Health Care Reform: Practical steps for employers

At this point, most of the regulatory guidance needed has either not yet been issued or has only been issued in proposed form. Therefore, we will provide the best possible guidance based on existing knowledge.

If your business is an “applicable large employer” in 2014, you will have “shared responsibility” for full-time employees’ health care coverage beginning in 2014. This Alert outlines the shared responsibility requirements, including how to count your “full-time employees” in 2014, and the potential penalties for failure to comply. Your “full-time employees” in 2014 for purposes of determining potential penalties are, in some ways, determined differently from your “full-time employees” in 2013 counted for determining if your business is an “applicable large employer.” Using this information now, based on your expected 2014 workforce, can help you determine if your business will be subject to the shared responsibility penalties in 2014 and to take action before January 1, 2014.

Under the first shared responsibility requirement, an applicable large employer must offer substantially all of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage through the employer’s group health care plan. The employer will be subject to a penalty if:

1.  The employer does not offer minimum essential health coverage through its group health care plan to substantially all of its fulltime employees and their dependents and

2.  At least one full-time employee (but not an employee’s dependent):

• Enrolls in health coverage through the Health Insurance Marketplace (the new name for the to-be-established health insurance exchanges) and
• Receives a premium tax credit or a cost-sharing reduction because of the employee’s household income.

Under the proposed Treasury Regulations, an employer will be treated as offering coverage to “substantially all” of its full-time employees and their dependents if, during the calendar month, the employer offers coverage to all but five percent or, if greater, five of its full-time employees and their dependents (for purposes of this Alert, the “substantially-all rule”). If coverage is offered to a full-time employee but not to the full-time employee’s dependents, the employee is not treated as being offered coverage for purposes of the substantially-all rule.

For purposes of the shared responsibility requirements, “dependent” means only the employee’s child who has not attained age 26. “Dependent” does not include the employee’s spouse.

The penalty, determined separately for each calendar month in which both (1) and (2) above apply, is 1/12th of $2,000 for every full-time employee of the employer, in excess of 30, for that calendar month, even if the employer offers health coverage to the full-time employee.

It’s important to note that this penalty does not automatically apply solely because the employer does not offer health coverage to substantially all of its full-time employees and their dependents. The employer does not become subject to the penalty until at least one full-time employee actually enrolls in health coverage through the Health Insurance Marketplace and receives a premium tax credit or cost-sharing reduction.

The second shared responsibility requirement obligates an applicable large employer to not only offer minimum essential coverage to substantially all of its full-time employees and their dependents, but to also offer health coverage that provides a minimum level of coverage and is “affordable” for full-time employees who would otherwise be eligible for premium tax credits or cost-sharing reductions for health coverage purchased through the Health Insurance Marketplace. This penalty applies if:

1.  The employer offers minimum essential health coverage through its group health care plan to its full-time employees and their dependents but:

• The coverage does not provide minimum value (meaning the plan does not cover at least 60 percent of the total allowed costs of benefits provided under the plan), and/or
• A full-time employee must pay more than 9.5 percent of the employee’s household income for employee-only coverage, and/or
• The employer does not offer coverage to all of its full-time employees and their dependents under the substantially-all rule, and

2.  At least one full-time employee (including a full-time employee to whom the employer does not offer coverage under the substantially-all rule):

• Enrolls in health coverage through the Health Insurance Marketplace (the new name for the to-be-established health insurance exchanges) and
• Receives a premium tax credit or a cost-sharing reduction because of the employee’s household income.

The penalty, determined separately for each calendar month in which both (1) and (2) above apply, is 1/12th of $3,000 for each full-time employee of the employer described in (2) above for that calendar month.

Just as with the penalty for not offering coverage, this penalty does not automatically apply simply because the employer does not offer affordable health coverage to substantially all of its full-time employees; a full-time employee must actually enroll in health coverage through the Health Insurance Marketplace and receive a premium tax credit or cost-sharing reduction to trigger this penalty. Unlike the penalty for not offering coverage, the penalty for not offering affordable coverage only takes into account full-time employees who actually enroll in coverage through the Health Insurance Marketplace and receive a premium tax credit or cost-sharing reduction. Finally, the maximum penalty under this requirement cannot exceed the maximum penalty that the employer would pay for not offering coverage to substantially all of its full-time employees (1/12th of $2,000 per full-time employee in excess of 30 per calendar month).”