Apart from the latest debates on political opinions over healthcare changes, it’s important to know what necessary steps arerequired to get HR and their employees on the right track for2013.

The Patient Protection and Affordable Care Act outlines changesset to kick in over several years. Benefits managers and humanresource advisors are nearing the implementation of the 2013provisions, and while these changes might not be as newsworthy asthe 2014 provisions that are dominating headlines, they do holdcredence to employees and their health plans.

According to Troy Filipek, a principal and consulting actuaryfor Milliman, the best way to prepare for compliance next year isto employ contingency planning as well as develop open lines ofcommunication with employees.

Filipek says employers need to be proactive for 2013 whilethinking ahead for 2014.

“There are a lot of changes that are occurring, and there arethings employers can benefit from just by considering theseoptions. Talk to your advisors and obviously if you do decide tomake a change, talk to your employees or your retirees because withanything you make changes to, it’s important that your people arewell advised on it, why you’re doing it and how it’s going toimpact them.”

Sharon Cohen, a principal at Buck Consultants and an expert inpretax benefits and health care, shared a similar viewpoint, butalso noted that it’s imperative for employers and benefits managerscontinue with what’s required by law right now—despite any changesthat may still occur. “The provisions will start taking effect andthe government is moving forward. I wouldn’t count on this allgoing away before I would take action.”

Medicare subsidy taxation

The major PPACA provision impacting Medicare Part D closes the‘donut hole’ or gap between coverage limits and out-of-pocketspending on the cost of prescription care, but the law also changesthe retiree drug subsidy program.

“The big change for 2013 with the RDS program is that in thepast, from 2006 forward, the allowance that these employers receivefrom the government for the subsidies used to be non-taxableincome,” Filipek says. “That has changed since the enactment of the[PPACA].”

Now, Filipek explains, the money that employers receive from thegovernment for these subsidies is subject to taxation.

“It’s a pretty big change,” he says. “A lot of employers havealready felt the impact of it because once the law passed, based onthe accounting standards, you had to recognize the future impact ofthat in your financial statements.”

Substantial adjustments have been taken in the form ofreflections of these soon-to-be taxed subsidies. “Starting in 2013,it will be a practical effect that these moneys are going to betaxed,” Filipek says.

He notes that a lot of brokers, advisors and even employers arecurrently in the process of reevaluating their options for offeringretirees prescription drug coverage. As far as what steps arenecessary to take in order to be prepared for the coming year’schanges, Filipek feels it’s important for employers and theiradvisors to simply understand that there are a variety of choicesavailable.

Options include continuing coverage and working with the newlytaxed subsidies or dropping coverage and allowing retirees toenroll in individual part D plans. Additionally, Filipek says,employers can maintain group coverage and work with apharmaceutical benefit manager or health plan in the Part D programto develop a custom benefits package through a Part D EmployerGroup Waiver Plan plus secondary wrap plan design, which are planoptions gaining traction in the marketplace.

Regardless of what decision is made, it’s imperative that bothbrokers and HR professionals “make sure it’s seamless for theretiree and easy for them to understand,” Filipek says.

“It’s important to communicate with the retirees because theseare not people who are coming into the workplace every day whereit’s easier to communicate with them. You have to find ways foroutreach to them and their spouses.”

The RDS program is designed for employers to continue offeringprescription drug coverage to retirees since Part D went intoeffect six years ago. The government provides a subsidy toemployers who maintained a benefit rather than dropping coverageand having their retirees sign up for Medicare Part Dindividually.

“That program has been what a lot of employers have done since2006 when Part D started. They had to make a decision to continueoffering pharmacy coverage or end their coverage and have retireessign up for Part D,” Filipek says. “Most opted to continue coverageand get the Retiree Drug Subsidy but that is starting to changewith some of the PPACA provisions taking effect.”

FSA caps

HR advisors will need to prepare and communicate newlyimplemented salary reduction contributions regarding flexiblespending accounts that go into effect next year, which impose a capof $2,500 on these accounts.

“Any employer that has a calendar year beginning Jan. 1, willhave to have implemented that provision,” Cohen says. “The salaryreduction dollars are capped at $2,500 though, right now, with openenrollment periods typically starting in October and inNovember—that is a communication that employers who previously hada higher maximum on their FSAs now need to communicate to theiremployees.”

It’s important to note that only a small percentage ofindividuals who have FSAs made available to them actually use them.Regardless, employers must inform employees of the change and howit could affect their health coverage long term.

“This is a change that now needs to be communicated toemployees,” Cohen says.

But there will be a grace period on contributions that go unusedand HR directors will have the opportunity to amend plans throughthe end of 2014, the limit will be necessary beginning Jan. 1.

“For benefits managers, it would have been last year or thebeginning of this year that they would have needed to make designchanges to accommodate this,” Cohen says. For those who run on adifferent plan year other than January, the design considerationsmust be determined now in order to offer concrete options for openenrollments, she says.

W-2 insurance reporting

The PPACA requires that beginning in 2013, W-2 reporting willneed to list employer-sponsored health coverage for the calendaryear of 2012. Although this is not a 2013 provision, employees willnotice the changes beginning in January of next year, and it’snecessary for HR to convey this to individuals.

“Employees have concern that their tax-free health coverage willbe taxable, which will not be the case,” Cohen says. “Thecommunications challenge for employers is to now let employees knowthat this is just information reporting and is not going to betaxed.”

This provision affects employers of larger companies with 250 ormore employees, but those who receive life insurance as a retireeare also required to report their expenses as well.

SBC notification and exchanges

Beginning Sept. 23, during open enrollment periods, andcontinuing through next year, employers were required to offeremployees a four-page summary benefits coverage of the packagesmade available to an employee for a company’s group healthplan.

“[This is] a four page document that tells individuals whatbenefits are offered under the plan, how much they cost and it hasto be in a uniform format that the government has put out,” Cohensays. “The idea is that it makes it easier for individuals who arepurchasing coverage to compare the different coverages.”

In order to become compliant with this, it’s important foremployers and HR to work with their benefits managers and accessthe guidance that has been introduced by government agenciesincluding the Internal Revenue Service the Department of Labor, andthe U.S. Department of Health and Human Services.

“They have provided templates and instructions,” Cohen says.“This requirement is for health plans large or small.” Cohen alsonotes this will be the same format of the state insuranceexchanges, when they are up and running in 2014.

The state insurance exchanges also require contingency planningfor the following year of 2014, when they are established withineach state. Beginning next year it’ll be necessary to offeremployees notice of these state insurance exchanges, by March 1, incompliance with the DOL guidance that takes precedent in thisnotification.

“States are still considering if they will adopt the exchange orif the federal government will run the exchange for them,” shesays. “They will very soon have to put out some guidance, but rightnow we don’t have specifics around the exchanges.”

Cohen notes there’s no preparation necessary on behalf of HR orbrokers for this provision; it’s simply wait-and-see.

Medicare wage expense

The Federal Insurance Contribution Act Medicare tax rate willincrease among individuals with earnings greater than $200,000 and$250,000 for couples filing joint returns. This provision was setin place as a revenue-raising activity. It’s dependent on theemployer to collect the tax of 0.9 percent, but this “will notincrease the employer’s share of Medicare tax,” according to SamHoffman, a partner at Foley and Lardner, who specializes in healthcare.

“What employers really have to focus on is to set up the payrollsystem to increase the tax for employees who meet these limits,”Hoffman says. “Most people have thought it through.”

Hoffman doesn’t believe there’s a great need for strongcommunications campaigns because the 0.9 percent increase will benoted on pay stubs for individuals affected by this. However,employers should have prepared their payroll systems if theyhaven’t done so already to ensure this provision is met beginningnext year. HR also should prepare themselves for questions thatcould arise in this arena.

“It is the responsibility of the employer to increase thewithholdings of individuals earning more than $200,000 a year,”Cohen says. “Typically, the employer’s payroll system will need tobe programed for that increase. It’s not so much the responsibilityof HR as it is payroll, but there is a communications issue.”

For preparation purposes, Cohen echoes a strong necessity forboth HR and brokers to be completing preparation as soon aspossible.

“Most of these things, if they haven’t been implemented, theyshould be hurrying now,” she says.

Tax deduction limits

The income-tax deductions for health expenses sit at 7.5 percentof the adjusted gross income, but as of next year this will beraised to 10 percent of the AGI. Although, during a four yearperiod of 2013 to 2016, those turning 65 (and their spouses) won’tbe subject to this provision.

While this scarcely affects employers and HR, it will largelyaffect individuals and their taxes, which can require benefitsmanagers to step in and work with individuals on a betterunderstanding of this provision.

“This is more for individuals who file on an individual basis,”Cohen says. “It doesn’t normally affect an employer’s group healthplan.”

Hoffman also paralleled a related sentiment that if you’re anemployee under a group health plan, this is irrelevant, however,“if you buy your own health insurance then you’ll need to notatethe cost to yourself and how to itemize thosedeductions.”