Last year, the United States Supreme Court upheld the Affordable Care Act, the sweeping health care law enacted by Congress and signed into law by President Obama in 2010. Many of the most important provisions of the law were scheduled to become effective in 2014, but recent developments have delayed implementation of rules, including the much publicized “play or pay” provision. This Advisory updates employers on some of the key elements of the Affordable Care Act.
The “Play or Pay” Mandate – Delayed to 2015
One of the central provisions of the Affordable Care Act requires large employers to provide health care coverage to full-time employees or pay a penalty if they do not do so. The so-called “play or pay” mandate was scheduled to become effective in 2014, but the Department of Treasury announced last month that it is delaying implementation of the “play or pay” mandate to January 1, 2015.
Employers subject to the “play or pay” mandate include those with 50 or more full-time employees, or the equivalent of 50 full-time employees. The law defines a full-time employee as one working 30 or more hours per week. The number of “full-time equivalent” employees working for an employer is determined by dividing the number of hours worked per month by part-time employees by 120.
In order to avoid the penalty imposed by law, large employers subject to the Affordable Care Act must offer qualifying group health insurance coverage to at least 95% of their full-time employees and their children. Insurance offered must (a) be affordable, and (b) provide certain minimum coverage to employees. Coverage is deemed affordable if the contribution required of an employee under the lowest-cost option does not exceed 9.5% of (a) the employee’s W-2 wages from the employer for the year, (b) the employee’s rate of pay, or (c) the federal poverty level. Qualifying coverage must pay for at least 60% of the cost of the medical treatment.
Large employers who do not offer qualifying coverage to their full-time employees will be required to pay a penalty of at least $2,000 for each full-time employee in excess of 30 if any of their full-time employees receive a tax credit because the employer (a) did not offer coverage at all, (b) did not offer coverage at affordable rates, or (c) did not offer coverage meeting the minimum standards established by law.
State Exchanges and the Individual Mandate – Still Effective in 2014
Although the “play or pay” mandate applicable to certain employers will not become effective until January 1, 2015, the mandate applicable to individuals will become effective on January 1, 2014. As of that date, all individuals must have health insurance coverage or pay a penalty.
In order to facilitate the purchase of coverage by individuals, state insurance exchanges will offer coverage commencing on January 1, 2014, with open enrollment beginning on October 1, 2013. California’s insurance exchange will be called “Covered California.”
Notices due by October 1, 2013
The Affordable Care Act requires employers to notify employees of their options for coverage under the law by October 1, 2013, including the availability of coverage from the state insurance exchange. The notice may be provided by email or in hard copy form, and the Department of Labor has created a model form that employers can use to satisfy their obligations under the law. The model form, OMB No. 1210-0149, is available on the Department of Labor’s website at www.dol.gov. Employers must provide the notice to existing employees by October 1, 2013 and must provide it to employees hired after that date within 14 days of their date of hire.
New Hire Waiting Period
As of January 1, 2014, employers and group health insurance plans in California must permit newly hired employees to become eligible for coverage within 60 days of commencing employment. Many employers currently impose longer waiting periods on newly hired employees, so employers are wise to check their benefits policies and make any necessary revisions before 2014.
What should employers do now?
Provide required notices to existing employees by October 1, 2013- Employers should provide existing employees with the required notice concerning their options for coverage under the law by October 1, 2013. The model form, OMB No. 1210-0149, is available on the Department of Labor’s website at www.dol.gov.
Review benefits policies to assure compliance with the new hire eligibility rule- Since the law will require employers and health insurance plans to permit newly hired employees to become eligible for coverage within 60 days of commencing employment as of January 1, 2014, employers should check their benefits policies and make any necessary revisions before 2014.
Seek tax advice regarding potential tax benefits resulting from the payment of premiums- Employers that offer health care coverage to employees should confer with their accountant or tax advisor to assure that they are taking advantage of any tax credits that may be available to them.
The Affordable Care Act changes the landscape of health insurance coverage for many individuals and employers. Employers must be certain that they understand the requirements that are imposed upon them and are ready to comply with those rules in a timely manner.