The Patient Protection and Affordable Care Act (“ACA”) passed in 2010 has survived scrutiny and remains in effect. ACA is a complex statute with implications for almost all employers and guidance and updates are emerging almost daily from the federal government. Employers won a reprieve this summer, when the federal government announced they must provide coverage, or face penalties, for workers beginning in January 2015, instead of the date initially contemplated, January 2014. In the interim, small employers in particular need to contemplate and answer the following preliminary questions about the ACA:
All employers with one or more employees must provide notice on or before October 1, 2013 of the implications of ACA for them as employees and individuals and of their right to access coverage through the new state and federal health care exchanges.
A model notice may be found at http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf.
1. Does ACA require me to offer insurance? If you are an employer and have 50 or more full-time or full-time equivalent employees, you must either offer insurance, pay a certain amount to employees so that they can purchase their own, or pay a penalty (the “play or pay” rule). For purposes of counting, full-time employees are those who work at least a thirty-hour workweek or the equivalent thereof (there is a complex formula for counting part-time, temporary and seasonal W-2 employees, who may be required to be counted as a fraction of a full-time employee).
2. If I offer health insurance to my employees, does it meet the minimum value requirement? The ACA provides that plans must provide a minimum value to employees in order to avoid paying a penalty. To meet this requirement the plan (not the employees) must cover at least 60% of allowable costs. Any amounts paid by employees, including copayments and deductibles, are included in this calculation.
3. If I fail to properly insure employees under the ACA, what is the penalty for not offering minimum value benefits plan? The penalties range from $3,000 for each underinsured full-time employee to a maximum of $2,000 for each full-time employee (except the first 30). For more information on penalties and how they affect your particular company, please contact us.
4. Can I satisfy the minimum value requirement by paying a lump sum and letting my employees purchase their own insurance on public or private exchanges? ACA creates a federal exchange and state based exchanges as well as Small Business Health Options Program (“SHOP”) exchanges, where small business with up to 100 employees can purchase qualified coverage (different from the state and federal exchanges where individuals whose employers do not provide coverage may shop). “Many employers are beginning to offer lump-sum payments to employees so that they may purchase qualifying insurance on exchanges, in lieu of offering it themselves. There is a significant movement of employers considering Private Health Exchanges as the solution to the Affordable Care Act. Think of a Private Health Exchange as a Defined Contribution model for health care coverage, meets technology and in most cases, a Wellness strategy. This is the new world of consumerism in employer sponsored Employee Benefits!” says Rob Kreager of Willis, an insurance brokerage firm in the health benefits industry. The IRS has just issued Notice 2013-54 detailing the application of the ACA to this type of arrangement.
5. Is there an upside to offering benefits or allowances to help employees purchase insurance? The ACA creates tax credits for eligible small employers (25 or fewer employees and average wages under $50,000) to encourage the extension of health care benefits, and includes reporting and other requirements not addressed here.
6. If I do offer insurance benefits, are they subject to the “Cadillac tax” on premium plans, and if so, should I change these benefits? If so, what resistance might I receive from, and what other compensatory pay should I offer to, employees? Beginning in 2018, health care premiums above a certain threshold will be taxed at the rate of 40% for premiums above $10,200 for individuals, and $27,500 for families. Health care premiums have been a traditional way to compensate employees on a tax-free basis, and the loss of premium benefits will potentially cause some employees to seek higher wages or other benefits.
7. Do my insurance policies cover me adequately for new potential claims and losses that may be created by or arise from ACA (or DOMA, discussed in next client alert by Forefront)? Carefully review your policies – from liability to D&O to Employment practices to Errors and Omissions insurance – and consult with counsel and your broker to ensure you are protected.
8. Must I do anything else? Among other things, the ACA also requires information reporting (pursuant to section 6055) by self-insuring employers, and by certain employers with respect to the health coverage offered to their full-time employees, but these requirements have been postponed to 2015.
The above is a brief summary of some of its key provisions and it is not intended to be comprehensive or construed as legal advice. If you seek assistance in understanding how the ACA affects your business, please feel free to contact us and we will help you understand the implications of ACA as it applies to your business.
* * * *
Allison Walsh is Forefront’s labor and employment specialist, having practiced in the area for over 20 years. Forefront provides its clients with responsive, practical advice on labor and employment matters. Allison has been with Forefront since its inception in 2011. For more information contact Allison at [email protected] or Jason Gabbard at [email protected].