Common legal questions about the Affordable Care Act from employers Featured

7:51pm EDT December 31, 2012
Common legal questions about the Affordable Care Act from employers

As the Patient Protection and Affordable Care Act (PPACA) implementation unfolds, health lawyers continue to answer employers’ questions about its impact.

“The act has multiple potential penalties for failure to comply with its various requirements. The risk of not complying is a financial risk,” says Jules S. Henshell, of counsel at Semanoff Ormsby Greenberg & Torchia, LLC.

Smart Business spoke with Henshell about what employers need to be aware of as they take their next steps under the PPACA.

What do employers most frequently ask? 

The most frequent questions relate to the ‘pay or play’ penalties in the law. The majority of employers are currently providing health care coverage through group insurance plans. However, it’s too early to determine whether to provide coverage at levels required by the act or pay the penalties because future premium costs and the affordability of employer offerings through health exchanges are uncertain.

Employers also are concerned about reporting health care benefits on W-2 forms, whether they qualify for transitional relief, and the provisions against discrimination in favor of highly compensated individuals.

What’s important to know about W-2 reporting and IRS transitional relief?

In 2012, employers are required to report health care costs to the employer and employee on employee W-2 forms or face a $200 per-form penalty.

The IRS has provided transitional relief from reporting for employers that file fewer than 250 W-2 forms. Some employers question if they are entitled to relief from reporting when their company files fewer than 250 W-2 forms but is one of a number of related companies. The IRS’s informational Q&A suggests that it will not aggregate among related companies to calculate the threshold for reporting.

Whether the W-2 reporting currently applies or not, it’s a good idea to formalize the practice of tracking these health insurance costs to better enable retrieval of information in the future.

How do provisions about non-discrimination impact employers?

The PPACA prohibits discriminatory practices in favor of highly compensated individuals. Prohibited practices include providing benefits to highly compensated individuals that are not provided to other employees as well as affording greater choice, higher amounts, lower premiums, a higher employer subsidy or more favorable benefits. Many companies have used such practices to create competitive compensation packages for executives and management. Penalties include an excise tax or civil monetary penalty or civil action to compel provision of nondiscriminatory benefits.

The IRS, U.S. Department of Labor and U.S. Department of Health and Human Services (HHS) have stated that non-discrimination requirements will not be enforced until the first plan year after regulations are issued. And so far, they have not issued regulations.

Employer health plans with grandfather status are not impacted, but should be conscious of how their status could be jeopardized. Raising co-insurance, significantly raising co-pays and deductibles, lowering employer contributions, and adding or tightening annual limits on what the insurer pays will result in loss of grandfather status. Those without grandfather status need to review their compensation packages and practices in anticipation of future regulation and enforcement.

Do any significant PPACA cases remain?

The most active litigation challenging the PPACA in multiple jurisdictions target the requirement that new, non-grandfathered group insurance plans provide contraceptive coverage. The lawsuits focus on alleged violations of either the First Amendment right to free exercise of religion or the Religious Freedom Restoration Act.

Regulations have granted exceptions for certain religious employers and provided a one-year safe harbor for religiously affiliated institutions that wouldn’t otherwise qualify for exemption. HHS has stated it will provide further accommodations before the end of the safe harbor period.

Jules S. Henshell, of counsel, Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-3754 or jhenshell@sogtlaw.com.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC