Last summer the Supreme Court upheld the Patient Protection and Affordable Care Act (ACA.) While it has been a year since the opinion in National Federation of Independent Businesses v. Sebelius was handed down, employers will soon begin to see the repercussions of Justice Roberts’ plurality opinion.
The logic behind the ACA is to implement universal healthcare in the US and ensure that all Americans have access to affordable care. The ACA seeks to expand Medicaid coverage and preserve employer provided coverage. But what does this mean for employers?
Starting in 2014, “large employers” will face hefty fines and penalties for failing to provide minimum medical coverage to at least 95% of all full-time employees. A large employer is a business that employs at least 50 full-time employees. A full-time employee, for purposes of the Act, works at least 30 hours per week.
According to the Congressional Research service (CRS,) it is anticipated that employers are projected to pay over $130-billion in penalty payments over a 10-year period. However, the amount of the penalty will vary depending on what coverage the employer provides prior to the year 2014.
Penalties for Large Employers Offering Coverage
If the employer already provides health insurance prior 2014, then the coverage offered to employees must meet two criteria. The insurance offered to the employee must be affordable and it must be adequate. Coverage is deemed to be affordable if the contribution from the employee does not exceed 9.5% of his or her taxable income. Further, the plan is considered adequate if the total coverage is at least 60%. If the above criterion is not met, the employer will be subject to a penalty.
Penalties for Large Employers Not Offering Coverage
f the employer does not offer coverage, employees may be eligible for tax credits for coverage through an exchange. An exchange is a private healthcare market, which individuals may patronize. However, large employers will be subject to a penalty for every full-time employee forced to obtain coverage through an exchange. Starting in 2014, the penalty will be calculated;
(Number of full-time employees – 30 X 1/12 of $2,000)
How Should Employers Prepare?
- Determine if you are classified as a large employer: Since penalties are assessed based on the number of full-time employees, employers who have 50 or close to 50 full-time employees should be on alert.
Both full-time and part-time employees are considered for this calculation. Hours worked by part-time workers are converted into full-time employees. Thus, add up all hours worked by part-time workers in one month. Then divide the total by 120 and add that number to the total number of full-time workers. The Congressional Research Service provides a great example of this calculation:
For example, consider a firm with 35 full-time employees. Assume the firm also has 20 part-time employees who all work 24 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees for the month, based on the following calculation: 20 employees x 96 hours / 120 = 1920 / 120 = 16. Thus, in this example, the firm would be considered a large employer, based on a total full-time employee count of 51—that is, 35 full-time employees plus 16 FTEs based on the number of part-time hours worked.
- If you are a “large employer” make sure your coverage is compliant
- Inform your Employees: Under the ACA employees must receive notification of benefits and coverage. Employers must provide general information about public exchanges to all employees.