Health Care Considerations for Employee Benefit Plans
The debate continues about how the Patient Protection and Affordable Care Act will impact health care costs in the overall economy. While CFOs may not be interested in the macroeconomics of it all, they will want to keep their own company’s health insurance costs down. It will not be easy.
Signed into law in 2010 and upheld by the Supreme Court in 2012, the Patient Protection and Affordable Care Act will profoundly affect individuals, employers, health care providers and insurance companies. In addition to the many new tax rules to offset the cost of these reforms, the law also contains many changes that employers are going to need to consider and how it may affect employee benefit plan operations, internal controls, financial reporting and more.
Here are a few things that may have a larger impact on plans:
- Retiree Prescription Drug Benefits. Employers who currently receive a federal tax subsidy for providing retiree prescription drug coverage under the retiree drug subsidy program will no longer be able to take a deduction for that subsidy as of 2013. Recent guidance issued by the Center for Medicare and Medicaid Services, coupled with certain changes from Patient Protection and Affordable Care Act, created savings opportunities for many employers who are now considering an alternative subsidy program referred to as the Employer Group Waiver Program.
- Medical Loss Ratio Rebates. Health care insurers are now required to publically report on major categories of spending of policy holder premium dollars, such as clinical services provided to enrollees on activities that improve health care quality. The law also established medical loss ratio standards, stating that health care insurers will be required to provide rebates to enrollees when spending on health care quality improvement services is less than the premiums the insurance company received, as defined by the MLR standards. Beginning in June 2012, insurers were required to start reporting certain data on these medical loss ratios to any state in which they do business. In August 2012, refunds started being given by those that didn’t meet those standards.
- Patient-Centered Outcomes Research Fees. Patient Protection and Affordable Care Act also created a non-profit corporation called the Patient-Centered Outcomes Research Institute. It will be funded, in part, by fees that will be paid by health insurers and applicable sponsors of self-insured health plans. Fees will only be effective for seven years. The fee for a plan with 2012 calendar year-end is $1 per covered life in that plan. A covered life includes any employee, covered spouses/partners, and children in the plan. Interestingly, one of the ways this fee can be calculated is by the headcount provided in the 2012 form 5500. Therefore, if you have a client that wants to calculate their fees based on that form, it must be filed on or before July 31, 2013. For 2013 the fee is $2 per covered life.
- Transitional Reinsurance Fees. Beginning in 2014, a transitional reinsurance fee will be assessed to help insurers to partially offset the high cost of enrollees in the new exchanges that are being set up. The cost per covered life has not been verified, but the Department of Health and Human Services currently estimates the cost will be $63 per covered life in a plan for the first year. That is a pretty big amount to pay. A year ago, not too many people were focused on this fee, but that high-dollar estimate is now attracting some attention.
At the end of the day, these changes are going to cost employers more and are already on the minds of many firms and clients. Many of the insurers will likely pass on some of the cost to sponsors; sponsors will in turn pass along some of that cost to their employees. If you are auditing a health and welfare plan, it would be prudent to get a thorough understanding of these fees and programs to fully understand what effect they will have on the plan’s accounting and reporting.
For more information on the Patient Protection and Affordable Care Act, visit the AICPA’s Health Care Reform Resources Center; or learn more about how the Affordable Care Act may affect your employee benefit audits in the 2013 edition of the AICPA Employee Benefit Plans Industry Developments - Audit Risk Alert.
Debbie Smith, CPA, Partner, Grant Thornton, LLP. Debbie is the chair of the AICPA Employee Benefit Plans Expert Panel and was a member of the Employee Benefit Plans Audit Guide Overhaul Task Force. She specializes in employee benefit plan assurance and has more than 24 years of experience auditing benefit plans.
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