Beginning in 2014, the Affordable Care Act (ACA), will require most Americans to have health coverage or pay a tax (otherwise known as the individual shared responsibility). About 60 percent of people who have health insurance receive it from their employers.1
The ACA does not require businesses to provide health benefits to their workers; but employers with at least 50 full-time and full-time equivalent employees may face non-tax deductible penalties if they don't offer full-time employees (and their dependents) the opportunity to enroll in minimum value, affordable coverage, and the employee receives a premium tax credit or cost-sharing reduction.
In order to make an informed decision to "play" or "pay", each employer needs to take some key steps — now — to conduct a self-evaluation of their benefits strategy:
- Assess your workforce: Employers need to look at their employee populations, including their full-time and non-full time employees, to determine which employees are eligible for an offer of coverage or otherwise could potentially trigger a penalty for purposes of the mandate.
- Assess your culture: Think about your philosophy of providing employee benefits. Health care benefits (along with time-off) are the most popular employee benefits.2 For many employers, health care is a core benefit used to attract and retain the best employees. There is also value in investing in the health and productivity of your employees.
- Assess your costs: Health costs may be a major expense, but it's important to consider the combined price of potential penalties, tax forfeitures, and loss in productivity if you decide to do away with health care coverage.
Remember that many employee benefits are tax-deductible to your business and tax-exempt for employees. The cost to you will be less than the cost the employee would pay if he or she purchased the benefit on his or her own.
How employer responsibilities under the ACA work
The Employer Shared Responsibility (ESR) rules under the ACA will have a significant impact on group health plan coverage offered in 2015. There are a number of components in this rule, as well as other provisions in the law, which are important for employers to understand:
- Applicable large emplers — Employers with 50 or more full-time and full-time equivalent employees during the previous calendar year must offer coverage to their full-time employees and their dependents that is "affordable" and provides "minimum value" to avoid potential penalties.
- Effective Dates — The Employer Shared Responsibility provision generally goes into effect on Jan. 1, 2015, after which applicable large employers must make an offer of coverage to at least 95 percent of their full-time employees and their dependents at least once per plan year in order to avoid potential penalties.
- Minimum value — As long as the portion of covered or allowable claims paid by your plan is at least 60 percent, then the plan meets the minimum value requirement.
- Affordability — Your plan meets the affordability requirement if no employee is required to pay more than 9.5 percent of his or her annual household income for the lowest-cost, self-only plan that meets minimum value. Affordability is determined on an employee basis.
Penalties — Potential penalties may be assessed if you fail to offer health coverage to at least 95 percent of full-time employees and their dependents, or offer coverage that is neither affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit or cost-share reduction through the health insurance Marketplace (Exchange).
These penalties can be significant and are determined on a monthly basis.
- Reporting requirements — Employers face a host of new reporting requirements. Employers will be required to demonstrate the value of coverage offered to employees, communicate to employees their coverage options, and certify compliance with the employer coverage provisions. Even employers that don't offer health care coverage still face these reporting requirements in order to determine individual eligibility for tax credits for purchasing coverage on the Marketplace and to calculate penalties.
What should employers do now to prepare for 2015?
- Determine if you are an "applicable large employer." For many employers, the answer will be obvious. Some employers with a significant number of non-full-time employees may add enough full-time equivalent employees to meet the threshold for coverage.
- Determine who is a "full-time employee." Many employers define full-time employment based on a higher number of hours of service (e.g., 40) than the Employer Shared Responsibility rules. Under the ESR provision, full-time employees are defined as those who average 30 hours per week or 130 hours a calendar month. Employers who want to "play" will have to close that gap by offering coverage to full-time employees. Those employers who don't should understand that they may be assessed a penalty.
- Decide if you need to use measurement and stability periods to determine full-time employee status. If you use these optional methods, you'll need to define the length of your stability and measurement periods.
- Verify that your plan provides "minimum value" and your coverage is "affordable." For both requirements, it's important to "do the math" and consider the costs of changing your plan versus potential penalties.
- Be mindful of employee protections — Employees are protected from retaliation for reporting alleged violations of the ACA, and for receiving a federal health insurance income tax credit or a cost sharing reduction to purchase health coverage through a health insurance exchange.
These "play" or "pay" decisions involve important benefit decisions, as well as tax and legal issues. Consult with your Wellmark representative, legal and tax experts to understand the requirements and implications for your company. Continue to monitor WeKnowReform.com for updates.
1Robert Wood Johnson Foundation
2 2012 Employee Benefits Survey, Society for Human Resource Management
Wellmark is not providing any legal advice with regard to compliance with the requirements of the Affordable Care Act (ACA) and Mental Health Parity and Addiction Equity Act (MHPAEA). Regulations and guidance on specific provisions of the ACA and MHPAEA have been and will continue to be provided by the U.S. Department of Health and Human Services ("HHS") and/or other agencies. The information provided reflects Wellmark's understanding of the most current information and is subject to change without further notice. Please note that plan benefits, rates, renewal rate adjustments, and rating impact calculations are subject to change and may be revised during a plan's rating period based on guidance and regulations issued by HHS or other agencies. Wellmark makes no representation as to the impact of plan changes on a plan's grandfathered status or interpretation or implementation of any other provisions of ACA or MHPAEA. Any questions about Wellmark's approach to the ACA or MHPAEA may be referred to your Wellmark account representative. Wellmark will not determine whether coverage is discriminatory or otherwise in violation of Internal Revenue Code Section 105(h). Wellmark also will not provide any testing for compliance with Internal Revenue Code Section 105(h). Wellmark will not be held liable for any penalties or other losses resulting from any employer offering coverage in violation of section 105(h). Wellmark will not determine whether any change in an employer administered funding arrangement, such as partially self-funded arrangements ("Employer Administered Funding Arrangement"), affects a health plan's grandfathered health plan status under ACA or otherwise complies with ACA. Wellmark will not be held liable for any penalties or other losses resulting from any Employer Administered Funding Arrangement. For purposes of this paragraph, an Employer Administered Funding Arrangement is an arrangement administered by an employer in which the employer contributes toward a member's out of pocket cost share, e.g. annual deductible amount, in the absence of which the member would be completely financially responsible.