Patient Protection and Affordable Health Care Act Impact on Large Businesses

By Don McAnelly, CPA/ABV/CGMA
Rehmann

November 2012 – On January 1, 2013, we will ring in the New Year and also start to ring in some of the most significant provisions of the Patient Protection and Affordable Care Act of 2010 (PPACA and the “Act”). Although you may be part of a large business with plenty of people-power to help you understand the new Act, you still may find yourself feeling confused about how the Act’s changes may affect your company in the years to come.

It has been said that this piece of legislation signifies the most comprehensive transformation of the U.S. health care system since the creation of the Medicare and Medicaid programs nearly 50 years ago. Therefore, with such a monumental piece of legislation, it is without wonder that the question remains for many: “What do I need to know and what can I do to prepare for the impact of this Act?” To help you with this, this article addresses some specific concerns of large businesses.

Health insurance premiums reportable on W-2s
Effective for the year ending December 31, 2012, employers who will be filing in excess of 250 Forms W 2 will be required to include the cost of the employee’s health insurance on their W-2s. This inclusion is for informational purposes only and will cause no additional tax liability for employers or employees. IRS Notice 2012-9 provides interim guidance on informational reporting to employees of the cost of their group health insurance coverage.  In case you were also wondering about the proposed expansion of Form 1099 reporting requirements, rest assured this measure was officially repealed in 2011.

Contribution limitations being imposed on healthcare Flexible Spending Accounts
Effective January 1, 2013, annual contribution limits to a Flexible Spending Account (FSA) for medical expenses will now be mandated by the Federal Government. What does this mean to you and your employees? In the past, FSA plan limits were set by the plan sponsors to accommodate the needs and desires of its participants. As you well know, many employees relied heavily on these tax-free funds to pay for, amongst many things, their children’s braces or their own specific medical needs. This legislation caps contributions for 2013 at just $2,500. It would likely benefit many of your employees to know about this drastic change ahead of time so they can plan accordingly. Luckily, this change only affects medical FSAs, so employees’ dependent care FSAs will be unaffected. While considering alternatives, keep in mind that although the contributions to Health Savings Accounts and Health Reimbursement Accounts have not been affected, certain restrictions have been placed on them. For instance, over-the-counter medicine is no longer a qualified expense under these plans unless prescribed by your doctor. Also, the penalty for unqualified distributions rose steeply from 10 percent to 20 percent.

Additional Medicare Plan A hospital insurance tax on high earners
Does your business rely heavily on valuable employees who are earning wages in excess of $200,000 ($250,000 in the case of married filing jointly, $125,000 married filing separately)?  If so, it is important to know that one of the more significant financing mechanisms of the Act will be an additional Medicare tax of .9 percent on all wages in excess of these amounts starting January 1, 2013. You may want to look at withholdings to assure compliance with this part of the Act.

Excise Tax on Medical Equipment
Is the sale or purchase of medical equipment a significant part of your operations? Then you should be aware that beginning in January 2013, there will be an excise tax of 2.3 percent placed on nearly all medical devices. Manufacturers and importers of medical devices will have this tax levied on all sales. Currently, the tax will not apply to items such as eyeglasses, contact lenses, hearing aids, or any other medical device that the public generally buys at retail for individual use. Although this tax is levied on sales, if you are a large purchaser of the non-exempt items, you should assume that this additional cost will be passed on to you. This may mean some tough financial decisions will need to be made before this new tax takes effect.

Large-Employer Health Insurance Requirements
Effective January 1, 2014, employers with 50 or more full-time employees will incur a nondeductible excise tax if they offer health insurance and they have at least one employee receiving a premium tax credit. This excise tax will be the lesser of $3,000 for each employee receiving a premium credit or $2,000 for every full-time employee in excess of 30 employees. Employers with more than 200 full-time employees are required to automatically enroll all employees in their health insurance plan with no exceptions. Employees do, however, have the option to then opt out of the plan should they choose to.

Conclusion
The January 2013 implementations of the Patient Protection and Affordable Care Act will have varying impacts on large businesses based on numerous criteria, including the size and the current insurance offerings to name just two. What is important for large business owners such as you to keep in mind is that regardless of changes that may still come, we must use the best information available to begin planning today. The sooner your particular situation is analyzed, the better chance you will have to mitigate the new requirement’s impacts and protect the financial health of your company.

With extensive experience providing financial solutions to clients – from business operation & efficiency assessments to consulting & corporate tax guidance – Don McAnelly is ideally positioned to provide the support today’s businesses need. Don serves as Rehmann’s primary CPA contact for health care clients in East Michigan and his experience extends to tax, valuation and financial matters. Don has been with Rehmann for 18 years, with prior Big Five national accounting firm experience. Additionally, he is a member of the Michigan Association of CPAs, has authored overviews on the Patient Protection and Affordable Care Act for the Firm’s BWD magazine and has spoken on the Act to various chambers of commerce.