The employer shared responsibility mandate, often referred to as pay-or-play, of the Patient Protection and Affordable Care Act (PPACA or ACA), otherwise known as Obama Care, will take effect on January 1, 2014. While various provisions of the ACA have already been implemented over the past two years, the key element requiring employers to “share the responsibility” are activated at the end of 2013. The ACA is complicated, unclear, ill-defined and costly. Despite the empty promises of our government servants that the new law will lower the cost of healthcare, costs have already risen and they will continue to rise into the near future. Insurance premiums are increasing as a result of the coverage mandates and industry taxes which the ACA places on medical providers, device/ equipment manufactures and insurance companies. The increased costs will be paid for by businesses, individuals, consumers and taxpayers. If you happen to bear one of these monikers, you’ll want to pay attention as the law unfolds.
Is Your Company a Qualified Large Employer (QLE) and Required to Provide an ACA?
The first thing you need to determine is whether or not your company meets the definition of a qualified large employer (QLE) and therefore required to provide an ACA compliant group health insurance plan to your employees. An employee is a worker who is employed by you under the common-law test. This means that VenSure is not the employer, nor does your relationship with VenSure effect your situation. A QLE is one who employed at least 50 full-time (FT) employees on business days during the preceding calendar year. A full-time employee is anyone who is employed, on average, at least 30 hours per week. Additionally, part-time and seasonal employees must be counted to determine the number of full-time equivalents (FTE). For example, three part-time employees working an average of 10 hours per week, equals one FTE. The sum of all FT’s and FTE’s determines whether or not you are a QLE. The ACA does not specify how you must determine your FTE count but it does offer a safe harbor method which, if followed, will exempt you from penalties associated with miscalculating. This “safe harbor” method involves a look-back measurement period of up to 10 months.
Don’t forget to include the employees of commonly controlled companies in your analysis, as those employees are also included in the calculation. For assistance processing your calculation, please contact Kris Hansberger, Benefits Manager.
If you are a QLE, then the shared responsibility mandate requires you to offer a minimum essential coverage (MEC) health plan that is affordable. If you are not a QLE, then you are exempt from the mandate and the non-compliance penalties. If you think you might become a QLE in the near future, you’ll want to continue reading.
As a QLE, you must either provide an MEC or pay the no coverage assessable penalty. If you purchase a health plan from a licensed insurance company, they will offer you several MEC plan options. As far as it being affordable, well, that is where the rubber meets the road. The IRS defines “affordable” as generally meaning that the employee portion of the employee-only premium for the employer’s lowest cost MEC compliant plan cannot exceed 9.5% of the employee’s household income.
So, you might be asking, how do I know what my employee’s household income is? Realizing that this could be an issue, the IRS has identified a safe harbor method of using the employee’s Box 1 wages that were reported on the employee’s Form W-2. For example, if Box 1 wages were $28,500, then the maximum amount payable by the employee for his/her employee only coverage is $225.63 per month. ($28,500 x 9.5%) / 12 = $225.63
Penalties a QLE Could Incur
Beginning in 2014, there are two assessable penalties (a.k.a. taxes) which a QLE could incur under the shared responsibility mandate. The first penalty is for failing to offer employees the opportunity to enroll in an employer sponsored MEC. For any month in which you fail to provide your full-time employees (and their dependents) the opportunity to enroll in an employer sponsored MEC plan for that month; and at least one full-time employee has been certified to receive a premium tax credit or cost sharing reduction from having applied for coverage via an exchange plan, you will be charged a per employee penalty. The penalty will be charged for each month that the above conditions apply. The annual penalty is $2,000 for every full-time employee after 30. In other words, if you have 65 full-time employees, on average, for the entire year, you are responsible for paying the penalty on 35 employees. If you fail to comply with this part of the mandate for 5 months of the year, you would pay $29,166.66 ($2,000 / 12 * 5 * 35).
The second assessable penalty is for failing to provide an MEC that meets the minimum value requirement or is unaffordable for some employees. This penalty is only paid for those full-time employees who have been certified as receiving an applicable premium tax credit or cost-sharing reduction. This penalty amount is $3,000 per year per employee, or $250 per month. This penalty cannot exceed the amount of the first assessable penalty for failing to offer coverage to your full-time employees (and their dependents). Keep in mind, if your MEC meets the safe harbor test for affordability, then you are exempt from this second penalty, even if the employee receives a premium tax credit or cost-sharing reduction.
One Last Thought
The Health Insurance Tax (HIT), otherwise known as the premium tax imposed on insurance companies, poses a major challenge to the goal of reducing the cost of health insurance premiums. Insurance companies will need to raise premiums on consumers, small businesses and seniors to make up for the additional financial obligation. In addition, state Medicaid budgets will face higher costs as a result of this tax. It is estimated that nationally, the tax could raise premiums by an average of more than 2 percent in 2014. As you might have surmised, the delta between the cost of compliance and simply paying the penalties gets larger as premiums rise, especially for those employers who have lower paid workers; because the employer must make up the difference between what the employee can afford (under the rules) and the premium. Unfortunately, the PPACA imposes a significant tax on small business and the working class and has already caused premiums to rise, and does very little to improve quality or expand access.
Although we have covered the major impetus of the Employer Shared Responsibility Mandate, we have only scratched the surface. As you can imagine, there are hundreds of questions and scenarios to consider. As is always the case with new laws, the unintended consequences create more problems than the law was designed to solve.
Look for more information from VenSure about the PPACA in the coming weeks.
Tom Lindsay, CPCU
VenSure Employer Services