If you were like most business decision-makers in the winter and spring of 2013, you were frantically trying to prepare for the implementation of the Affordable Care Act’s (ACA) employer-mandate provision that was set to go into effect Jan. 1, 2014. Business decision-makers at large employers across the nation heaved a collective sigh of relief […]
If you were like most business decision-makers in the winter and spring of 2013, you were frantically trying to prepare for the implementation of the Affordable Care Act’s (ACA) employer-mandate provision that was set to go into effect Jan. 1, 2014.
Business decision-makers at large employers across the nation heaved a collective sigh of relief on July 2, 2013, when the U.S. Treasury Department announced that enforcement of the employer mandate would be delayed until 2015.
Our yearlong reprieve is almost at an end, however. Over the past 12 months, the U.S. Department of the Treasury has issued final clarifying regulations regarding the provisions of the mandate, which include yet another one-year delay in potential penalties for small employers. Whether your business is subject to the employer-mandate provision in 2015, or 2016, here is what you need to know to be prepared for this complex piece of legislation and to avoid unnecessary, costly penalties.
The employer mandate, often referred to as the “pay or play” mandate, establishes that large employers must offer the majority of their full-time employees, and their children, health-benefit coverage that is affordable and meets established minimum-value requirements, or else they may be subject to a financial penalty.
The first step in determining if your organization will be subject to the employer mandate is determining whether or not your business meets the definition of a “large employer.” While this determination will be obvious for some, ACA defines a large employer as an organization with at least 50 full-time and full-time equivalent employees during the preceding calendar year.
In this definition of a large employer, the Department of the Treasury recently established a transitional rule. For calendar year 2015 only, a large employer will be defined as having 100, rather than 50, full-time employees. This exception will only be granted to an organization, however, that did not reduce its workforce or overall number of workable hours simply to avoid incurring an ACA penalty, and that did not eliminate or materially reduce any health benefits that were in effect as of Feb. 9, 2014, (the date that the transitional rule was announced).
Employers with less than 100 full-time employees will not be subject to penalties in 2015, but they will still have to report information to the IRS regarding their number of full-time employees and the plan coverage made available to those individuals.
Defining a full-time employee
Once it has been determined that your organization meets the definition of a large employer, you should look to the ACA’s definition of a full-time employee. A full-time worker has been defined by the ACA as an individual who works an average of at least 30 hours per week (or 130 hours per month). This definition includes both work time and paid time off.
To ensure consistent calculation methods, the ACA has established two methods of determining full-time status: the monthly method, and the look-back method. Both options require detailed administrative monitoring of hours worked on an individual-employee level over a period of several months.
It is important to note that by defining a full-time employee as one working at least 30 hours a week, the employer mandate’s definition will supersede your organization’s existing definition of a full-time staffer. For organizations that previously defined full-time employees as those working 35 or 40 hours a week or more, this federal definition now increases the number of employees who must be offered health benefits.
For many employers — especially retailers, municipalities, and other companies reliant on a large part-time workforce — the financial impact of expanding health-plan eligibility could be significant. However, the cost of not providing adequate coverage to these individuals could be even more impactful, as it would come in the form of penalties established under the ACA.
The delay in the employer-mandate provision did not result in significant changes in the pay-or-play penalties themselves. As previously established under the ACA, two penalties could apply to employers who fail to meet the law’s requirements for offering affordable and adequate coverage. First, the “no offer penalty” is imposed when an applicable large employer fails to offer health coverage to substantially all full-time employees, and their children, and at least one full-time employee purchases health coverage on an exchange with premium assistance.
Subsidies are available for individuals whose annual household incomes are less than 400 percent of the federal poverty level. If only one of your firm’s full-time employees who, by definition of your health-benefit plan’s eligibility requirements, is not eligible for coverage but obtains a subsidy to purchase coverage on the exchange, your organization will be subject to the no-offer penalty.
The penalty is calculated on a monthly basis, and is equal to 1/12 multiplied by $2,000 for each full-time employee at your organization, less the first 30 fill-time employees. Since the penalty is not based on just the number of full-time employees who obtain subsidized exchange coverage, but on almost your entire full-time employee population, the penalty costs could be extremely significant.
There is a transitional rule for 2015 to continue to help employers make the administrative changes needed to avoid unnecessary penalties. For calendar-year 2015 alone, a large employer will be deemed as having offered health coverage to “substantially all” of its full-time employees, and will avoid the no-offer penalty, if it offers health benefits to at least 70 percent of its full-time employees, rather than the 95 percent previously described in the initial regulations. Employers that benefit from this transitional rule, should work with their benefits administrators or insurance carriers to make the eligibility requirements necessary of its health plan in order to meet the 95 percent requirement prior to 2016.
The second penalty established for large employers under the ACA is the “unaffordable or inadequate coverage penalty.” This penalty is imposed when an applicable large employer offers medical coverage that is determined, based on established minimum-value criteria, to be unaffordable or inadequate. Again, if only one full-time employee purchases health insurance on an exchange and obtains premium assistance, a penalty will apply.
The unaffordable or inadequate coverage penalty is calculated as 1/12 multiplied by $3,000, multiplied by each full-time employee that obtains premium assistance on an exchange. While the dollar amount for this penalty is more significant on a per individual level, unlike the no offer penalty, the unaffordable or inadequate coverage penalty is only imposed on just the number of full-time employees who purchase subsidized coverage on an exchange.
With the growing list of federal requirements for what each health plan must cover, compounded by the increasing cost of medical care itself, some employers have considered whether they would be better positioned financially to simply terminate their health-benefits plan and absorb the applicable penalties. If this thought has crossed your mind, consider the importance of health-benefit coverage from an employee recruitment and retention perspective. While the ACA’s exchanges have reduced the total number of uninsured Americans across the country, most individuals still value an employer that offers a comprehensive benefit package.
Employers have tools to limit health-benefit plan cost increases through a properly managed benefit plan. With a strategically administered health-benefit plan that complies with the provisions of the ACA’s employer mandate, you can still offer a plan that is affordable for your organization, and valuable to your employees and prospective employees. This will allow you to maintain a competitive position in the corporate marketplace.
Vanessa Flynn is POMCO Group’s vice president of client services. Contact her at vflynn@POMCOGroup.com or view additional blog posts on health-care reform at go.pomcogroup.com/blog