CRITICAL REQUIREMENTS UNDER THE NEW HEALTHCARE ACT

On June 28, 2012, the U.S. Supreme Court released its highly anticipated decision upholding the constitutionality of the Patient Protection and Affordable Healthcare Act (the “Healthcare Act”) passed by Congress in 2010.  Now that the Court has spoken, employers should consider the compliance issues required by the Healthcare Act.  Three critical issues for employers are the new W-2 reporting requirements, the Medicare tax, and the affordable coverage requirement.

Under the Healthcare Act, employers must report the cost of coverage for employer-sponsored health plans for each employee on W-2 forms.  For employers with 250 or more employees, this requirement takes effect for 2012, mandating reporting on W-2 forms in January 2013.  For employers with less than 250 employees, this requirement takes effect in 2013, mandating reporting on W-2 forms in January 2014.  Also, effective in 2014 qualifying employers (those employing 50 or more full-time equivalent employees) must file an annual return with the IRS detailing provided health insurance and its associated costs.

Currently, employers and employees pay a combined Medicare tax of 2.9% (1.45% paid by each).  However, the Healthcare Act raises the Medicare tax in 2014 for “High Wage Earners,” defined as employees with wages greater than $200,000.00 (or $250,000.00 for joint filers). Specifically, under the Healthcare Act, employers will be required to withhold an additional 0.9% for High Wage Earners, meaning a total Medicare tax of 3.8%.  With this increased tax, the employer pays 1.45% of the tax, and the “High Wage Earner” employee pays 2.35%.  This increase takes effect in 2014.  Employees who do not qualify as “High Wage Earners” will continue to be subject to the current combined 2.9% Medicare tax.

Finally, the Healthcare Act contains the Affordable Coverage Rule effective in 2014.  This rule requires that qualifying employers provide full-time employees with “affordable” health insurance of a “minimum value.”  If an employer does not provide such coverage, the employer faces a $3,000 penalty for each eligible employee.  To qualify under this rule, an employer must employ 50 or more full-time equivalent employees.  For an insurance plan to have “minimum value,” the plan must pay at least 60% percent of the cost of the medical benefits received.  A plan is “affordable” if the employee’s share of the cost of single coverage cost is no more than 9.5% of the employee’s household income.

These are only a few of the many changes in the Healthcare Act.  Should you have any questions about the Healthcare Act’s new requirements, we suggest you seek advice soon to minimize compliance problems.

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