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High-deductible health plans are what the healthcare benefits industry is leaning towards nowadays. Many companies are starting to implement higher deductible health plans along with Health Savings Accounts also known as HSAs. The leading cause of these health plans is an attempt to avoid the Cadillac Tax. Cadillac tax is an excise tax on employer sponsored health plans with what are called “rich benefits” and is a high cost enforced by the regulations of the Affordable Care Act, or ACA.
Even though HSAs can be an effective way to avoid the Cadillac Tax, many companies don’t know the conflicts that exist between high-deductible HSA plans and healthcare plan requirements enforced by the ACA. The ACA rules are very complex and will occasionally conflict with HSAs.
The differences between ACA compliance and HSA compatibility may be small, but are extremely significant. A minor mistake can subject a company to noncompliance penalties and healthcare related cost overruns. One of the main challenges for making a plan both ACA compliant and HSA compatible is controlling the out-of-pocket maximums. The maximum out-of-pocket cost for an individual on an HSA plan is roughly $6,500 and the individual maximum for the ACA is roughly $6,850. If an employee were to have a significant health crisis, it’s likely they will hit their HSA out-of-pocket maximum well before they hit their ACA maximum. Health care plans should be structured to use the lower of the two and must clearly state how much the employee is required to pay out of pocket.
Per the Department of Labor, every individual person on a health plan is only personally liable for $6,850 of their medical costs, regardless of whether or not that person is on a self-care plan or on a family plan. This means, if a person is on a family plan with a maximum deductible of $13,700 each person is responsible for their $6,850; but let’s say, hypothetically, two family members hit their maximums equally to $13,700 the maximum deductible for the family plan and a third member of the family has incurred $3,000 worth of medical costs, the health plan would then be responsible the that $3,000 regardless of the fact that the third family member did not reach their maximum.
As if all of this isn’t complicated enough, there is yet another complication. The annual limits for HSAs and ACA are released at different times of the year. This means employers will need to review every single one of their HSA plans yearly in order to ensure their plans are compliant with the ACA.
Achieving ACA Compliance with HSA compatible health care plans is not an easy task. Many companies across the country are facing this very problem. The rules and regulations associated with the ACA can make achieving compliance quite the headache and many of the constant changes to the ACA can quickly turn a compliant company into non-compliant and lead to hours of time spent trying to re-establish compliance.
The first step in ACA compliance is to determine who the full-time employees are. Companies with 50 or more full-time employees or full-time equivalents must offer minimum essential coverage to at least 95% of these full-time employees. Once full-time employees are identified, the next step is to track proof that coverage was offered to all eligible full time employees and to keep track of the dates coverage was offered and if the employees waived coverage. When employers are preparing tax forms to be ACA-compliant, they may also be required to report the cost of employer sponsored group health plans on the W-2 form. This will show employees the total cost of their healthcare. When reporting the cost of coverage, remember to include the total cost from both the company’s and the employee’s contributions.
The last step is educating your employees. ACA compliance is confusing for employers, but it can be even more complicated for employees unfamiliar with new laws and forms. Employees should receive new forms from either their employer or their insurance carrier, and sometimes both. They need to know what to expect, what information these forms contain and what to do with them. Send your employees information to review before they receive these forms and walk them through the process. In addition to educating your employees on new forms, employers also need to provide employees with the correct information about their benefits and coverage.
Our expert staff and HR partners can help you stay up to date on the rules and regulations of the ACA and can help keep you in compliance. Our staff is well trained and our solutions are constantly updated to stay current with the ever changing ACA rules and regulations. If you have any questions about the information in this article or any other compliance needs, feel free to give us a call at (714) 467-3434.
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