 2011.

Paychex will continue to monitor this issue and will provide details as we receive additional information from the IRS.

In 2011 when we have to start including the cost of the insurance premium we pay for an employee (currently 100%), will it be subject to social security and Medicare tax by the employer and employee?

Neither the Secretary of Health and Human Services nor the Internal Revenue Service have provided guidance on the Form W-2 reporting requirement, which is effective for tax years beginning after December 31, 2010; however, we know of no indication nor have reason to believe that the reporting requirement is an indicator that the value of employer-sponsored insurance coverage will be taxable simply by virtue of being employer-sponsored coverage reportable on the Form W-2. Certain employer contributions to discriminatory health plans may result in taxable income to the employee; however, such treatment is not a result of the Form W-2 reporting requirement of PPACA. Tax structure for employee and employer contributions for the most part have not changed under the new law. The only notable exception was the expansion of the tax exclusion of adult dependents to the age of 27 under section 125 plans. This change allows more dependents covered under their parents' employer's section 125 plan to be excluded from tax contributions, essentially reducing tax liability.

Will employees be required to pay federal, state, or local tax against the value of their health insurance?

Neither the Secretary of Health and Human Services nor the Internal Revenue Service have provided guidance on the Form W-2 reporting requirement, which is effective for tax years beginning after December 31, 2010; however, we know of no indication nor have reason to believe that the reporting requirement is an indicator that the value of employer-sponsored insurance coverage will be taxable simply by virtue of being employer-sponsored coverage reportable on the Form W-2. Certain employer contributions to discriminatory health plans may result in taxable income to the employee; however, such treatment is not a result of the Form W-2 reporting requirement of PPACA. Tax structure for employee and employer contributions for the most part have not changed under the new law. The only notable exception was the expansion of the tax exclusion of adult dependents to the age of 27 under Section 125 plans. This change allows more dependents covered under their parents' employer's section 125 plan to be excluded from tax contributions, essentially reducing tax liability.

Will employees be taxed on both the employee and employer cost of the health insurance plan?

Neither the Secretary of Health and Human Services nor the Internal Revenue Service have provided guidance on the Form W-2 reporting requirement, which is effective for tax years beginning after December 31, 2010; however, we know of no indication nor have reason to believe that the reporting requirement is an indicator that the value of employer-sponsored insurance coverage will be taxable simply by virtue of being employer-sponsored coverage reportable on the Form W-2. Certain employer contributions to discriminatory health plans may result in taxable income to the employee; however, such treatment is not a result of the Form W-2 reporting requirement of PPACA. Tax structure for employee and employer contributions for the most part have not changed under the new law. The only notable exception was the expansion of the tax exclusion of adult dependents to the age of 27 under section 125 plans. This change allows more dependents covered under their parents' employer's section 125 plan to be excluded from tax contributions, essentially reducing tax liability.

If a small employer doesn't offer group health insurance but pays accident insurance, does that premium need to be reported on the Form W-2?

Plans in which coverage costs must be reported on Form W-2 include medical, prescription, executive physicals, on-site clinics (if they provide more than de minimus care), Medicare supplemental policies, and employee assistance programs. The cost of coverage of stand-alone dental and vision plans and specific disease or hospital/fixed indemnity plans is excluded from the reporting requirement.

What premiums need to be included on the Form W-2?

Employer-sponsored coverage under the Form W-2 reporting requirement generally includes (but is not limited to): major medical coverage; amounts an employer contributes to a health reimbursement account (HRA); Medicare supplemental coverage; employer-provided Medicare Advantage plans; and limited benefit plans. Coverage under dental and vision plans are also included unless they are "stand-alone" plans.

Does Form W-2 recording apply to all employers?

Yes, but not until tax year 2011.

Does the Form W-2 insurance premium reporting begin for the 2010 Form W-2 or 2011?

The Form W-2 reporting requirement is effective for calendar years starting January 1, 2011. The aggregate cost of employer-sponsored health coverage will need to be included on the 2011 Form W-2, which must be released by January 31, 2012.

Does insurance still need to be reported on Forms W-2 if a section 125 is in place?

Whether group health insurance premiums are deducted from an employee's pay on a pretax or post-tax basis does not affect whether it needs to be reported on the Form W-2. According to the new health care reform law, the combined cost of employer-sponsored health coverage must be included on the employee's Form W-2. This combined cost specifically excludes salary reduction contributions under a section 125 health FSA, not the premiums under the premium portion of the section 125.

CLASS Act

What is the CLASS Act?

What is the CLASS Act?

The Community Living Assistance Services and Supports Act (CLASS Act) is effective January 1, 2011. It is a national voluntary insurance program intended to offset the cost of long-term care for the elderly and disabled. The CLASS Act will be funded by premiums. Cash benefits will be paid to enrollees who have paid premiums for at least five years, worked at least three of those years, and meet a functional or cognitive "trigger." Enrollees will receive a minimum of $50.00 each day and will continue as long as the qualified participant needs them with no lifetime limit on the amount paid. Cash benefits can be applied to nursing home care or used for wheelchair ramps and wages for home health care aides in an effort to keep enrollees in their own homes.

What rewards are available to employees for participating in a wellness program?

Beginning 2014, employees may be eligible for incentives of up to 30 percent of the cost of their premiums for their employer-sponsored health insurance for participating in workplace wellness programs and meeting established standards. Currently, the maximum percentage allowed is 20 percent, and the 30 percent may be increased to 50 percent, if deemed appropriate.

What incentives are available to employers for establishing wellness programs?

Small group employers, with less than 100 employees working 25 hours or more a week, who did not have an established workplace wellness program on March 23, 2010, may be eligible for grants to create a program. These grants are being offered by the U.S. Department of Health and Human Services. At this time (June 16, 2010), criteria and application procedures have not been issued.

Will the CLASS Act replace long-term care insurance?

Private long-term care insurance will still be available.

Is the CLASS Act program only available to employers or will individuals be able to participate?

If an employer chooses not to offer the CLASS Act program to their employees, employees may participate in the CLASS Act program through an alternate payment method that will be established by the Secretary of Health and Human Services. We are still awaiting guidance on payment methods.

Miscellaneous Health Care Reform FAQs

Can employers contribute more towards the premiums for lower compensated employees?

Yes.

What is the penalty for individuals who do not obtain health insurance coverage?

Beginning in 2014, individuals will be required to maintain a minimum level of essential coverage. Failure to maintain this monthly minimum level of coverage will result in penalties. The monthly penalty is 1/12th of the greater of:

• 2014 - $95 per uninsured person or 1% of household income over the filing threshold,
• 2015 - $325 per uninsured person or 2% of household income over the filing threshold, and
• 2016 - $695 per uninsured person or 2.5% of household income over the filing threshold.
• After 2016 – the penalty will be increased annually based upon the cost of living

Exceptions to the individual mandate include: financial hardship; religious objections; American Indians; individuals having less than three months of coverage; incarcerated individuals; undocumented immigrants; individuals who cannot afford coverage (required contributions toward coverage exceed 8 percent of household income); and taxpayers with income below the tax filing threshold.

What is the penalty for employers who do not provide health insurance coverage?

There is no penalty for not providing insurance; however, effective 2014, there is a free-rider provision for employers with 50 or more full-time equivalent employees. Employers that have an employee receiving subsidies through the exchange will need to pay a penalty that is assessed on a monthly basis. The fee is different for those that offer insurance and those that do not. For those that do not offer insurance, the employer pays a fee of $2,000 for total full-time employees (minus the first 30 employees). For those that offer coverage but have employees receive subsidies through the exchange, they pay the lesser of the $2,000 per full- time employee (minus the first 30 employees) or $3,000 per employee receiving a subsidy through the exchange.

What happens if an employer chooses not to provide health insurance coverage and accepts the penalties the government imposes?

Refer to question 5 in this section.

What are free choice vouchers?

An employer that offers health coverage and pays a portion of the coverage is obligated to provide "free choice vouchers" to certain eligible employees including those (a) whose required contribution for health coverage is more than 8 percent but less than 9.8 percent of that employee's household income, (b) whose income is below 400 percent of the poverty level, and (c) who do not participate in the employer's health plan. The payment equals the value of the monthly cost of coverage which would have been paid by the employer (for either self or family coverage, depending on what the employee elects). Any excess amount of the "free choice voucher" over the cost of coverage for the employee that purchases in the exchange is paid to the employee as wages. This is effective January 1, 2014.

What type of notice are employers required to provide to employees relating to material modifications of health insurance plans?

Plans must provide no less than 60 days notice before a material modification of the health insurance plan takes effect. There is a fine of not more than $1,000 per day per enrolled individual for failure to provide this notice in the timeframe prescribed.

What is the early retiree subsidy program?

The early retiree subsidy program, effective through January 1, 2014, is a temporary reinsurance program that will help offset costs of coverage for companies that provide early retiree health benefits for those ages 55 and older who are not eligible for Medicare. It reimburses 80 percent of the cost between $15,000 and $90,000 of these employment based plan amounts adjusted each year for the consumer price index. Payments from the reinsurance program must be used to lower costs for the enrollees in the employer's plan. There is $5 billion appropriated for this provision so funds are limited. The Secretary of the U.S. Department of Health and Human Services can stop taking applications for the reimbursement if funds run out. There is guidance and application information on the U.S. Department of Health and Human Services site, http://www.hhs.gov/ociio/regulations/index.html.

When is the provision to limit any waiting periods for coverage to 90 days effective?

The provision is effective for plan years beginning on, or after, January 1, 2014.

If I have an employee who is covered under a spouse at another employer, will she still be forced to obtain coverage through us?

If your employee has qualifying coverage through another employer or through their spouse, you are not required to offer duplicate coverage, nor do you have to provide them with an uncompensated premium co-pay for the other plan.

Is Paychex now offering insurance?

Paychex Insurance Agency offers a wide array of coverage from many different insurance carriers as an agent; however, neither Paychex nor Paychex Insurance Agency is acting as an insurer.

Will there be a time in the future when all full-time and part-time employees must be covered by insurance?

We cannot speculate on what might happen in the future.

Will all employees be required to elect health insurance through their own employer, or can they elect health insurance through their spouse's employer, or from another source?

Employees will be allowed to select the coverage that best suits their needs from all options available to them. They will not be obligated to take the coverage offered by their employer.

I am in the construction industry. Is the industry still required to provide insurance with 5 or more employees?

The new health care reform law as passed on March 23, 2010, mandated that construction companies with five or more employees (as opposed to 50 or more employees as required for all other industries) provide health coverage for its employees. However, this stipulation was repealed on March 30, 2010, with the Healthcare and Education Reconciliation Act of 2010 and the construction industry is now treated the same as other industries.

What is cost-sharing?

Cost-sharing refers to the amount you pay towards your health care, such as co-pays, deductibles, or coinsurance. It does not include premiums, balance amounts for out of network providers, or costs for non-covered items or services.

Does the 100/200 employee limit for "safe harbor" apply to full-time equivalents or to total number of employees?

The new law does not specify within its definition of an eligible employer if it is the total number of full-time equivalent employees or total number of employees employed. We anticipate additional guidance from the Department of Health and Human Services to be released at a future time as it relates to Simple Cafeteria Plans.

For non-grandfathered plans, what is the employee appeals process?

Group health plans and insurers are required to implement an "effective appeals process" for appeals of coverage determination and claims, including both internal and external appeals.