Having cleared the hurdles of a Supreme Court decision and the 2010 and 2012 national elections, health care reform mandated by the Patient Protection and Affordable Care Act (“PPACA” or the “Act”) is closing in fast on key implementation dates for employers. The greatest impact for employers under PPACA is set to occur on January 1, 2014. On that date, large employers are required to offer health insurance coverage to full-time employees through a qualified plan or face penalties. Decisions made by employers in the remaining months of 2013 will determine one’s success in 2014.
While there are a myriad of considerations applicable to a given employer’s unique fact situation and continuing guidance coming even now from government agencies charged with implementing PPACA, now is the time to plan for what will be required of employers in 2014.
Large Employers: Shared Responsibility Requirement
Generally, a “large” employer under the Act is a company employing 50 or more “full time equivalent” employees in the prior calendar year. For purposes of determining the number of employees, control group rules apply such that entities related through common ownership may be required to add together employees working in separate, but related, companies to ascertain if the 50 FTE threshold has been met.
Large employers will generally be required to offer an eligible health plan to substantially all of their full-time employees (i.e., one who averages 30 or more hours a week) which plan has “minimum value” and is “affordable” for each full-time employee. This requirement is sometimes referred to as employer shared responsibility, and is what is mandated from and after January 1, 2014. A plan has minimum value if the employer’s contribution is at least 60% of the cost of benefits. A plan is affordable to an employee if the employee’s cost does not exceed 9.5% of the employee’s W-2 wages. Again, these are general guidelines, and varying factors and considerations may be present for any given employer.
Failure to provide coverage along the general guidelines discussed above may lead to a penalty of $3,000 per employee per year for each employee. This penalty is assessed against the employer and is not tax deductible.
For large employers who offer no health plan to employees, the annual penalty is $2,000 per employee for each employee in excess of 30 employees (i.e., no penalty is assessed as to the first thirty employees). Again, this penalty is non-deductible.
Small employers – those with fewer than 50 FTEs – are not subject to the shared responsibility requirement. Small employers will be eligible to obtain employee insurance through the health insurance exchanges being established on a state-by-state basis. The exchanges are scheduled to be open for business by October 1, 2013. Depending on size and its offering of health insurance to employees, a small employer may be eligible for a tax credit with respect to its insurance offering.
Other considerations, such as Medicaid expansion, face employers when analyzing the ways in which to approach the requirements of PPACA. Medicaid expansion to those persons between 100% and 138% of the federal poverty limit will have financial consequences for employers. Like the decision as to health insurance exchanges, Medicaid expansion is a state-based decision and, accordingly, will vary by state.
PPACA imposes other requirements on employers, including, by way of example, disclosure and informational requirements as to costs of health plans on W-2 reporting and providing of a summary of coverage and benefits to employees. Later this year, it is expected that employers will be required to notify employees of the availability of health insurance coverage through the state exchanges.
After more than 3 years, legal challenges culminating in a Supreme Court decision and two national elections, the Patient Protection and Affordable Care Act is set for implementation, bringing new responsibilities to employers. Many of these obligations carry significant financial and other ramifications for employers. In order to avoid financial and other surprises in 2014 and beyond, employers should plan now as to how they will choose to implement the requirements of PPACA.