One of the most confusing and often misinterpreted component of the Affordable Care Act deals with mandates. It is true that many states including Virginia has sued the federal government over the individual mandate that begins in 2014 that requires all Americans to purchase health insurance. The employer requirements are very misleading. The Affordable Care Act does not include a mandate requiring employers to provide acceptable health insurance to their employees. It does create new monetary penalties that will be assessed against employers having more than 50 workers(defined as someone working 30 or more hours per week), if one or more of their employees take advantage of the new premium tax credits or cost sharing subsidies, either because the employer does not offer coverage or the employer offers coverage that does not meet certain requirements.
The Affordable Care Act dramatically raises the income requirements for tax subsidies in 2014 allowing individuals to purchase health insurance through a State Based Exchange Program. Eligibility for tax credits will now be afforded to someone who is between 133 percent of the Federal Poverty Level as a single person and 400 percent of the Federal Poverty Level as a family of four. 2011 current Federal Poverty Guidelines are $10,890 as a single and $22,350 in annual income for a family of four.
A substantial new group of folks will now be eligible for a premium tax credit. To be eligible for the tax credit, employees must meet the same requirements for other social programs such as Medicaid and MUST NOT be enrolled in the employer’s plan, and their employer’s coverage must be unaffordable. There is a dual definition of unaffordable: either the employer plan requires that the employee contribute more than 9.5% of their household income toward the cost of coverage, or the benefits of the plan are less than 60% of the enrollee’s healthcare expenses.
Most employers don’t have a 60/40 plan so most employers will pass the second test. I am more concerned about the employee contribution test. If the employee is paying more than 9.5% of their household income toward the cost of insurance, the employer will be subject to penalties. For example, an employee who is making $25,000 a year and is paying more than $45.00 weekly for employee only healthcare coverage would put the employer in jeopardy of a penalty. An employee with family coverage who makes $40,000 in household income and pays more than $73.00 a week for family coverage would put the employer in jeopardy of a penalty. Employers must analyze their employer contributions in 2014 to make sure they fall below the 9.5% threshold to avoid a penalty. Since healthcare costs have doubled in the last ten years and with no end in sight, employers have forced employees to pay more of the cost of health insurance. The new Affordable Care Act employer contribution requirements will only exacerbate the issue.
What are the penalties? If an employer has more than 50 full time employees and offers no coverage, the penalty is $2,000 per employee per year minus the first 30 employees. Employers who do not offer health insurance must also file returns stating they do not provide the coverage and list the number of full-time employees. Kathy Sibelius, the healthcare reform architect and leader of the Health and Human Services (HHS) will monitor this new requirement. An employer with 50 full-time employees must budget $166.00 per employee per month minus the first 30 employees or (20 X $166.00) = $3,320 in new penalties paid to the federal government. This begs the question; is it cheaper to terminate healthcare coverage, pay the penalty and allow all employees to purchase healthcare coverage thru the state based exchange?
Employers with 50 or more employees who offer coverage will still be required to pay a penalty based upon the number of employees who purchase coverage through the exchange minus the first 30 employees. The monthly penalty is 1/12 of $3,000 for each full-time employee who receives the subsidy because their employer coverage is unaffordable (costs more than 9.5% of their household income or the coverage doesn’t meet the 60% actuarial test). However, the total amount of the penalty imposed is subject to the $2,000 penalty limit paid by the employer who doesn’t offer coverage. Very misleading but essentially the government imposes the same penalties.
The attached summary from the Congressional Research Service provides greater insight and more examples of when an employer will be imposed a penalty. Remember, employers who have less than 50 full time equivalents are not subject to the penalty. Those employers who have more than 50 full time equivalents will no doubt review their financial obligations and compare the price and product offerings in the State Based Exchange Programs. For more insight concerning healthcare reform, please do not hesitate to give me a call at 888-686-3741.