Affordable Care Act and employer obligations

The Issue
President Obama signed the Patient Protection and Affordable Care Act (PL 111-148), or ACA, on March 23, 2010. The comprehensive health care reform law provides a number of sweeping changes for our nation's health care system that impact nonprofit organizations both as employers and service provides. Among the reforms included are new community benefit requirements for nonprofit hospitals, new requirements for large nonprofit employers to provide health insurance to their employees, and creation of tax credits for qualifying small employers, including nonprofit organizations, to provide health insurance for their employees.

Latest news
President's FY17 budget would modify “Cadillac Tax”
Released on February 9, 2016, President Obama's Fiscal Year 2017 budget blueprint proposes improvements to the "Cadillac Tax" on high-cost employer-sponsored health coverage to ensure that it is only applied to truly higher-cost plans.  Among other things, the modification would increase the tax threshold to the greater of the current law threshold (currently $10,200 for individuals or $27,500 for families) or a “gold plan average premium” that would be calculated for each State.

“Cadillac Tax” affects "high-cost" employer-provided health plans
The so-called “Cadillac Tax" is a 40% non-deductible excise tax on employer-sponsored health coverage plans which provide high-cost benefits.  Under the terms of the law, health plans will pay the tax on the cost of their coverage over a threshold value, currently $10,200 for individuals or $27,500 for families.  The tax, created within the Affordable Care Act, was originally scheduled to take effect in 2018.  However, following a number of concerns raised by unions and employers, including many nonprofits, the effective date was delayed by two years to 2020 by a provision of the Omnibus spending bill for Fiscal Year 2016.  Nevertheless, given that many employers and their Human Resources departments must make decisions about their benefits packages several years in advance, many organizations are making choices now based on the potential for being impacted by this tax.  In fact, many plans which the layperson would not interpret as overly generous would be subject to this tax, because both employer costs and employee costs (including FSA contributions) are combined to determine the benefit level.  Read a Congressional Research Service report on the tax here.

Independent Sector hosted a digital learning event on this topic led by tax and health law expert Heather Meade, senior manager at Washington Council Ernst and Young.  She shared what the tax could mean for your organization – and how you can begin to prepare for it.

Supreme Court upholds the Affordable Care Act subsidies
On June 25, 2015, the Supreme Court issued a 6-3 decision upholding the validity of section 36B regulations that provide tax credits under the Affordable Care Act to individuals who buy health care coverage through federally established exchanges. “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible we must interpret the Act in a way that is consistent with the former, and avoids the latter,” Chief Justice John Roberts wrote in the majority opinion. Roberts was joined by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor, and Elena Kagan. Opposing the decision were Justices Antonin Scalia, Clarence Thomas, and Samuel A. Alito. The decision means that the 6.4 million people who are receiving subsidies in the 34 states that had not set up their own health insurance marketplaces may keep those subsidies.

Supreme Court Delays Enforcement of Contraceptive Coverage Mandate for Religious-Affiliated Nonprofit
decision July 3, 2014, the Supreme Court granted Wheaton College (a Christian liberal arts institution in Illinois) an injunction pending appeal against enforcement of part of the contraceptive care mandate included in the Affordable Care Act.  While houses of worship are exempt from the mandate, religious-affiliated institutions, such as universities and hospitals, must provide insurance coverage for all FDA-approved contraceptives.  Those organizations objecting to such coverage may achieve compliance by submitting a form to the Department of Health and Human Services registering their religious objections and turning to a third party, such as an insurer, to cover the cost of the types of contraception to which they object.  Wheaton and some other religious employers claim that the required form substantially burdens their religious belief because it directly facilitates the provision of contraceptive coverage to which they object.  The opinion said that until full arguments are heard by the court, Wheaton need only file a letter with the federal government stating the college’s religious objections.

Pieces of ACA delayed in final regulations The Treasury published final regulations February 10, 2014 for large employers issuing health care coverage to their employees under ACA. For employers with 50 to 99 employees, which qualify as “large employers” under Section 4980H’s employer shared responsibility requirement, the final rules will not be enforced until 2016. Employers with 100 or more employees, however, must offer coverage to 70 percent of their qualifying employees in 2015 and 95 percent in 2016.


Small Employers: What You Need to Know

Nonprofit Employer Health Insurance Coverage

Essential Health Benefits
The Department of Health and Human Services (HHS) has issued a
final rule on the definition of essential health benefits (EHBs), the determination of actuarial value in the individual and small group markets, and the minimum value (MV) standard for large employers. The final rule implements a requirement in the ACA that the plans cover essential health benefits (EHBs) for 10 categories of care, including basic services such as hospitalization and emergency care, as well as mental health and maternity care. In addition, it has posted a MV standard calculator for employers to determine whether their offered coverage meets minimum requirements to avoid penalty excise taxes for unaffordable coverage.

View FAQs on Essential Health Benefits

Shared Responsibility Provisions
The IRS finalized regulations (TD 9655) on the shared responsibility provisions under the ACA in February 2014. New tax code Section 4980H requires employers with at least 50 full-time and/or full-time equivalent employees to offer affordable health care coverage to provide a minimum level of coverage, or pay a penalty. The rules phase-in for employers with 100 or more employees beginning in 2015 and for those with 50 to 99 employees in 2016. An employee is considered full-time if he or she works at least 30 hours per week, or 130 hours in a calendar month. Volunteers do not count towards the total number of employees under the law.

The IRS also released a series of questions and answers on employer shared responsibility issues, such as liability for the employer shared responsibility payment, how to calculate the employer shared liability payment, and transition relief.

Grandfathered Health Plans

As part of ACA, existing health care coverage plans in place prior to March 23, 2010, when the law was enacted, are eligible to be "grandfathered," or exempted, from a number of new requirements, provided they meet five essential criteria. HHS, in conjunction with the IRS and DOL have released final rules for grandfathered health plans:
  • They are not subject to the new health law mandate to provide first-dollar coverage for preventive care.
  • They must fulfill new requirements to extend dependent coverage to children under age 26.
    • Can exclude children who have employer-sponsored coverage through their own employer or a spouse's employer until 2014.
  • They continue to be exempt from most ACA requirements so long as they maintain a grandfathered status.

Grandfathered plans are allowed to make routine changes to their coverage structures, which includes changing insurers for group health coverage, so long as the same level of coverage is maintained. Any of the following plan changes will result in an immediate and permanent loss of grandfathered status:

  • Significant reduction in benefits
  • Co-insurance charge increases
  • Deductible increases
  • Employer contribution decreases
  • Change to annual limits
IS position
Independent Sector submitted comments to the IRS and HHS in 2010, urging more flexibility for employers to make changes to existing plans to take advantage of new market rates and establishing a waiver from the interim rule requirements for small to mid-sized nonprofits until the insurance exchanges are available in 2014.


CRS Report on the Cadillac Tax (PDF)

Joint JCT and CBO Revenue and Cost Estimate Tables (PDF)

Revenue and Cost Estimates: Explanations (PDF)

Implementation timeline (PDF) - Key effective dates for health care reforms

Department of Health and Human Services (HHS) guidance - Implementation resources for individuals / employers

Department of Labor (DOL) guidance - Regulatory information for employers

2012 IS Health Care Webinar: View the webinar (members only) | View the slides

2013 IS Health Care Webinar: View the webinar (members only) | View the slides

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