General FAQs for Employers
Q: I've heard a lot about the health care reform law over the past few years. When do the reforms go into effect?
A: The health care reform law, the Affordable Care Act (ACA), was signed into law by President Obama in March 2010. The changes made by ACA take effect over a period of years. Some of the law’s changes are already in effect, such as the prohibition on pre-existing condition exclusions for individuals under age 19. Other changes will become effective in the future. For example, the requirement that large employers provide a certain level of health coverage to full-time employees and their dependents or pay a penalty goes into effect in 2014.
Q: Does health care reform allow people to keep their current health coverage?
A: Yes. Nothing in the law requires individuals to terminate the coverage that they have. However, due to the law’s health care reforms, the coverage provided under a health plan may undergo changes. If an employer’s health plan existed on March 23, 2010, and the employer has not made certain changes to the plan, the plan may have grandfathered status. Grandfathered plans are subject to many, but not all, of the health care reform law’s requirements.
In addition, beginning in 2014, ACA requires most individuals to obtain acceptable health coverage or pay a penalty. The penalty will start at $95 per person for 2014 and increase each year.
Q: Am I required by law to offer health coverage to my employees?
A: The health care reform law does not require companies to offer health coverage to their employees. However, beginning in 2014, large employers will subject to ACA’s “pay or play” rules. A large employer is one with 50 or more full-time employees, including full-time equivalents (FTEs).
Under the pay or play rules, large employers that do not offer health coverage to full-time employees and their dependents will be subject to a penalty if any of their full-time employees receives a tax credit or cost-sharing reduction for health coverage through an insurance exchange.
Also, large employers will be subject to a penalty under ACA’s pay or play rules if they offer health coverage and any full-time employee still receives a tax credit or cost-sharing reduction for coverage through an insurance exchange. This can occur if the employer’s coverage is unaffordable or does not provide minimum value.
These penalties will not apply to employers that had fewer than 50 full-time equivalent employees on business days in the prior calendar year.
Q: What are the penalty amounts for large employers that don't offer coverage?
A: Large employers that do not offer health coverage to full-time employees will be subject to an annual penalty of $2,000 per full-time employee, excluding the first 30 employees, if any of their full-time employees receives a tax credit or cost-sharing reduction for coverage through an insurance exchange.
Q: What are the penalty amounts for large employers that offer coverage and have employees who receive subsidized coverage through an exchange?
A: These employers are subject to a penalty of $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction for coverage through an exchange. The maximum penalty is the amount equal to $2,000 times the number of full-time employees, excluding the first 30 employees.
Q: What is a "grandfathered plan"?
A: A grandfathered plan is a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of the health care reform legislation (March 23, 2010). Some of the health care reform provisions affecting health plans do not apply to grandfathered plans. A plan can still be a grandfathered plan if it allows new employees, or family members of current employees, to enroll after the date of enactment.
Q: How does health care reform affect grandfathered plans?
A: Grandfathered plans are exempt from certain insurance market reforms and coverage mandates included in the health care reform legislation and have delayed compliance dates for other provisions. Grandfathered plans are not required to:
- Cover preventive care services without cost-sharing (for example, deductibles, co-payments or coinsurance);
- Permit selection of any available participating primary care provider;
- Comply with limits on preauthorization requirements and cost-sharing for emergency services;
- Satisfy nondiscrimination rules for fully-insured plans;
- Implement an improved internal appeals process and meet minimum requirements for external review; or
- Meet guaranteed issue or renewal of coverage mandates.
However, some of the health coverage reforms apply to grandfathered plans as well as non-grandfathered plans. These reforms include prohibitions on lifetime and annual limits, pre-existing condition exclusions, rescissions of coverage and excessive waiting periods. Grandfathered plans must also comply with the rules regarding coverage of adult children up to age 26 and provision of a Summary of Benefits and Coverage.
Also, grandfathered plans are not exempt from other ACA reforms, such as the requirement to include the value of coverage on each employee’s Form W-2 (effective in 2012 for employers that file at least 250 Forms W-2), the pay or play rules that may impose penalties on large employers that do not offer a certain level of health coverage to their full-time employees (effective January 1, 2014), the high-cost health plan excise tax (effective January 1, 2018) and the mandatory automatic enrollment requirement (effective once regulations are issued).
Q: Can a grandfathered plan be amended without losing the grandfathered status?
A: Plan sponsors can make certain changes to grandfathered plans and maintain their grandfathered status. However, plans will lose their grandfathered status if they make significant changes that reduce benefits or increase costs to consumers.
Specifically, making the following changes would cause a plan to lose its grandfathered status:
- Significantly cutting or reducing benefits;
- Raising co-insurance charges;
- Significantly raising co-payment or deductibles;
