Small Business Training Center

If your health plan renews on January 1, 2011, you'll need to tell your employees about several important changes, including two special enrollment periods, as a result of the Patient Protection and Affordable Care Act ("PPACA"), otherwise known as the healthcare reform law.  These changes go into effect for all health plans renewing on or after September 23, 2010.  Assuming your open enrollment period is now or coming very soon, it makes sense to include this information with other open enrollment materials. 

The Department of Health and Human Services (HHS) has recently made an amendment to the definition of a group health plan’s “grandfathered” status.  Grandfathered health plans are not required to meet some of the new requirements of the Patient Protection and Affordable Care Act (PPACA), otherwise known as the healthcare reform law.  See the previous article What Is A Grandfathered Plan? for more details.   A grandfathered plan will lose its exemption if certain changes are made to the plan, such as significantly changing deductibles, co-pays, and employee contributions.  Originally, a plan could lose its grandfathered status if a fully insured plan changed insurance carriers.  The HHS has since amended the definition to allow health plans to change insurance carriers without losing their grandfathered plan status, as long as the plan continues to maintain the same benefit levels.

Good news for employers and payroll administrators!  According to an IRS News Release posted earlier this week, employers will have an additional year to comply with the Affordable Care Act requirement to show total healthcare costs on the W-2.  Originally, this requirement was to begin with 2011 W-2’s, but now the employer has the option to either begin reporting in 2011, or can wait until 2012 with no penalties.  The IRS has issued a draft 2011 Form W-2 showing how the W-2 will look for next year’s wages.  This will give employers and payroll providers more time to ensure that payroll systems are set up properly to comply with this requirement.

The IRS has issued official guidance on the ability to purchase over-the-counter (OTC) medicine with an FSA or HSA.  My previous article, Over The Counter Meds and FSA’s in 2011, covered the basics of the rules that will be changing next year.  To summarize, as of January 1, 2011, OTC medicine can only be purchased using an FSA or HSA with a prescription.  This change is part of the healthcare reform laws.

The other day, I received an email with some propaganda-like information about the impending tax hikes coming in 2011 as a result of the tax cuts that are set to expire this December 31^st.  At the end of the email was a rant about how you will be taxed on your health insurance costs next year because of the new W-2 reporting requirement.  I’m not sure how prevalent this belief is, but this is not true! The employee will not be taxed on the employer’s cost of health insurance, and the employee’s tax liability will not change.  As of right now, the only tax on health insurance will be on the high cost “Cadillac plans” starting in 2018.

One of the provisions of the Patient Protection and Affordable Care Act (PPACA) is the elimination of over-the-counter medicines as eligible expenses that can be paid for tax-free through a Flexible Spending Account (FSA), Health Reimbursement Account (HRA), or Health Savings Account (HSA).  The addition of over-the-counter medicine to the list of tax free medical items was added back in 2003.  So the rules are simply reverting to how they were eight years ago. 

Possibly the most significant reporting change included in the health care reform bills for small businesses is the change in 1099 reporting, which bears no specific relationship to the health care insurance system, the primary focus of the bills.  The Patient Protection and Affordable Care Act (“PPACA”) includes a provision that expands the reporting requirements for reporting trade or business expenditures annually to the IRS.  The expenditures generally were reportable when they hit a $600 threshold for services rendered and generally were not reportable if the payments were made to a corporation.