The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act contain several provisions that impact employers of all sizes.
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, the “Act”) contain several provisions that impact employers of all sizes. Some of the most notable provisions affecting employers are summarized below.
Employer’s Obligation To Provide Insurance
Beginning in 2014, an employer with at least 50 full-time employees must pay a “free-rider” penalty if it does not offer a health plan with minimum essential coverage to its full-time employees and at least one of its full-time employees obtains a plan through the State’s health benefits exchange and qualifies for a premium tax credit or cost-sharing reduction (“Employee Subsidy”). There is no such penalty for employers with fewer than 50 full-time employees. The free-rider penalty equals $2,000 per year, per full-time employee, excluding the first 30 full-time employees. A “full-time” employee, with respect to any month, is an employee who is employed on average at least 30 hours per week. Hours of part-time employees are aggregated, and full-time equivalents (i.e. 120 working hours per month) are counted for purposes of triggering a penalty, although no penalty will be assessed for part-time workers without coverage. Seasonal workers are not included in the calculation of full-time employees. Although the amount of the penalty is a yearly figure, the penalty is assessed on a monthly basis. Therefore, an employer with 60 full-time employees that does not offer health care coverage will face a $5,010 monthly penalty ((1/12 x $2,000) x (60-30)).
Even if an employer with at least 50 full-time employees offers its full-time employees the opportunity to enroll in a health plan with minimum essential coverage, the employer will still be subject to a penalty if the employer-sponsored plan is “unaffordable” and at least one full-time employee obtains a plan through the State’s health benefit exchange with an Employee Subsidy. An employer-sponsored plan is “unaffordable” if the premium is greater than 9.5 percent of the employee’s household income or the employer pays less than 60 percent of the actuarial value of the plan. The penalty for unaffordable plans is assessed on a monthly basis and equals the lesser of (i) $3,000 per year, per full-time employee who obtains a plan through the State’s health benefit exchange with an Employee Subsidy, or (ii) the amount the employer would pay as a free rider penalty.
In addition, employers offering coverage must provide a “free choice voucher” to any employee whose household income is less than 400 percent of the federal poverty level, if that employee’s share of the premium for health coverage is between 8 and 9.5 percent of the employee’s household income and the employee enrolls in a plan through the State’s health benefit exchange. The amount of the free choice voucher must equal the amount the employer would have paid for the employee under its costliest employer-sponsored plan.
Plans in existence on or before the date the Act was enacted (March 23, 2010) are considered “grandfathered health plans”, and are deemed to offer the minimum essential coverage necessary to comply with the Act. The Act is unclear whether subsequent changes to a grandfathered health plan will affect its grandfathered status. Coverage maintained pursuant to a collective bargaining agreement that was ratified before the date of enactment of the Act will be grandfathered until the CBA terminates. Any amendment to a CBA to conform to the new requirements will not be treated as a termination of such agreement.
Certain changes must be made to all plans soon, even those that are grandfathered. Please be advised that the following dates are based on a plan with a new term beginning on January 1. If your plan year is not a calendar year, please note that the effective dates for your plan may be different. Effective on January 1, 2011, group health plans must extend dependent coverage to children up to age 26, remove lifetime and annual caps on essential health benefits and remove pre-existing condition exclusions for children younger than 19 years old. Also effective on January 1, 2011, plans must prohibit rescission of coverage except in cases of fraud or intentional misrepresentation. Other requirements for grandfathered plans include complete removal of all pre-existing condition exclusions (effective in 2014), and limiting waiting periods for enrollment to 90 days or less (effective in 2014).
Non-grandfathered plans must incorporate several other changes as well. For example, effective in 2011, non-grandfathered group health plans may not impose any cost-sharing requirements on preventive care. Cost-sharing includes co-payments and deductibles, and specifically excludes premiums. In addition, eligibility for non-grandfathered plans may not be based on health status, medical condition or history, or disability (effective in 2014).
Small Business Tax Credit
Effective in 2010, employers with 25 or fewer employees and average annual wages of $50,000 or less may receive tax credits for purchasing health insurance for their employees. The maximum tax credit that may be received is 35 percent of the employer’s contribution toward health plan premiums, so long as the employer contributes at least 50 percent of the total premium cost. This maximum credit is only available to employers with 10 or fewer employees and average annual wages of $25,000 or less. The sliding tax-credit scale can be found at www.irs.gov. The tax credit continues into 2014 and increases to a maximum of 50 percent of the employer’s contribution toward the health plan premiums for coverage offered by a qualified health plan through a health benefit exchange. This increased tax credit is available for a maximum of two years. Tax-exempt employers are eligible for a similar tax credit, beginning in 2010, with the maximum being 25 percent of the tax-exempt employer’s contribution toward health plan premiums. In 2014, the tax credit for tax-exempt employers increases to a maximum of 35 percent of the employer’s contribution toward health plan premiums.
For further information, please contact Emily Bardon or Ann Stillman at (314) 231-2800.