Health care reform: Pay or play and employer penalties Featured

7:55pm EDT December 31, 2012
Health care reform: Pay or play and employer penalties

The election is over and full implementation of the Patient Protection and Affordable Care Act (PPACA) is expected to proceed. What does this mean for employers? The health care decisions made during 2013 will determine the financial impact of this legislation, and employers that plan to continue to sponsor group health plans must prepare for upcoming deadlines.

“Pay or play” penalties provide some incentive for employers to continue coverage, as they will be at risk for significant penalties if they do not, says Chuck Whitford, Client Advisor at JRG Advisors, the management arm of ChamberChoice.

“The first step is to determine which, if any, penalties will apply by determining the number of employees that regularly work an average of 120 hours or more per month for each month of the preceding year,” says Whitford. “Penalties will apply only to employers with 50 or more full-time-equivalent employees during the preceding calendar year, with full time under PPACA defined as 30 hours per week.”

Smart Business spoke with Whitford about the changes that employers need to be aware of.

What is the goal of PPACA?

Ultimately, PPACA seeks to achieve and sustain the availability and affordability of employer-sponsored group health care benefits. Otherwise, full-time employees become eligible for a subsidy from the government to purchase insurance through an exchange.

A full-time employee becomes eligible for subsidy if his or her household income is less than four times the poverty level and one of the following is true: the employee is not eligible for a group health plan that meets minimum standards (thus failing the requirement that coverage must be available) or the monthly employee contribution for single coverage is greater than 9.5 percent of household income (thus failing the affordability requirement). In 2012, four times the federal poverty level was $44,680 for a single individual and $92,200 for a family of four.

At issue is the fact that many employers are not likely to know employees’ total household income, nor may employees be willing to share this information. To that end, employers will most likely use the wages paid to the employee as a basis for determining the affordability requirement.

For example, an employee earning $30,000 would be limited to a monthly contribution for single coverage of approximately $238. Any higher contribution would exceed the 9.5 percent level.

What are the penalties for employers that fail to either make the coverage available or fail to provide affordable coverage?

If one or more employees are eligible for your group health plan and they qualify for a subsidy on the exchange, your penalty is equal to $2,000 per year times the number of full-time employees, minus 30. For example, an employer with 100 full-time employees would pay a penalty of $140,000.

If, on the other hand, you make coverage available and an employee still qualifies for a subsidy on the exchange because the employee contribution is more than 9.5 percent of household income, your penalty is $3,000 per year for each full-time employee eligible for the exchange.

Has everything been settled?

Regulations on many issues remain outstanding. All of the uncertainty has left many employers reluctant to make any large-scale changes.

The regulatory agencies responsible for implementation and enforcement of health care reform (departments of Labor, Internal Revenue Service and Health and Human Services) will issue additional guidance to help determine how to comply with new provisions of the law.

ChamberChoice will continue to monitor the progress of PPACA and its implementation and keep you informed of important developments.

Chuck Whitford is a client advisor at JRG Advisors, the management arm of ChamberChoice. Reach him at  (412) 456-7257 or

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