Pay or Play: New Health Care Requirements for Employers Coming Soon
By David M. Roth
Those of you holding your breath concerning the future of the Patient Protection and Affordable Care Act (PPACA), commonly called “Obamacare,” may as well exhale. The Act, which represents the most significant government expansion and regulatory overhaul of the U.S. healthcare system since Medicare and Medicaid, is alive and well. While some provisions of the PPACA were effective upon enactment, numerous others are phased in through 2020. Among those provisions phased in is the Shared Responsibility for Employers Regarding Health Care Coverage, also referred to as the “Pay or Play Rules.” These rules become effective January 1, 2014. Employers should start planning now for these changes, however.
The Pay or Play Rules require a “large” employer to offer health insurance to substantially all (at least 95%) of the employer’s full-time employees (and their dependents). If the employer fails to meet this requirement or if the coverage offered is “unaffordable” or does not provide “minimum value,” the employer will be subject to stiff penalties. Specifically, a penalty of $2,000/employee is imposed for failing to offer insurance to enough of the employer’s full-time employees. If the coverage offered is deemed unaffordable, a penalty of $3,000/employee for each employee who receives a premium tax credit or cost-sharing reduction for coverage purchased on the public exchange will apply. Insurance is deemed “affordable” if the employee’s required contribution for the lowest cost self-only coverage does not exceed 9.5% of the employee’s household income for the taxable year. Fortunately, the law includes several safe harbors for affordability.
Under the regulations, a “large” employer includes any employer that employed an average of 50 full-time employees during the preceding calendar year. In light of the January 1, 2014 effective date, the measuring period is the 2013 calendar year. A full-time employee is one who was employed on average at least 30 hours/week. In determining the number of full-time employees employed, the law requires employers to take full-time equivalents (FTE’s) into account for all employees who are not “full-time.” As a result, employing individuals on a part-time basis may not allow employers to avoid application of the rules. That noted, there are special rules for “seasonal” workers, provided such workers were employed for no more than 120 days during the calendar year. The regulations contain detailed rules and methods for counting hours of service.
Employees counted for purposes of these rules include all common law employees (generally defined as any person performing services for the employer, where the employer controls both what is done and how it is done). The law excludes sole proprietors, partners, and 2% “S” corporation shareholders from this definition. In addition, the law excludes leased employees, provided the employer lacks the requisite control to come within the common law definition. That noted, leasing employees for the purpose of avoiding application of these rules will not work.
As is the case with most legislation, the PPACA is full of special definitions, unique requirements, specific exceptions, and onerous penalties. Employers who are currently well above the “50 employee” threshold should start reviewing their existing health plans to determine whether they will satisfy the coverage and affordability requirements. Those who don’t sponsor health plans currently should analyze health insurance options, and may also project applicable penalties for choosing not to comply with the rules. Employers who are near the “50 employee” threshold should carefully review employee records, hours of service, and full-time equivalencies to determine what may or may not be required of them next year. If you would like our help in any of these areas you should feel free to give us a call.