The penalties for not offering health insurance to your employees if you have 50 or more full-time or full-time equivalent employees in violation of the Affordable Care Act are set to rise again next year.
The IRS has increased the fines for employers that fail to provide health insurance for their workers under the ACA’s employer mandate, as well as for failing to provide coverage that is affordable or coverage that provides “minimum value.” The penalties will apply to plans that start on or after Jan. 1, 2024.
The way most employers find out that they may have violated the employer mandate is if they get a 226-J letter from the IRS, which would be prompted by one of your employees receiving premium subsidies after purchasing coverage on a government-run exchange.
Under the mandate, employers with 50 or more full-time or full-time equivalent workers are required to offer 95% of them affordable health coverage. There are two different penalties for violations:
The A penalty
This is levied on an applicable large employer (ALE) for failing to offer minimum essential coverage to 95% of full-time employees and their dependents and if just one of those employees receives a subsidy when they buy insurance on a government-run ACA marketplace.
New penalty amount:$2,970 per employee, up $90 from 2023.
This penalty can be especially damaging. While it is not assessed for the first 30 employees if triggered, it applies to all of the employer’s full-time employees, meaning costs can quickly add up.
The B penalty
This fine is levied if an applicable large employer fails to offer coverage that is affordable and/or fails to provide minimum value, and just one full-time employee receives subsidized coverage through the marketplace.
Coverage is deemed unaffordable if an employer fails to offer at least one self-only health plan where any employee’s share of the premium does not exceed 9.12 % (the 2023 threshold) of their household income. The affordability threshold has not yet been announced for 2024.
In order to provide minimum value, an employer-sponsored plan must cover at least 60% of average costs and provide substantial coverage for inpatient and physician services.
New penalty amount: The annual penalty for a type B infraction rises to $4,460 per employee in 2024, up $140 from this year. Typically, this penalty is broken down into monthly increments depending on how long an employee receives subsidized coverage on an exchange.
The takeaway
While you no doubt already offer coverage to your employees if you’re an ALE, it’s important to pay attention to next year’s affordability threshold.
Any downward change means you have to recheck to ensure that at least one of your plans offers coverage deemed affordable to your lowest-paid employee.
Also, be especially mindful during the new-employee onboarding process to ensure they are properly identified and offered coverage.
If the IRS suspects you are out of compliance, it will send you a 226-J letter. You’ll be glad you have all your paperwork in order if you receive one of these letters.
The 226-J letters are also sent to employers if they make mistakes on their Form 1095-C.
If you receive one of these letters, contact us for assistance.
Three drugmakers, which account for roughly 90% of the insulin in the U.S. market, in March 2023 announced that they will cap the cost of insulin for people with private insurance plans.
That includes those on employer-sponsored group health plans and plans purchased on a government-run exchange. The changes mean some or many of your employees will see significant reductions in their pharmaceutical outlays, particularly if they have high copays or deductibles.
The moves come after the Inflation Reduction Act, signed into law in 2022, capped out-of-pocket insulin costs for seniors on Medicare at $35 per month. However, the law does not apply to people younger than 65 who also need insulin.
According to the Centers for Disease Control and Prevention, an estimated 28.7 million people — or 28.5% of the population — were living with diagnosed diabetes in 2022, and chances are high that most employers have workers with the condition. Out of that population, 8.4 million use insulin, according to the American Diabetes Association.
Eli Lilly was the first company to announce, on March 1, that it would cap the cost of all its insulin products at $35 per month, with immediate effect.
On March 14, Denmark-based Novo Nordisk announced that it would lower the U.S. list price of some of its insulin products by up to 75%, putting the fast-acting insulins NovoLog and NovoLog Mix 70/30 at $72.34 for a single vial and $139.71 for a pen. The new pricing will take effect Jan. 1, 2024.
Finally, Sanofi two days later announced that it would cap the out-of-pocket cost of its most popular insulin, Lantus, at $35 per month for people with private insurance. This change also takes effect Jan. 1, 2024.
These changes will bring relief to millions of Americans, particularly after years of insulin makers jacking up their prices. A report on National Public Radio in 2022 noted that the cost of insulin had increased 600% in the past 20 years.
Another report found that some people with high-deductible health plans were paying $350 to $600 a month, for a medicine that costs $6 to make.
Next steps
There are moves afoot to force the industry to cap the price at $35 a month. Legislation has been introduced in Congress that would force drugmakers to cap their insulin price at that level.
You may want to circulate this news with your employees, so they are aware of the new pricing. A 2022 analysis by the Kaiser Family Foundation found that most people on private health insurance would benefit:
In the individual market, the median cost health plan enrollees pay for insulin is $62 per month. One-quarter of them pay $105 a month.
In the small group market, the median cost health plan enrollees pay is $54 per month, while one-quarter pay $83.
In the large group market, the median cost health plan enrollees pay is $54 per month, and one-quarter pay $77.
A surge in demand for pricey, new and highly effective anti-obesity medications could put a financial strain on employers who sponsor their employees’ health plans.
Employers have long offered coverage for certain weight loss tools, such as bariatric surgery if employees qualify for the drastic procedure that requires an operation. Other medications that have been on the market for some time have limited effect, don’t work for everyone and can have serious complications.
But a new class of drugs that has hit the market in the last few years has proven extremely effective in helping people lose weight. As a result, pharmaceuticals like Novo Nordisk’s weight-loss-specific Wegovy and Saxenda, and Ozempic — a diabetes medication from the same company — are now in high demand.
There’s one big catch: These drugs are very costly, putting employers in a quandary. They want to attract and retain high-quality talent, but they don’t want to break the bank on their employee benefits offerings.
A recent survey by the Obesity Action Coalition found that 44% of people with obesity would switch jobs if it meant gaining access to obesity treatment coverage. Likewise, 51% would stay in a job they didn’t like to have access to the coverage.
These findings are significant considering how much these drugs cost and the fact that once someone starts taking them, if they stop, they will usually start gaining weight immediately.
What are these drugs?
This class of pharmaceuticals, known as glucagon-like peptide agonists (GLP-1s), have shown to be highly effective in helping people lose excess weight.
Since news spread of how effective they are, demand for these medications has skyrocketed.
Just three years ago, few people had heard of these drugs and they were not often prescribed, but that’s all changed.
For example semaglutide, which is known under the brand names of Ozempic, Wegovy and Rybelsus, was the fourth-most prescribed drug in terms of total costs in 2021 at $10.7 billion, an increase of 90% from the year prior, according to a report in the American Journal of Health-System Pharmacy.
While many of these drugs are injectable, some like Rybelsus come in pill form.
Shocking costs
Experts warn that if more workers seek out these drugs, payer outlays will spike, resulting in higher group health plan premiums for employers.
The list price of Wegovy is $1,350 per package, which breaks down to about $270 per week — or $16,190 per year.
That said, obesity has its own significant costs and proponents of these medications point at the potential for reduced costs on the back end if people lose weight and keep it off.
Medical costs of obesity in the U.S. were $173 billion in 2019, according to the Centers for Disease Control.
An unsustainable trend
It’s estimated that about 60% of large employers’ health plans cover one of these drugs, although with restrictions, including minimum body mass index (BMI) requirements and prior authorization.
Health plans may require enrollees who qualify for obesity care to first use other lower-priced anti-obesity drugs before they move to a GLP.
The American Gastroenterology Association recommends weight loss drugs for anyone who has a BMI over 30, or 27 if they have other medical complications, such as heart disease or diabetes. According to the CDC, 42% of Americans have a BMI over 30, which is considered clinically obese.
As the uptake of these drugs increases, employers and their health plans will need to make painful choices of to what extent the medications should be covered. Insurers are already considering ways to ensure that people who will most benefit from these drugs have access to them.
The IRS has raised the maximum amount people can funnel into their health savings accounts by 7.8% for 2024, the largest increase ever, brought to you by inflation.
The IRS updates this amount annually, along with minimum deductibles as well as the out-of-pocket maximums for high-deductible health plans. Under its rules, HSAs, which help employees save for medical expenses, are only available to those enrolled in qualified HDHPs.
Here are the changes coming in 2024:
HSA annual contribution limit
Self-only plan: $4,150, up 7.8% from $3,850 in 2023
Family plan: $8,300, up 7% from $7,750 in 2023
Catch-up contribution (for those aged 55 and older): $1,000 (unchanged)
HDHP minimum annual deductible
Individual plan: $1,600, up from $1,500 in 2023
Family plan: $3,200, up from $3,000 in 2023
HDHP annual out-of-pocket maximum
Individual plan: $8,050, up from $7,500 in 2023
Family plan: $16,100, up from $15,000 in 2023
The many benefits of HSAs
An HSA is a special bank account for your’ eligible health care costs. You can put money into your HSA through pre-tax payroll deductions, deposits or transfers. As the amount grows over time, you can continue to save it or spend it on eligible medical and medical-related expenses.
Funds in an HSA roll over from year to year and can earn interest. Many plans also have investment options for the funds to help savers further grow the account.
There are a number of benefits for employees who have an HSA:
The money you contribute to an HSA is not subject to income taxes, which reduces your overall taxable income.
You are not taxed on withdrawals.
If you contribute to their HSA with after-tax money, they can deduct your contributions during tax time on Form 1040.
You can tap the funds for any approved out-of-pocket medical expenses.
You can also grow the account tax-free by investing the funds in the account, sort of like a nest egg for medical expenses in retirement. (That said, 62% of account holders spend the money on year-to-year or near-term expenses, according to a report by the Employee Benefit Research Institute.)
HSA-eligible expenses:
Payments for services or medicine that go towards health plan deductibles, copayments or coinsurance.
Dental or vision care (including orthodontics, eye exams, corrective lenses),
Medical devices.
Certain over-the-counter medicines, like pain relievers, allergy medication, cold and flu medicine, and menstrual products.
Vitamins and health supplements, if recommended by a medical or health professional for the treatment or prevention of a specific disease or condition.
Employers offer flexible savings accounts and health savings accounts to their employees so they can build up funds with pre-tax dollars to pay for health care and related expenses.
For the most part, people use their funds in FSAs and HSAs to reimburse themselves for out-of-pocket costs like copays, health insurance deductibles and the cost of prescription medications.
Unfortunately, many people don’t take full advantage of their FSAs and HSAs — and they could be getting reimbursed for a number of items they already are purchasing.
But while funds in an HSA roll over each year, the funds in an FSA must usually be spent by the end of the year, unless the employer allows its staff to carry over a certain amount to the following year.
Employers can offer one of two options to give their employees more time to spend their funds:
Grace period — You can provide an extra 2.5 months each year to spend the money in their flex accounts, which in most cases means until March 15 of the following year. In essence, they get 14.5 months to spend the funds. Whatever they don’t spend goes back to you, the employer.
Carry over — This allows your employees to keep some of the unspent money in an FSA from one year to the next.
In 2023, the maximum an employee can carry over is $610. This means that if they have money left in their FSA at the end of the plan year in 2023, they can keep up to $610 of it. If they have more than that at the end of the year, the rest goes back to you.
As a result, while employees with HSAs are not pressured to spend funds in their accounts every year, those with FSAs are. According to the Employee Benefit Research Institute, 48% of workers forfeited an average of $408 of their FSA funds in 2020.
Both FSAs and HSAs have the same rules for what they will cover.
However, employees often are unaware of the myriad of goods and services they can spend their funds on. To help your staff, you can educate them about these goods and services, and often the companies that host these accounts will provide a list of them. Typically, an expense is eligible if it mitigates, treats or prevents a specific disease or ailment from affecting the body.
These expenses are eligible too
You may also want to let them know about these 16 surprising eligible expenses:
Over-the-counter medicines — Anything from cough syrup and pain relievers to allergy medications and eyedrops.
Menstrual hygiene products
A fitness program if the person is suffering from a health issue like diabetes, hypertension or obesity.
Inflation is not just affecting the cost of food and fuel. It’s also spilled over to the price of almost every industrial item, as well as building materials and services.
Anybody running a business, particularly one that carries inventories or has to invest in machinery or electronics, has seen prices increase on top of wage inflation in a red-hot job market with strong economic expansion.
All of that inflation, however, is leading to higher insurance costs, largely due to the increasing cost of claims in almost all areas of coverage.
On top of that, jury awards for both third party injuries and employees filing discrimination, harassment or other employment-related lawsuits are also on the rise.
Additionally, even the cost of adjusting and managing claims has jumped nearly 20% in the last year, according to a recent American Property Casualty Insurance Association (APCIA) report.
A survey by The Council of Insurance Agents & Brokers found that in the second quarter of 2022, businesses were paying on average 6.1% more for their commercial insurance policies than they were in the same quarter of 2021.
But rates will vary between regions as well as business sectors. Companies in areas at high risk for natural disasters are seeing higher rate hikes than those in relatively calmer areas, for example. Additionally, some states have higher jury awards than other states.
Commercial insurance policies that are seeing the most noticeable increases in claims costs, and in turn insurance rates, include:
Commercial auto — Auto insurance is feeling pressure on two fronts: the cost to repair vehicles and liability costs in terms of rising jury awards and medical costs for injured third parties. The average rate hike for commercial auto policies was 7.2% in the second quarter of 2022, compared to the same period in 2021.
According to the APCIA report: “The frequency of attorney representation in commercial auto claims has been increasing, and the relative costs of resolving claims are significantly higher for claims with attorney representation, including taking considerably longer to resolve for consumers.”
Repair costs have increased substantially, adding to the cost of claims.
General liability — General liability insurance is affected by many of the same lawsuit trends that affect commercial auto policies, including the number of large “nuclear” verdicts in lawsuits. These verdicts can be in the tens of millions of dollars, if not more. Settlement costs and legal fees continue to increase as well, adding to the cost of claims.
According to the APCIA, insurance industry incurred losses for commercial general liability have skyrocketed more than 57% since 2017. According to the agents’ and brokers’ council, rates increased an average of 4.7% in the second quarter of this year.
Commercial property — Construction costs have skyrocketed in the wake of unprecedented building material cost increases, a labor shortage in the construction industry and supply chain constraints, leaving contractors short of materials to complete jobs.
For example, between December 2019 and December 2021 the price of construction materials boomed 44%, with some lumber prices up 400% in the summer of 2021.
Rates in the second quarter increased 8.3% from the second quarter of 2021, and while that rate is high, it’s compared to average rate increases of 10.3% in the fourth quarter of 2021.
Cyber — The cost of cyber insurance is climbing 25% a year, thanks to increasing cyber attacks, increasing costs of ransoms demanded by ransomware criminals and rising cyber-attack business interruption costs, according to the agents’ and brokers’ council.
Another factor affecting the cost of cyber coverage is capacity (not enough insurers in the market). Also, insurers are raising deductibles and offering more restrictive terms to reduce their overall exposure.
The takeaway
With rates continuing to increase, it’s important that businesses take steps to manage their risks and reduce the chances of being sued, be that by third parties or their own employees.
It means having your internal policy procedures geared toward reducing the chances of discrimination (disability, race, sex, sexual orientation, etc.) or harassment lawsuits being filed by your staff.
It also means regular safety training for your workers to reduce the chances of customers, the general public or vendors that come onto your property being injured.
And it means taking steps to reduce the chances of your business being affected by a natural disaster. Mitigation steps will vary depending on the type of threat your business may face.
