Affordable Care Act: What Medtech Companies Need to Consider for 2014
by Chris Wiltz on July 18, 2012
Experts from Ernst & Young discuss what will be required of large companies once the Affordable Care Act comes into effect in 2014 and how companies can prepare.
On June 28, 2012, the Supreme Court voted to uphold President Obama's controversial Patient Protection and Affordable Care Act (ACA). While it remains to be seen just what form the ACA will take when it takes full effect in 2014, medtech companies both big and small are bracing for the big changes coming not only to the healthcare system, but in the way they do business.
In a July 17 webcast, global advisory services firm Ernst & Young addressed this in a talk with Anne Phelps, principal Washington counsel for Ernest & Young, and Catherine Creech, principal of national tax compensation and benefits for Ernest & Young. The focus of the talk, “Supreme Court Ruling on the Health Care Law: What Companies Need to Consider,” was the major coverage expansion set to take effect on January 1, 2014, and the regulations, reporting requirements, and tax provisions that will affect companies.
Large employers, those with 50 or more full-time equivalent workers, will be required to offer healthcare coverage to all full-time employees and their dependents. Phelps says full-time employees are defined by the government as “any employee who works an average of 30 hours per week, per month.” That means a company's full-time staff must be calculated in aggregate—multiplying the number of part-time employees by the hours worked per month per employee, then dividing by 120. For example, a company with 40 part-time workers who work an average of 80 hours a month has 26.6 full-time equivalents (40 x 80 / 120 ). Based on these calculations an employer must offer “healthcare coverage that is affordable and of a minimum value for certain employees,” Phelps adds.
Should an employer fail to offer coverage to full-time employees and their dependents, they will incur a penalty of $2000 multiplied by the total number of full-time employees (FTEs). Creech stresses that it is important to note that this penalty will be applied across the board if coverage isn't made available to even one employee. Thus a company with 50 employees that fails to cover a single employee will incur a $100,000 penalty. “Should employers offer coverage that is unaffordable or doesn't provide minimum value they face a penalty of the lesser of $3000 times the number of FTEs receiving a premium tax credit or $2000 times the total number of FTEs,” Creech says.
Minimum value in healthcare coverage means that the plan must play at least 60% of the total allowed cost of benefits. If an employer's lowest-cost plan that provides minimum value exceeds 9.5% of an employee's household income, the employee may be eligible for a tax credit. And, as previously stated, if any employee is receiving a tax credit in lieu of coverage from an employer that is able to provide coverage, the company may be penalized.
But Creech and Phelps point out that the issues here are more complicated than a few simple equations, particularly as companies grow in size and complexity. For instance, “employers will not face tax penalties for employees who enroll n Medicaid as states can expand Medicaid eligibility to 133% of the federal poverty level [currently defined as $11,000 per year],” Phelps says. There will also be new reporting requirements for companies to consider under the ACA. For example, large employers will be required to report their offering of minimum essential coverage to the IRS, and employers who issue at least 250 W2 forms annually will be required to report to the IRS on the value of their health coverage.
Companies must also consider a variety of tax provisions, of which the most prominent for medtech companies will be industry fees such as the device user fee and the 2.3% medical device excise tax. There will also be executive compensation limits, taxes on high-cost plans, and new Medicare hospital insurance taxes to take into consideration among other things.
With such a seemingly daunting task laid out before them and just over a year to prepare, Creech offers that evaluating the workforce is one of the most important steps a company can take. “Employers should make sure that they have strong human resources and tax teams to make sure their ready for compliance,” she says. Changes should be assessed to benefit designs to meet new coverage standards and companies should prepare a communication strategy that will foster openness and clarity from companies to employees. Phelps adds that companies should also continue to pay attention to the politics of the ACA and be aware of new and upcoming regulations as there is still room for things to be amended, adjusted, or removed entirely. “We have to continue to watch the political debate,” Phelps says.
While forward action is definitely needed, she says it is important for companies to stay abreast of the issues to continue making informed strategies and decisions.
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