The January 1, 2015 start date will be here before you know it…
The provisions of the Patient Protection & Affordable Care Act’s (ACA) employer shared responsibility mandate subject large employers (those with 50 or more full-time employees and equivalents) to penalties for not offering healthcare coverage to their full-time employees and dependents starting January 1, 2015. There are also penalties for offering unaffordable coverage, as well as coverage that does not meet required minimum essential benefits in 2015. So naturally, employers are evaluating costs, plan coverage and options.
On February 10, 2014, the U.S. Department of the Treasury issued final regulations for implementing the employer responsibility provisions under the ACA. In these final regulations, a phasing in of provisions for employers with 50 to 99 full-time employees and those that offer coverage to most, but not all, of their full-time workers was added. To that end, employers with 50 to 99 full-time employees that do not provide quality, affordable health insurance to their full-time workers will have until 2016 before any shared responsibility penalties could apply. Further, the final regulations state that employers subject to the employer responsibility provision in 2015 (100 or more full-time employees) need to offer minimum essential coverage to 70 percent of those full-time employees in 2015 and 95 percent in 2016 and beyond to avoid penalties.
It is recommended that employers continue to evaluate the following in preparation for the January 1, 2015 implementation of the employer penalty provisions of the ACA.
- Are you a large employer, under the new phase-in rules for 2015? Do you have 100 or more full-time employees (including full-time equivalents)—those with an average of 30 hours per week of paid time (“hours of service”)? If so…
- Do you offer minimum essential and affordable coverage to your full-time employees and are you taking steps to arrange for coverage of their dependent children under age 26 by 2016?
- If you are a “large” employer who doesn’t offer insurance—or doesn’t offer insurance that meets minimum essential coverage or affordability—you need to estimate your potential penalty and determine if there are any steps you can take to limit or prevent additional cost and penalties under the ACA in 2015. (See examples below.)
- Do you have previously-waived employees that will be joining the plan due to the individual mandate?
A few definitions to assist you in the assessment of the above questions:
Minimum essential coverage. The law requires “large” employers to offer at least one insurance plan with a minimum 60-percent actuarial value. What this means is, on average, the insurance plan pays 60 percent of the costs for covered benefits, and the enrollees, on average, pay the remaining 40 percent through cost-sharing such as deductibles, copayments and coinsurance.
Affordable coverage. The employee premium contribution for single coverage is less than 9.5 percent of his or her modified adjusted gross income, or one of three existing employer safe harbor options (W-2 wages, federal poverty level or rate of pay).
“No Insurance” or “Unaffordable Coverage” Penalties
Large employers are subject to one of the two “shared responsibility” penalties if any of their full-time employees go to the exchange and receive a subsidy. The penalties are as follows and are not tax-deductible for the employer:
The No Insurance Coverage Penalty
Penalty = $2,000 x each full-time employee (after first 30 employees).
The Unaffordable Employer Coverage Penalty—if the employer fails to offer coverage, that is:
- Minimum essential coverage—minimum 60-percent actuarial value—offered to employees, or
- Affordable—Employee premium cost for single coverage is less than 9.5 percent of household income, or meets one of the three employer safe harbor options listed above.
Penalty = $3,000 x # of full-time employees who receive exchange subsidies.
If you are in one of these potential penalty situations, we advise that you meet with your accounting and insurance professionals to identify steps in your specific business situation to minimize the additional cost. Common opportunities include: adding a lower-cost, 60-percent actuarial employer plan as an option; adjusting the current amount of premium the employer is paying; or dropping insurance coverage and accepting the $2,000 non-deductible penalty per full-time employee over the first 30. iBi
Beth Auterman is a principal in CliftonLarsonAllen’s Employee Benefit Plan practice. She can be reached at [email protected].