The constitutionality of the Affordable Care Act was upheld recently by the U.S. Supreme Court, defining and solidifying many legal obligations employers have when it comes to health care coverage for employees.
“The crux of the Affordable Care Act is to make ‘minimal essential coverage’ more available,” says Christopher J. Carney, chair of the Labor and Employment Practice Group at Brouse McDowell. To achieve this, the Act contains provisions referred to as the ‘employer mandate’ or ‘play or pay.’
However, he says the Act does not require employers to provide minimal essential coverage.
“It is more accurate to state that the Act requires employers that meet a certain minimum employee threshold to make available minimal essential coverage or pay a penalty for failing to do so,” says Carney.
Smart Business spoke with Carney about some of the law’s caveats and what employers need to know in order to become compliant.
How does the law impact employers of various sizes?
The employer mandate provides that ‘large’ employers, or those with 50 or more full-time employees, are required to offer full-time employees health coverage effective Jan. 1, 2014. Businesses with fewer than 100 employees will also be eligible to shop for plans in health benefit exchanges that each state is required to establish as part of the Act.
What are the consequences of noncompliance?
Starting in 2014, large employers will be assessed an annual fee of $2,000 per full-time employee — in excess of 30 employees — if any full-time employee is not offered coverage and enrolls in and receives an income-based tax credit to participate in an insurance exchange. For example, assuming at least one employee satisfies the tax credit requirement, a business with 51 full-time employees that does not offer coverage must pay a monthly penalty of 21 (51 total employees minus 30) times the per-employee penalty amount, i.e., one-twelfth of the annual $2,000 per full-time employee. For purposes of the Act, a full-time employee is one employed at least 30 hours per week on average.
Furthermore, if an employee opts out of an employer’s health plan — either because the employee’s share of the premium would exceed 9.5 percent of his or her income, or because the employer’s or insurer’s share of the total cost of benefits is less than 60 percent and the employee obtains a tax credit for coverage in a health insurance exchange — the employer is also subject to a penalty.
Under these circumstances, the employer must pay a monthly penalty of one-twelfth of $3,000 multiplied by the total number of full time employees who obtain the income-based tax credit for that month. This penalty is capped at one-twelfth of $2,000, multiplied by the total number of full-time employees.
How do the state exchanges come into play?
The Act provides for government-run health benefit exchanges from which individuals and employers with fewer than 100 employees can purchase insurance. Plans in the exchanges will be required to offer four levels of coverage that vary based upon factors such as premiums and out-of-pocket costs. Premium and cost-sharing subsidies will be available for low-income families.
Each state is required to have its own health benefit exchange. If a state chooses not to create its own health benefit exchange, then one will be set up by the federal government. Ohio Gov. John Kasich says the state will not create its own and will rely upon the federal government’s health benefit exchange.
Considering the efforts to derail the Act, what would you advise an employer to do?
Employers should continue with their efforts to comply with the Act’s requirements and some provisions need immediate attention. For example, employers and insurers must provide a Summary of Benefits and Coverage for the open enrollment period beginning on or after Sept. 23, 2012. The SBC is similar to, but does not supplant, the Employee Retirement Income Security Act’s Summary Plan Description. If an employer’s SBC fails to satisfy the requirements of the Act, then the employer is subject to a penalty of $1,000 per failure, per participant. Another example is that the aggregate cost of employer-sponsored health coverage must be reported on Form W-2 for 2012 and going forward.
I would not expect a repeal of this law any time soon. Therefore, employers should determine the extent to which the new rules apply. Because the Act does not apply uniformly, an employer should review the law to identify which requirements apply and the compliance deadlines corresponding to each requirement.
When must employers come into compliance with the law?
The Act was passed on March 30, 2010, and not all changes set forth were imposed immediately. Generally, the provisions that were not controversial went into effect first. The provision prohibiting health plans from denying coverage or limiting benefits for children under the age of 19 because the child has a pre-existing condition went into effect immediately. But the ‘play or pay’ provisions for employers go into effect after Dec. 31, 2013.
What can legal counsel offer as employers look to come into compliance with the law?
Particularly when an employer is close to the 50-employee threshold limit, legal counsel can be helpful in identifying and analyzing employer options and obligations. The ‘play or pay’ regulations have not even been promulgated yet, but expect them to be complicated. Issues that will likely require the assistance of counsel include how to account for independent contractors to whom employee functions have been outsourced and whether common ownership of business would require the aggregation of employees.
Christopher J. Carney is Chair of the Labor and Employment Practice Group at Brouse McDowell. Reach him at (216) 830-6825 or email@example.com.
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