Many employers will recall that health care reform was a priority of the Clinton Administration’s first term. It wasn’t until 2010, however, that the Obama Administration was able to push reform legislation through Congress. As House Speaker Nancy Pelosi said at the time: “We’ll just have to pass it, so we can all see what’s in it.” Many employers are regretting that decision, as the actual provisions of the law become apparent.
Health care reform includes expanded coverage, disclosure, and reporting rules, as well as individual and employer mandates, which can create substantial costs of compliance. The health care reform requirements become effective over a range of years beginning in 2010 through 2018.
Effective Jan. 1, 2014, most individuals must acquire or maintain minimum levels of health insurance coverage or pay a tax based upon a percentage of their income. The individual penalty increases annually to a maximum of $695 per adult and $2,085 per family in 2016. The penalty in 2014 is $95 per adult and $285 for a family. These penalties are far, far less than the likely cost of paying for individual/family coverage. In theory, if household income falls below certain thresholds, tax credits may be available to help pay for coverage. The law calls for creation of Health Insurance Exchanges where individuals and small employers can purchase coverage. Implementation of Exchanges has again been delayed. It remains to be seen whether coverage through the Exchange – with our without tax credits – will be an affordable incentive for individuals.
Of more concern to employers is the so-called Employer Mandate that also takes effect on Jan. 1, 2014. Under this provision, employers that fail to offer minimum essential health coverage to substantially all of their full-time employees or offer coverage that is not affordable or does not provide minimum value can be penalized. Let’s look a little closer at all of this.
Closeup on the employer mandate
The Shared Responsibility Mandate applies to “large” employers. This is defined to mean all private or public employers with 50 or more full-time employees. All employees who work more than 30 hours are considered full-time. To complicate things a little, “full-time employees” must also include part-time employees whose hours add up to “full-time employee equivalents” by adding their hours and dividing by 120. The answer is the number of FTEs. Note that there are special rules for counting workers with irregular hours, seasonal workers, employees on leaves of absence, etc. If your full-time employee plus FTE headcount is over 50, you are a large employer under the ACA. If you are a covered employer, you must offer “minimum essential coverage” to all full-time employees.
Minimum essential coverage is pretty much the standard health insurance package that most employers offer today. Covered employers cannot have a waiting period longer than 90 days before coverage is offered to full-time employees. Coverage need only be offered one time during the plan year; this is similar to a typical enrollment period applicable to most benefits plans today.
Minimum essential coverage must also meet an “affordability” test and provide minimum value in order to avoid penalties. Affordability means that the employee’s share of the premium cost does not exceed 9.5% of the employee’s household income for that tax year. IRS guidelines provide three ways to prove affordability: W-2 wages, Rate of Pay, or the Federal Poverty Line. In essence, the test compares the employee contribution to wages paid to see if the employee is contributing more than 9.5%. If you meet any one of these, you survive the affordability inquiry.