Employer's
guide to
health care
reform
Employer's guide to
health care reform:
the complete small business resource
With the Affordable Care Act (ACA) in full swing, it’s important you
understand what that means for your business. This guide will help to
answer the questions facing small businesses with solutions to help strike
the right benefits balance – one that is budget friendly while also meeting
the health care needs of your employees.
Table of contents
03 Important dates and milestones
04 Details on how your business can pay, play or play differently
06 IRS reporting for employers with self-funded plans
08 Tax rules you need to know
09 Cadillac Tax FAQs
Important dates
and milestones
Open enrollment for 2017 will begin on November 1, 2016, and will end on January 31, 2017.
In most states, the deadline to enroll in a plan with a January 1, 2017, effective date will be
December 15, 2016 (Massachusetts, Rhode Island, and Washington state all allow enrollments
to be completed as late as December 23 and still have coverage effective January 1).
Nov. 1, 2016
Open enrollment for 2017 begins
Dec. 15, 2016
Deadline to enroll in a plan with a January 1, 2017
effective date
Jan. 31, 2017
Open enrollment for 2017 ends
Employer's guide to health care reform
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How your business can
pay, play or play differently
There’s plenty of talk surrounding health care reform and whether
employers should “pay or play.” The popular phrase refers to
the choice to either offer health care benefits that meet the law’s
standards or yield to fines for dropping coverage. Though savvy
employers know their benefits package can help boost workplace
retention, satisfaction and productivity, many are faced with a
difficult decision as health care costs continue to rise.
In the current health care system with rising health care costs, employers facing the “pay
or play” decision can:
• Stay the course: Keep group health insurance and pay inevitable annual renewable
rates, while looking for options to keep costs down through employee cost. • Pay and exit: Drop group health insurance and all employer-sponsored health
benefits and pay the penalty. Employers of all sizes who discontinue health
insurance offerings may “pay” with difficulty in recruitment and retention.
• Play differently: Choose a different course of action to allow their company to provide
health care options the workforce needs while also minimizing health care costs.
What are your alternative options:
Employer-sponsored account-based health plans
An account-based health plan is a consumer-directed strategy that can pair a choice of group
health insurance plans with a tax-advantaged medical spending account. Options include:
HEALTH SAVINGS
ACCOUNT (HSA)
HEALTH
REIMBURSEMENT
ARRANGEMENT
(HRA)
HSAs are individual bank accounts owned by employees that allow tax-free
medical expense reimbursement. It’s required to be paired with a high-deductible
health plan.
An HRA is an employer-funded tax-advantaged employer health benefit plan
that reimburses employees for out-of-pocket medical expenses.
HEALTH FLEXIBLE
SPENDING
ACCOUNT (FSA)
Health FSAs offer a tax-free way for employees to save for qualified medical
HEALTH INCENTIVE
ACCOUNT (HIA)
HIAs are designed for the employee to solely earn funding for out-of-pocket health
expenses during a single year. FSAs can be paired with any health plan or
used alone.
care expenses by participating in and completing a health rewards program.
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Private and public exchanges
Health insurance exchanges (also called marketplaces) are web portals where individuals
and businesses can shop for and buy health insurance. They’re gaining popularity and can
make benefits administration easier for businesses. Plus, they give employees the option to
purchase health care coverage that fits their needs and their budget. Regardless of your
company’s size, private exchanges can help your company offer a variety of benefits options,
including major medical and voluntary products. And if your company has fewer than 25
full-time equivalent (FTE) employees, you may qualify for the Small Business Health Care Tax
Credit and state premium assistance programs. These can help to lower the cost of health
insurance premiums. Your employees also may be eligible to get state premium assistance
payments and tax credits.
Voluntary insurance
Another way employers can help provide an extra layer of financial benefits protection and
a broader benefits package to their employees is by adding voluntary benefits options to
their employees’ benefits package. Unlike major medical insurance, voluntary policies pay
cash benefits directly to the policyholder (unless assigned otherwise) if they get sick or
injured. Research shows that employees who are offered and enrolled in voluntary benefits
options by their employer are more likely to say their current benefits package meets their
family’s needs extremely or very well, than those who aren’t offered voluntary benefits
through their employer.
Outcomes-based initiatives (wellness incentives)
Companies are beginning to establish ways to keep medical providers (health professionals)
and employees accountable for health outcomes. For medical providers, employers can
look to bundled pricing arrangements with their insurer so employees get the best rates with
doctors and hospitals with proven track records for success. For employees, companies
are increasingly looking to health screenings and incentives. In 2015, 19 percent of small
companies said they have a company-sponsored wellness program; and 75 percent said
they are able to offer lower health insurance premiums as a result of their wellness programs.1
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IRS reporting for
employers with
self-funded plans
Under the Affordable Care Act (ACA), employers who self-fund their employee health care
plans are required to submit informational reporting about minimum essential coverage to the
Internal Revenue Service beginning January 2016. Below are details to help you comply with
this requirement.
Who is required to submit information reporting of minimum essential
coverage?
• Self-funded employers
• Insurers
What does the report include?
Employers are required to submit a separate report for each individual health care recipient
on Forms 1095-B and 1094-B that specifically provides:
• The name of each individual enrolled in minimum essential coverage as well
as the name and address of the primary insured or other related person (for
example, a parent or spouse) who submits the application for coverage.
• The return also must report the taxpayer identification number (TIN) and months
of coverage for each individual who is covered under the policy or program.
• The name, address and employer identification number (EIN) of the employer
maintaining the plan and whether coverage was enrolled in through the
government marketplace.
The employer must also provide a written statement to the covered
individual(s) that includes:
• The policy number
• The name, address and a contact number for the reporting entity
• The information required to be reported to the IRS
What is the deadline?
Statements are to be provided annually to employees by Jan. 31. Forms must be provided to
the IRS by Feb. 28 (March 31 if filed electronically) for the previous calendar year. Employers
are encouraged to voluntarily report starting in 2015 for the 2014 plan year, but official annual
reporting begins in 2016 for the 2015 plan year.
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How do I submit the report?
Employers are required to provide the IRS with Form 1094-C, which is the transmittal form,
and Form 1095-C, which is the employee statement. Employers can file electronically, and
draft forms are expected to be available from the IRS as the reporting deadline approaches.
Can a third-party organization file the report?
Yes, the law allows employers to use a third party to assist with filing IRS reporting and
providing statements to individuals insured by the health plan.
Is there a penalty for not filing the report?
Currently, employers may face penalties for not filing informational reporting. However, the
law explains that these fines may be waived for employers that do not file due to reasonable
cause, or fines reduced for errors that are corrected in a timely manner that are not due to
reasonable cause.
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Tax rules you
need to know
The Affordable Care Act (ACA) is primarily intended to apply to group health plans and
health insurers offering group or individual health insurance coverage. Because Aflac
policies are classified under the law as “excepted benefits,” many of the regulations don’t
apply. Below are frequently asked questions and answers about taxes related to offering
these products to employees.
Can employees apply for supplemental, voluntary health care coverage
on a pretax basis under health care reform?
Yes. Voluntary benefits options such as accident, cancer, hospital indemnity and other
excepted benefit coverage (e.g., vision and dental) can be funded through a pretax
arrangement offered by an employer. While market reforms apply to certain types of group
health plans, they don’t impact an individual’s ability to payroll deduct premiums for voluntary
products on a pretax basis.
IRS Notice 2013-54 takes away an employer’s ability to provide individual
health insurance coverage on a pretax basis to active employees.
Does this apply to Aflac policies?
No. Supplemental insurance coverage, such as Aflac’s policies, is not subject to the ACA
market reforms. This means individual supplemental products such as accident, cancer,
hospital indemnity and other excepted benefit coverage (e.g., vision and dental) can still be
funded on a pretax basis. This particular IRS notice restricts employers from using payment
plans and group health plans to purchase individual major medical insurance, among other
things, but is not applicable to Aflac policies.
Is there a change in the taxability of employer-paid premiums on
Aflac policies?
No. Employer-paid premiums for Aflac policies are still exempt from income tax. ACA
regulations apply mainly to primary health insurance providers and coverage.
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Cadillac Tax
FAQs
Named after America’s luxury automobile, a 40 percent “Cadillac Tax” is scheduled to take
effect for applicable coverage with plan years beginning on or after Jan. 1, 2020. Although the
tax is still several years away and regulations may evolve before it is implemented, employers
can begin to determine how their plans may be affected when the tax goes into effect. Below
are common questions and answers about the tax and its potential effect on businesses.
Q: How is the tax calculated?
A: The tax is calculated based on premiums spent on “applicable employer-sponsored
coverage.” In 2020, the 40 percent tax is applied to the value of an employer’s plan that
exceeds the thresholds of $10,200 for individual coverage, and $27,500 for other than self-only
coverage. These thresholds will increase in future years since they are indexed for inflation.
Q: What products are included in the calculation?
A: The tax applies to pretax group employer-sponsored coverage, including employer- and
employee-paid portions. This includes:
• Health coverage, including medical, behavioral and prescription drugs
• Health flexible spending accounts (FSAs)
• Health savings accounts (HSAs)
• Archer Medical Savings Accounts (MSAs)
• Governmental plans, with the exception of military coverage
• On-site medical clinics, with exception of clinics that provide minimal
medical care
• Retiree coverage
• Multiemployer plans
• Specified disease or illness and hospital indemnity or other fixed
indemnity insurance
Q: Which Aflac products are included?
A: Aflac specified disease and hospital indemnity products are currently included in the tax
calculation if paid on a pretax basis, but an account may opt to have their employees pay these
premiums on an after-tax basis, which would exclude the premiums from the tax calculation.
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Q: What products are included in the calculation?
A: The following insurance products are not factored into the tax:
• Accident Insurance
• Disability insurance
• Life insurance
• Supplemental liability insurance
• Liability insurance, including general and automobile liability insurance
• Workers’ compensation or similar insurance
• Automobile medical payment insurance
• Credit-only insurance
• Stand-alone Vision
• Stand-alone Dental
• Specified Disease and Hospital Fixed Indemnity are excluded only if not
sponsored by the employer and paid for on an after-tax basis
Q: Who is responsible for paying the tax?
A: The tax is technically paid by the insurance provider or carrier. If there is more than
one carrier, each carrier pays the percentage of the excise tax commensurate with their
percentage of the total premiums. And if a group is self-insured, then they are responsible
for their portion of the tax based on the self-insured premiums. The details surrounding how
the tax is reported and paid are awaiting clarification and final regulations, but since the tax is
based on their employees’ total benefits packages, employers are currently responsible for
calculating the tax and reporting each benefits administrator’s portion of the tax to the IRS.
Employers, not benefits providers, may be penalized for incorrectly calculating the tax.
Q: Will my plan be affected?
A: Since the tax is still several years away, there’s a real possibility that the scope, application
and time frame may change. For now, it’s estimated that approximately 16 percent of all
plans could be affected by the excise tax when it takes effect. The tax thresholds are linked
to inflation, and medical spending and premiums historically grow faster than inflation, so
eventually more plans will likely be affected. As the law stands, 75 percent of plans could be
influenced by the tax within a decade.2
Q: What can my company do now?
A: Employers can begin to assess their current health plans and talk with their benefits
providers or brokers and tax professionals about cost-saving and cost-accountability
measures. Long-term solutions will be critical to managing health plan costs.
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Example Cadillac Tax calculation in 2020
Employee A has the following benefits package that is individual coverage, paid for on a
pretax basis. In this example, the Aflac accident insurance policy would be excluded from
the applicable premiums, but the Aflac cancer insurance policy is included as it is paid for
on a pretax basis.
COVERAGE
CARRIER
Major medical................................................................. Carrier X...........
ANNUAL
PREMIUMS
CADILLAC TAX
APPLICABLE PREMIUMS
$10,500...............
$10,500...............................................
Voluntary accident policy............................................ Aflac................... $500.....................
$0..........................................................
Voluntary cancer policy purchased after tax........ Aflac................... $700.....................
$0..........................................................
Total
$10,500
$11,700
Total Applicable Premiums $10,500
Annual Limit $10,200
Premiums $300
The excise tax will be 40 percent of $1,000, or $400. Each carrier’s responsibility for the tax is
as follows:
CARRIER
PERCENT OF APPLICABLE PREMIUMS
CALCULATION
EXCISE TAX DUE
Carrier X............ $10,500/$10,500 = 100 percent........................................ $120 x 100 percent.......... $120..............................
Aflac................... $0/$10,500 = 0 percent........................................................ $120 x 0 percent.............. $0..................................
Total
$120
For the full IRS notice, visit www.irs.gov
Visit aflac.com/smallbusiness for more resources, tips and
advice to make the best health insurance decision for you
and your employees.
Employer's guide to health care reform
Page 11
FOOTNOTES
1. The 2016 Aflac WorkForces Report, conducted on behalf of Aflac in January and
February 2016 by Lightspeed/GMI, captured responses from 1,500 benefits decisionmakers and 5,000 employees from across the United States. To learn more about the
Aflac WorkForces Report, visit AflacWorkForcesReport.com
2. Health Affairs (2013). Excise Tax on Cadillac Plans. Accessed on June 26, 2015, from
http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=99
DISCLAIMER
This material is intended to provide general information about an evolving topic and
does not constitute legal, tax or accounting advice regarding any specific situation. Aflac
cannot anticipate all the facts that a particular employer or individual will have to consider
in their benefits decision-making process. We strongly encourage readers to discuss their
HCR situations with their advisors to determine the actions they need to take or to visit
healthcare.gov (which may also be contacted at 1-800-318-2596) for additional information.
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