The Affordable Care Act (ACA) contains a total of 91 provisions, bringing change to the insurance market and impacting the type of coverage employers offer their employees.
“Many of the upcoming ACA provisions depend on the size of your employee population,” says Marty Hauser, CEO of SummaCare, Inc. “Employers need to understand these provisions, as they will likely determine what kind of coverage you offer your employees.”
Smart Business spoke to Hauser about how some key provisions impact employers.
What are some provisions impacting all employer groups?
Although some provisions of the ACA are based on the number of employees an employer has, others apply to all employer groups, regardless of size. These provisions include, but are not limited to, guaranteed issue and renewal of health insurance plans, no pre-existing condition exclusion, employer notification of the health insurance marketplaces and an increase to the maximum allowable reward for health-contingent wellness programs.
Beginning Oct. 1, 2013, employers will be required to notify employees of the availability of the health insurance marketplace, formerly known as exchanges. The marketplace is an online portal that will allow consumers and employers to find and compare different health insurance options. Employers must provide employees, regardless of plan enrollment status or part-time or full-time employment status, a written notice informing them of their coverage options. The Department of Labor (DOL) has created three different model notices for employers to communicate this information to employees, and these are available on the DOL’s website.
Another provision impacting all employer groups is the increase to the maximum allowable reward for health-contingent wellness programs from 20 to 30 percent of the cost of coverage. The program must meet five regulatory requirements to qualify as a health-contingent wellness program.
What are some provisions impacting small group employers?
Beginning in 2014, the marketplace will operate a Small Business Health Options Program, or SHOP, that offers choices when it comes to purchasing health insurance for small group employers — with up to 50 employees in 2014 and increasing to 100 employees in 2016 — and their employees.
Through the SHOP, employers will eventually be able to offer employees a variety of Qualified Health Plans (QHPs) from different carriers, and employees can choose the plan that fits their needs and their budget. In 2014, however, small group employers will be limited to offering only one QHP to their employees, as the provision allowing choices between multiple carriers has been delayed until 2015.
In addition to the availability of the SHOP, small group employers with fewer than 25 full-time employees, or a combination of full-time and part-time employees, may be eligible for a health insurance tax credit in 2014 if they offer insurance through the SHOP and meet other criteria, such as the average wages of employees must be less than $50,000, and the employer must pay at least half of the insurance premium.
What are some provisions impacting large group employers?
Effective Jan. 1, 2014, employers that employ an average of at least 51 full-time employees are required to offer employees and their dependents an employer-sponsored plan or the employer pays a penalty, often referred to as ‘pay or play.’
This provision has specific criteria meant to not only define and determine the number of employees in the group, but also to confirm the employer is providing affordable, minimum essential coverage. Part-time employees count toward the calculation of full-time equivalent employees, and there is no penalty if affordable coverage is offered.
If an employer doesn’t provide adequate health insurance to its employees, the employer will be required to pay a penalty if its employees receive premium tax credits to buy their own insurance. The penalties will be $2,000 per full-time employee beyond the employer’s first 30 workers. Penalties paid by the employer will be used to offset the cost of the tax credits.
Marty Hauser is CEO at SummaCare, Inc. Reach him at email@example.com.
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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 firstname.lastname@example.org.
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