Coping with ACA

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The Patient Protection and Affordable Care Act (PPACA), a/k/a Obamacare, was enacted on March 23, 2010. This health care reform legislation made sweeping changes to the laws that govern employer-sponsored health plans. Health care reform includes expanded coverage, disclosure, and reporting rules. In many cases, these changes will require plan amendments and notices to participants and beneficiaries. Failure to comply with the health care reform requirements can result in significant consequences, including the imposition of excise taxes under the Internal Revenue Code and the risk of participant claims for benefits under the Employee Retirement Income Security Act of 1974 (ERISA). Although the government agencies responsible for enforcing health care reform have issued a substantial amount of guidance since the law’s enactment, many questions regarding implementation remain unanswered and will require further clarification and interpretation. The health care reform requirements become effective over several years ranging from 2010 through 2018.
___ Starting in 2014, most individuals must have a minimum qualifying level of health coverage either through an employer, a Health Insurance Exchange, or a government program like Medicare (if they are eligible). Persons without coverage will face a tax penalty based on a sliding scale related to their income. Similarly, beginning in 2014, large employers must offer affordable “minimum essential coverage” to their full-time employees and dependents or face the possibility of paying a monthly penalty if at least one employee enrolls in a health plan under an Exchange and receives a premium credit or cost sharing reduction. The Administration recently announced that employer penalties will be delayed until January 1, 2015.
___ At the end of 2012, each State made an election to either create a State-Based Exchange, partner with the federal government, or rely totally upon the federal government’s exchange. 17 states and the District of Columbia opted to create their own exchange. Effective October 1, 2013 the SBEs and federal exchange were supposed to be up and running. The Exchanges are still a “work in progress.”
Beginning in 2015, applicable large employers may be subject to an “Employer Shared ___Responsibility Payment” (penalty tax) if (1) they fail to offer substantially all (i.e., 95%) of their full-time employees and certain dependents (26 years old or younger children) the opportunity to enroll in a health plan that offers minimum essential coverage or (2) they offer minimum essential coverage but it is unaffordable or does not provide the required minimum value; and (3) at least one of the employer’s full-time employees receives a premium tax credit or cost-sharing reduction for purchasing health insurance through a Health Insurance Exchange. Let’s take a closer look at these key terms.
___ An employer is considered an “applicable large employer” for a calendar year if it employed, on average, at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year. For this purpose, “full-time employee” is defined as an employee who is employed for an average of at least 30 hours of service per week, including hours for which the employee is paid or entitled to payment even when no work is performed (such as PTO or vacation). For a calendar month, 130 hours of service is treated as the monthly equivalent of 30 hours per week.
To calculate full-time equivalent employees (FTEEs) for a particular month, an employer must add up the total number of hours of service for all employees who were not employed on average at least 30 hours of service per week, then divide that total by 120. The resulting number is the number of FTEEs for that month. To determine whether the 50-employee threshold is met with respect to a given year, the totals for both full-time employees and FTEEs for each calendar month are added together for all months in the preceding calendar year, and then divided by 12. If the result is not a whole number, it is rounded down to the next lowest whole number.
___ Sole proprietors, partners in partnerships, 2% S-corporation shareholders, employees who work outside the United States, and leased employees are generally not considered employees for purposes of the applicable large employer determination. Special rules also apply for counting seasonal workers and employees that work variable hours.
___ The term “minimum essential coverage” means coverage, except coverage only for an excepted benefit (dental, vision, and most health FSAs), that meets typical benefits currently offered by most insurers today. This also includes most government plans, i.e., Medicare, Medicaid, TRICARE, CHAMPVA, etc., as well as most employer-sponsored plans.
Beginning in 2015, an applicable large employer is liable for a penalty tax for any month that – (1) the employer fails to offer substantially all of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for that month; and (2) any full-time employee of such employer is certified to receive a premium tax credit or cost-sharing reduction for purchasing health coverage through an Exchange.
___ If no health coverage is provided, and if any full-time employee enrolls in the Exchange and receives a subsidy, the amount of the monthly penalty is $2,000 (adjusted for inflation) divided by 12 ($166.67) multiplied by the number of full-time employees employed during the applicable month, not counting the first 30 full-time employees.
___ If an applicable large employer offers the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan to its full-time employees and dependents, but the plan’s coverage is either unaffordable or does not provide minimum value, and any full-time employee of such employer is certified to receive a premium tax credit or cost-sharing reduction for purchasing health coverage through an Exchange, the employer is liable for a different penalty. The amount of this monthly penalty is $3,000 (adjusted for inflation) divided by 12 ($250.00) multiplied by the number of full-time employees who are certified to receive a premium tax credit or cost-sharing reduction for purchasing health coverage through an Exchange. However, this penalty is capped at the amount the employer would pay if it were subject to the penalty for providing no coverage at all.
___ For any calendar month, an applicable large employer may be liable for either penalty, but cannot be liable for both penalties for the same calendar month.
To be considered minimum essential coverage, the coverage will need to meet an affordability requirement and provide minimum value. Coverage is affordable if the employee is not charged more than 9.5% of household income. Since most employers will not necessarily know household income, they can use the employee’s W-2 wages as an index. Minimum value means that the total cost to the employee for using the plan cannot exceed 40% of the value of all benefits. In other words, when you add up all of the co-pays, deductibles, and out-of-pocket expenses, the employee cannot bear more than 40% of the cost of services provided. In most situations, the employer will want to get a certification of minimum value from the insurer.
___ Employers should not delay plans to cope with this law. Instead, contact your insurance broker and start working on this problem. Here are some things to do:
• Determine if you are an applicable large employer. If you are close, consider changes to reduce headcount by outsourcing or leasing back some employees. Remember that you cannot directly control leased workers or you become a joint employer and they will count for purposes of the ACA.
• Determine who must be offered coverage and the cost for providing it. You need to work with your broker to obtain quotes for plans you will offer. Note that you can offer more than one plan, but you need to ensure that the lowest-value plan is affordable and provides minimum value. Some employers may wish to offer bronze, silver, gold, and/or platinum plans.
• Calculate the penalty for not offering coverage. Determine whether it makes more economic sense to “play” (i.e., provide compliant healthcare coverage) or “pay” (i.e., the penalty/tax).
• Consider reducing hours below 30 per week, outsourcing, or using leased employees to reduce the number of employees who must be offered coverage or for whom you might face a penalty.
• Do not fire employees or reduce hours alone. Instead, undertake a comprehensive evaluation of costs and benefits across the board.
• Consider forming or joining a cooperative with other employers to expand the risk pool and obtain more favorable quotes from the insurance carrier.
• Make plans to communicate any changes to your workforce both through required notices and employee meetings. In this process, you will want to candid about costs and coverages to maintain employee morale.
___ This is important and employers need to start working on solutions and answers. If you need help with these issues and suggestions, please contact competent legal counsel.