Under the final regulations, companies with 50 to 99 employees that do not yet provide quality, affordable health insurance to their full-time workers will report about their workers and coverage in 2015, but have until 2016 before any employer responsibility payments could apply.
In addition, the final rules phase in the percentage of full-time workers to whom employers with 100 or more employees need to offer coverage—from 70% in 2015 to 95% in 2016 and beyond (see “Treasury Modified Rules for ACA Employer Mandate”). Employers in this category that do not meet these standards will make an employer responsibility payment for 2015.
“This is to ease employers into the shared responsibility rule and protect them from the ‘no-coverage’ penalty,” Andy Anderson, partner at Morgan Lewis & Bockius LLP in Chicago, tells PLANSPONSOR. The 70% rule will provide employers some cost relief and give them more time for planning.
However, Anderson warns that employers should not read the regulations to mean there is no penalty at all in 2015 if they offer coverage to at least 70% of their full-time employees (generally defined by the ACA as those employees who work 30 or more hours per week). There are two types of penalties, he explains:
- There is what he calls a “no-coverage” penalty, applicable if the employer does not offer minimum essential coverage to 70% (in 2015) of its full-time employees (and their dependents), AND if one full-time employee enrolls in a plan through a state or federal exchange and receives a subsidy. These employers will have to pay a $2,000 (indexed) penalty for all full-time employees (including those receiving coverage from the employer); and
- There is what he calls an “inadequate-coverage” penalty, applicable if the employer does offer minimum essential coverage to 70% of its full-time employees (and their dependents) but it is not “affordable” and does not provide a minimum level of coverage to full-time employees, AND if one full-time employee enrolls in a plan through a state or federal exchange and receives a subsidy. These employers will have to pay a $3,000 (indexed) penalty for each full-time employee receiving a subsidy (capped at the maximum no-coverage penalty).
“Affordable,” as defined by the regulations, generally means the cost to the employee is not more than 9.5% of household income for employee-only coverage. According to Anderson, if an employer is offering coverage to 70% or more of its employees in 2015, they may escape the no-coverage penalty, but if that coverage is not affordable to even one employee who goes to an exchange and receives a subsidy, they will be subject to the inadequate-coverage penalty. So, the relief in the final regulations did not eliminate penalties, but limited exposure to the inadequate coverage penalty.
There is no subsidy available if an employee is eligible for Medicaid or if an employee’s household income is more than 400% of the federal poverty level. “It is a rare employer who has all employees that are either covered by Medicare or with household incomes above the 400% poverty level,” Anderson contends, so there will most certainly be someone who can get a subsidy.”
This is where the planning comes in. If employers want to take advantage of the 70%-coverage relief either to take advantage of cost savings or give themselves more time to comply, they must plan carefully when deciding to whom not to offer coverage and deciding the level of coverage to offer.
Even with planning, there are always risks. Aside from the risk of incurring the inadequate-coverage penalty, after identifying and carving out all employees they can, employers could wind up falling short of 70% coverage, and suffering substantial financial consequences, Anderson warns.
A consultant can help, and hopefully the extra time means employers will have it all figured out before the 95%-coverage rule goes into effect in 2016.
A Q&A from the Internal Revenue Service about the employer responsibility requirements is here.
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