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On June 28, 2012, the United States Supreme Court ("Court") issued its landmark decision on the constitutionality of the Patient Protection and Affordable Care Act ("Act"), and ruled that all of the challenged health care reform provisions in the Act are constitutional other than a portion of a Medicaid expansion provision. Although future challenges to the implementation of some or all of the Act will occur through the electoral process, additional litigation, and the legislative process, those challenges are unlikely to result in any significant changes in the requirements of the Act before the end of this year at the earliest. In the meantime, there are a number of new requirements in the Act that covered employers will need to comply with in the near future, including:

• finalizing the Summary of Benefits and Coverage that most employers will be required to provide on the first day of open enrollment this fall;
   
• taking the steps necessary to comply with the $2,500 annual limit that will apply to health flexible spending accounts beginning in 2013, including making sure that open enrollment materials that will be distributed to eligible employees prior to the beginning of the 2013 plan year accurately describe the new limit; 
   
• implementing any procedures necessary to track and record health coverage costs in 2012 to prepare for the new Form W-2 reporting requirement for group health plan coverage costs that will apply to Forms W-2 that will be issued by certain employers in January of 2013; and 
   
• coordinating with any applicable insurer or administrator to make sure that the research fees that will be imposed by the Act on specified issuers of health insurance policies and plan sponsors of self-insured health plans starting with the first plan or policy year ending on or after October 1, 2012 are timely paid in 2013.

In addition to these requirements, the Act will impose numerous other requirements on covered employers in the next few years that should be planned for in advance of the applicable deadlines. Some of the more important of those requirements are described below.

What Were the Major Decisions Made By the Court With Respect to the Act?

The major decisions made by the Court in its June 28, 2012 decision in National Federation of Independent Business v. Sebelius included the following:

• The Anti-Injunction Act Did Not Preclude a Current Ruling on the Constitutionality of the Individual Mandate -- The Act requires most individuals to have minimum essential health coverage in 2014 or pay a penalty (this requirement is commonly referred to as the "Individual Mandate"). A procedural issue that arose with respect to the constitutional challenges to the Individual Mandate is whether such challenges would be precluded by the Anti-Injunction Act. The Anti-Injunction Act generally precludes a lawsuit to prevent the imposition of a tax if that tax has yet to be paid. The Court held that the Individual Mandate penalty was not a tax for purposes of the Anti-Injunction Act, and thus the Anti-Injunction Act did not preclude a constitutional challenge now to the Individual Mandate penalty even though the penalty has yet to be imposed.
   
• The Individual Mandate is a Constitutional Exercise of Congress' Right To Impose Taxes -- The Court held by a 5 to 4 majority that the Individual Mandate is constitutional, because it can be construed as a "tax" that may be imposed by Congress as part of its general constitutional right to impose taxes (Section 8 of Article I of the United States Constitution provides, in part, that Congress may "lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the ... general Welfare of the United States"). Notwithstanding the fact that the Individual Mandate penalty was held not to be a tax for purposes of the Anti-Injunction Act, the Court held that the penalty still could be construed as a "tax" for purposes of the tax provision in the United States Constitution ("Constitution"). Although a different 5 to 4 majority of the Court held that the Act was unconstitutional under the "Commerce Clause" and the "Necessary and Proper Clause" of the Constitution, those holdings do not preclude implementation of the Individual Mandate because of the holding that the Individual Mandate is a constitutional tax.
   
• A Portion of the Medicaid Expansion Provision Was Held to be Unconstitutional -- The Act will expand Medicaid in 2014 to cover certain persons who are under the age of 65, who have income that is not greater than 133 percent of the federal poverty level, and who previously were not eligible for Medicaid. If a state refuses to include these newly eligible persons in its Medicaid program, the Act provides that the state could lose all of its federal funding for Medicaid (i.e., not only the federal funding for the persons who will be newly eligible in 2014, but also the federal funding for all other persons eligible for Medicaid). The Court held by a 7 to 2 majority that the threat to withdraw all federal funding for Medicaid was coercive and a violation of the "Spending Clause" in the Constitution. The Court held, by a 5 to 4 majority, that this unconstitutional feature of the Act was severable from the remainder of the Act, and that the Act's expansion of Medicaid could occur as long as the penalty for a state not choosing to cover the newly eligible persons is only to lose federal Medicaid funding for those newly eligible persons (as opposed to losing federal Medicaid funding for all individuals eligible for Medicaid).

What Are Some of the More Important New Requirements in the Act That Employers Will Need to Comply With in the Near Future?

Among the more important new requirements of the Act that covered employers will need to comply with in the near future are the following:

• Summary of Benefits and Coverage Requirements -- The Act generally requires a group health plan to provide to participants and beneficiaries a Summary of Benefits and Coverage ("SBC") on the first day of the first open enrollment period beginning on or after September 23, 2012. The SBC is intended to be a short summary of the applicable benefits and coverage that can be used by participants and beneficiaries to compare different health plans. Regulations and frequently asked questions ("FAQs") have been issued that include detailed requirements on what must be included in an SBC, when an SBC must be distributed outside of an open enrollment period, notice requirements when midyear material modifications are made to an SBC, permissible methods of distributing an SBC, and other related requirements. These requirements are summarized in our November 2011 Employee Benefits Law Action Memo, our February 2012 Employee Benefits Information Memo, our March 2012 Employee Benefits Information Memo, and our June 2012 Employee Benefits Action Memo. To the extent not already done, employers should verify that the required information for their SBCs is being compiled and will be ready for timely distribution.
   
• New Annual Limit for Health Flexible Spending Accounts -- The Act and subsequent guidance provides that, for plan years that begin after 2012, an eligible employee may not make elective salary reduction contributions to a health flexible spending account ("Health FSA") in excess of $2,500 per year (this $2,500 limit will be indexed for inflation beginning in 2014). The U.S. Department of Treasury provided guidance on how to implement this annual limit in Notice 2012-40, and that guidance is summarized in our June 2012 Employee Benefits Action Memo. Employers should make sure that the open enrollment materials that will be distributed to eligible employees before the start of the 2013 plan year accurately reflect the new annual limit, and that they have coordinated with the administrator of their cafeteria plan to ensure that the new limit is properly implemented.
   
• New Form W-2 Reporting Requirement For Group Health Plan Coverage Costs -- Employers that provide "applicable employer-sponsored coverage" under a group health plan (other than certain "small employers" and certain federally recognized Indian tribal governments) are required to begin reporting the cost of group health plan coverage on the Forms W-2 that generally are required to be issued in January of 2013. This new Form W-2 reporting is for informational purposes only, and does not cause otherwise non-taxable employer-provided health coverage to become taxable. The Internal Revenue Service ("IRS") issued guidance on this new reporting requirement in Notices 2010-69, 2011-28, and 2012-9, and that guidance is summarized in our January 2012 Employee Benefits Law Action Memo. If not already done, employers subject to this new reporting requirement should make sure that adequate procedures are in place to track and record health coverage costs in 2012 in order that such information will be ready to be reported on the 2012 Forms W-2 issued in January of 2013.
   
• Research Fees That Will Be Owed By Many Health Plans and Insurers -- The Act imposes research fees on specified issuers of health insurance policies and plan sponsors of self-insured health plans, starting with the first plan or policy year ending on or after October 1, 2012. The first payment deadline for the research fee is July 31, 2013, and IRS Form 720 should be used to pay the research fee. The research fees will be used to help establish a private, non-profit corporation, the Patient-Centered Outcomes Research Institute, that will do health care research that is intended to help patients, clinicians, purchasers, and policymakers make informed health decisions. The IRS has issued proposed regulations that describe the applicable requirements for these research fees, and those requirements are described in our May 2012 Employee Benefits Action Memo. With the period for assessing the research fees starting later this year, employers that have health coverage that will be subject to the research fee should coordinate with any applicable insurer or administrator to make sure the research fee is timely and correctly paid.

What Are Some of the Other Important Upcoming Requirements in the Act That Employers Should Be Considering Now?

The Act has numerous other requirements that have yet to take effect that will affect covered employers. Among the more important of these requirements that such employers should plan for in advance are the following:

• preventive care requirements for women that certain health plans will have to implement starting with plan years that begin on or after August 1, 2012;
   
• medical loss ratio rebate requirements that will apply to certain insured health plans starting in August of 2012 (certain insurers that fail to spend a specified percentage of premiums received on covered medical claims and quality improvement-expenses will have to provide rebates to the applicable health plans starting in August of 2012, and employers that have such plans will have to decide how to handle such rebates);
   
• 2013 increases in Medicare payroll taxes and FICA taxes for certain highly compensated individuals;
   
• certain employers will be required to provide a notice to their employees in March of 2013 about the health insurance exchanges that will become operational in 2014 (in addition to this notice requirement, certain employers will want to do an analysis in 2013 about how the health insurance exchanges might impact the health coverage they provide);
   
• the employer mandate requirement (commonly referred to as the "pay or play" requirement) that will apply in 2014 to certain employers having at least 50 full-time equivalent employees, which will require those employers to decide whether they will provide minimum essential health coverage to their full-time equivalent employees in 2014 or pay a financial penalty;
   
• nondiscrimination requirements for certain insured group health plans that will apply after the applicable regulations are issued; and
   
• numerous other requirements that will apply to many group health plans in 2014 or later, including expanded dependent coverage rules for "grandfathered" health plans, new preexisting condition exclusion requirements, a restriction on eligibility waiting periods that exceed 90 days, a requirement to eliminate all annual dollar limits for covered group health plans, new incentive/penalty requirements for wellness incentives, new minimum essential coverage requirements, new clinical trial coverage requirements, new provisions regarding guaranteed availability and renewability of insured health coverages, changes to Medicare Part D coverage, new automatic enrollment requirements that will apply to certain employers after the applicable regulations are issued, and a new "Cadillac" plan excise tax that will apply in 2018 if the aggregate value of certain health coverages exceed a specified amount.