Health care reform: planning for the future, part two
(Editor's note: This is the second of two parts. Read part one.)
Once a company has acquired a full list of health care reform requirements, it is ready to move onto the next two steps designed to prepare executives for the financial impact of health care reform and related decisions that will need to be reviewed.
STEP TWO: Companies should develop an understanding of the requirements and address key questions:
• What does the company need to do to implement and comply with the new requirements?
• Who is ultimately responsible for ensuring the company's compliance?
• Are all involved parties (such as the company's health insurance company and human resources personnel) working together in a manner that ensures no aspect of any requirement, no matter how small, is overlooked?
• Are there key decisions that need to be made in connection with implementing certain requirements?
Developing an understanding of the requirements and addressing key questions is where the challenge of health care reform really unfolds. Consider, for example, the seemingly straightforward requirement for plans to cover children up to age 26. In implementing this new requirement, companies should consider the following:
• Decide whether to exclude from the plan a child who is eligible to enroll in another employer-sponsored plan (allowed only until 2014).
• Decide on the specific date the plan will stop covering children (e.g., the day the child turns age 26, the last day of the plan year in which the child turns age 26 or some other day beyond age 26).
• Decide whether to increase the employees' share of the cost of covering children in order to minimize the impact of this change on costs. But be careful: This could create a plan modification that causes additional health care reform rules to apply (rules that otherwise don't apply to plans that were in existence when health care reform was enacted).
• Adopt a written amendment to the cafeteria plan before the first day of required coverage. (Health care plans are almost always part of a cafeteria plan. The amendment to the cafeteria plan must be made to preserve the tax-free status of the plan for employees.)
• Given the potential increase in costs related to dependent coverage, consider conducting periodic dependent eligibility audits to ensure that the plan is covering the appropriate individuals.
At first, adjusting health care plans to comply with new requirements seems like a daunting task, but we have found that a full diagnostic review is the best approach. It develops a thorough understanding of what actions companies are required to take, creates a detailed plan customized to a company's unique situation, and provides the essential information needed to make the right decisions. Health care reform is a complex topic that will continue to evolve, and companies who tap into the insight of experts who understand the financial implications will be able to prepare effectively and not get bogged down by the details.
STEP THREE: Implement the requirements on a timely basis and monitor ongoing compliance. The list of considerations above for covering dependents up to age 26 provides an excellent example of this.
"The list identifies specific actions that companies should take. Multiply that by 24, which is the number of new rules for plans, and you start to get an idea of the implementation burden. If companies don't put together a similar implementation list for each and every requirement, there's just no way that they are going to be able to comply with all these new rules," said Eddie Adkins, a Compensation and Benefits partner in Grant Thornton's Washington National Tax Office. "And that's just the beginning. As with any legal requirement, a system must also be put in place to monitor ongoing compliance. In other words, it isn't good enough to follow a new rule today. You have to keep doing it, day after day and year after year."
Health care reform will be a challenge, but in today's world, companies are no strangers to change and the need for flexibility to adapt to it. To prepare for the provisions that go into effect next year (and the following years), the time to get started is now.
Scott Remington has more than 20 years of providing tax consulting, compliance, accounting and business advice. He is also the Tax Practice Leader for the Denver office of Grant Thornton LLP, responsible for coordinating the delivery of services and tax savings solutions from Grant Thornton's specialty service groups. He can be reached at email@example.com.