HNI Account Executive
It's Tax Day! Is your business ready for the new health care reform taxes and fees?
The Patient Protection and Affordable Care Act (PPACA) established many new fees and taxes designed to help fund expanded programs and services under the new law.
Health plans, plan sponsors, and employers are responsible for paying several of these new health care reform taxes, either directly or through employee tax withholdings.
Six of the new health care reform taxes with the most immediate impact on employers and health plans are described below:
1.) Health Insurance Industry Fee
This permanent, annual fee will be assessed on all fully funded health plans beginning in 2014. It applies only to insured business and is based on each insurer’s share of the taxable health insurance base. The goal of this program is to help fund the federal and state insurance exchanges that are to be set up in accordance with PPACA.
The fee is estimated to be 2-5% of premium in 2014, and will increase to 3-4% of premium in future years. Final regulations regarding the Health Insurance Industry Fee have not been released.
2.) Transitional Reinsurance Assessment
This temporary reinsurance program will collect fees over the three-year period from 2014 through 2016. The collected fees will be used to fund a reinsurance program intended to lessen the impact of high-risk individuals entering the individual health insurance market. The assessment applies to both fully insured and self-insured commercial medical plans.
For fully insured plans, paying the assessment is the responsibility of the health insurer. For self-insured plans, the assessment is the employer’s responsibility. An employer, however, may choose to have its third-party administrator make the payment on behalf of the plan.
Under current guidance, insurers and self-funded group health plans should expect to contribute $63 per member per year (PMPY) for 2014. This amount may be reduced to less than $63 PMPY for 2015 and 2016.
Insurers and sponsors of self-funded plans (or the third-party administrator) will need to report the number of covered lives (employees plus dependents) by November 15 of each year. The Department of Health and Human Services will confirm the amount due by December 15, and payment will be due within 30 days of this confirmation notice.
3.) Risk Adjustment Program
This permanent program provides increased payments to health insurers that enroll higher-risk individuals. It applies state by state to all individual and small group plans, with exceptions for plans that are grandfathered under PPACA and certain types of benefits arrangements.
The assessed fees will be transferred from plans that enroll lower-risk individuals to plans with higher-risk enrollees.
4.) Comparative Effectiveness Research Fee (CERF) to fund the Patient-Centered Outcomes Research Institute (PCORI)
This new annual fee applies to fully insured and self-insured plans with plan years beginning on or after October 2, 2011. It will partially fund research performed by the Patient-Centered Outcomes Research Institute, established under PPACA.
PCORI will evaluate and compare health outcomes and the clinical effectiveness, risks, and benefits of a variety of services that treat, manage, diagnose or prevent illness or injury.
The fee will be assessed on all fully insured and self-funded plans including Health Reimbursement Arrangements.
Insurers will pay the fee on insured plans by building the fee into their rates. Employers are responsible for paying the fee on self-insured plans. The first payments are due by July 31, 2013, with the program continuing through 2019.
The initial fee will be $1 PMPY, increasing to $2 PMPY for plan years beginning on or after October 2, 2012. The assessment for future years will be indexed to national health expenditures.
5.) Exchange User Fee
The exchange user fee will be applied to all individual and small-group plans purchased from the exchanges.
6.) Additional Medicare Tax
Additional Medicare taxes for high-income individuals went into effect January 1, 2013. An additional 0.9% tax now applies to all wages subject to the existing Medicare wage tax above a specified income level that depends on an individual’s filing status ($200,000 for individuals, $250,000 for married couples filing jointly).
Employers are required to withhold the additional 0.9% Medicare tax for all wages above $200,000. If the employee owes more than is withheld, the employee will be responsible for paying the tax.
The additional Medicare tax also applies to self-employment income above the applicable threshold. In addition, an additional 3.9% Medicare tax now will be assessed on investment income (interest, dividends, and capital gains).
If they haven’t done so already, employers should make adjustments to their payroll systems to account for the additional Medicare tax. Employers also should communicate this information to any high-wage employees.
How is your business preparing for the effects of health care reform taxes and all of the other changes that are coming? What are your go-to resources for staying on top of health care reform news? Please share in the comments!
Photo by _J_D_R_ via Flickr