The Health Care Reform Act and its Impact on Nonprofits

The Patient Protection and Affordable Care Act [PPACA] and the Health Care Reconciliation Act [HCRA] combined, also known as the Health Care Reform Act was passed on March 23rd, 2010. Some provisions begin immediately and others are spread out over several years. Here are the most prominent that nonprofit organizations should be aware of.

Tax Credit
Beginning this year (2010), the Health Care Reform Act allows small business a tax credit for health care provided to employees. The rules for eligibility are somewhat complicated, but if you have between 10 and 25 full-time employees, small businesses can take advantage of the credit which directly reduces taxes due. If your nonprofit is subject to UBIT (unrelated business income tax), you qualify to take this credit against your UBIT.

Lifetime benefit limits, pre-existing conditions limits for children, and emergency room coverage.
Effective immediately, no health insurance policy may impose a lifetime limit on benefits. Effective 90 days after the bill’s passage, group insurers may not exclude coverage for illness for children under the age of 19 who have pre-existing conditions. (Other pre-existing condition limitation rules phase in during later years.)

Emergency room coverage changes for any health plan issued after September 23, 2010. If your health insurance offers emergency coverage (and most do), review the law with your insurance carrier. A very major change is that patients who receive emergency room care must have their costs covered at the same rate in the plan regardless of if the care is provided “in-network” or “out-of-network”.

Your next step: Set up a meeting with your plan administrator and be sure your plan outlines these provisions.

W-2 Reporting
Beginning in 2011 (W-2’s sent in 2012), employers must include the value of health care benefits that they provide to employees. This requirement is also enforceable in 2011 for any employee who leaves and requests their W-2 early.

Costs that must be reported include medical, prescriptions benefits, executive physicals, some on-site clinics, Medicare supplemental policies and employee assistance programs. Dental and vision must also be included unless they are stand alone plans. You must also report any of these costs provided under COBRA for a terminated employee.

Your next steps:Be certain your payroll system is ready for collecting this data. As long as you are collecting this data in Sage MIP or AccuFund, you can note which box it belongs in on the W-2 on the Benefit or Deduction Item. You can also create an item to input (or import) the amounts even if you do not use the item to process your payroll. If you use an outside PR source, be certain that they are collecting this information or have a way for you to transmit the information to them before they produce the W-2s in 2012.

Grants for wellness programs
The PPACA sets aside $200 million over five years to help companies encourage their employees to improve their health and lifestyles. The government will begin awarding grants in 2011 for small companies (less than 100 employees who work 25 hours or more per week) to establish wellness programs. These companies cannot have had a wellness program in place before March 23, 2010. HHS is developing the criteria that should include health awareness initiatives; efforts to maximize employee utilization; changing unhealthy behaviors and lifestyle choices; and supportive environment efforts.

1099s
Currently, you report only payments made in excess of $600 to individuals, partnerships, and sole proprietors for services performed. Beginning in reporting year 2012 (1099s issued in 2013), you must report ALL PAYMENTS paid to any business (including corporations) for property or services. In essence, for just about anything you buy. This includes payments made for inventory and supplies as well as for machinery and equipment as well as professional services. If you buy a computer over $600 you will issue a 1099; if you pay for a remodel on a leased property, you will issue a 1099.

Your next step: Start collecting a Form W-9 from every vendor and enter that information into your system over the course of the next year. There may be some push to change this law– consider the enormous influx of 1099’s the IRS will have to deal with – but there is no guarantee that change will happen. (The IRS estimates that as much as $300billion of tax revenue goes uncollected because of under reported income.)

Medicare payroll tax
In 2013 high-income individuals will be required to pay an additional .9% for Medicare. Employers will NOT pay that additional amount. Currently, employees and employers share 2.9% for Medicare (1.45% each). Beginning in 2013, certain individuals will pay 2.35% on income over certain thresholds while the employer continues to pay 1.45% regardless of pay.

Your next steps:Both Sage MIP and AccuFund will make the necessary changes to capture the correct data for these high-income individuals. If you use an outside payroll service, get a written confirmation that their system will make those changes as well. Most regional and national firms are already aware of this requirement.