June 11, 2013
With full implementation of federal health care reforms just around the corner, large practices must also be mindful of how the law will impact them as employers, particularly the applicability of “pay-or-play” penalties.
Beginning in 2014, two types of penalties may apply to employers of 50 or more full-time employees: no coverage penalties and insufficient coverage penalties.
Below is an outline of important points to remember in assessing potential penalty liability:
50 or more full-time employeesFull-time = 30 hours per week or 130 hours in a monthAll employees in a “controlled group” are counted towards the 50, meaning the employees of affiliated or related employers are included.Leased employees generally do not count toward the 50.If it is unclear whether an employee will work an average of at least 30 hours per week upon hiring (e.g., “variable hour” or “seasonal” employees), then the employer may take 3 months to a year before determining whether full-time status applies.
No coverage penaltyApplies if an employer of 50 or more full-time employees (1) fails to offer health care coverage to at least 95 percent of its full-time employees and their children up to age 26 and (2) a full-time employee receives subsidized coverage through the exchange. Oddly, no requirement exists to offer coverage to employees’ spouses or domestic partners.Monthly penalty = $2,000 x (number of full-time employees minus 30) / 12The full penalty applies if even one full-time employee gets subsidized exchange coverage.Though employees of affiliated or related employers count towards the 50 in determining whether the employer is subject to penalties, they do not count in calculation of the penalty.
Insufficient coverage penaltyApplies if an employer of 50 or more full-time employees (1) offers health care coverage to at least 95 percent of its full-time employees and their children up to age 26, (2) a full-time employee receives subsidized coverage through the exchange, and (3) the employee-only coverage (excluding dependents) offered by the employer is valued at less than that of an exchange bronze level plan or is more than 9.5 percent of the employee’s monthly pay, salary or W-2 wages.The employer is not required to subsidize coverage for the employee if the unsubsidized premium is affordable under (3) above.Monthly penalty = lesser of ($3,000 x number of full-time employees receiving subsidized exchange coverage / 12) or (the no coverage penalty amount outlined above). The first amount will often be the lesser of the two.
Many employer benefits consultants, agents, brokers, health plans and accountants are devising strategies for employers to minimize their exposure to the penalties outlined above. For instance, some employers are increasingly utilizing temp agencies in an effort to stay under the 50 full-time employees threshold, while others are purchasing bare-bones coverage with the expectation that few employees will enter the exchange for subsidized coverage at a penalty of $3,000 each, which is often less than the employer premium contribution.
At this time, it is unclear to what extent federal regulators may issue additional regulations and guidance to address such strategies.