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The Patient Protection and Affordable Care Act (Affordable Care Act), Title I, Subtitle E, Part II is entitled ‘Employer Responsibilities’. It includes five provisions relating to employers, most notably of which is the provision regarding penalties for not offering coverage, or offering coverage that does not meet certain minimum standards.
This article provides a high-level summary of these five provisions based on the wording in the law. Please note that no proposed or final regulations have been issued to date to provide additional information or clarity regarding the implementation or application of these provisions.
Automatic Enrollment for Large Employers
This provision requires the automatic enrollment of new employees – and continued enrollment of current employees – into a plan that is offered by a large employer defined as one with 200 or more full-time employees. Employees will have the opportunity to opt out of coverage.
The Affordable Care Act does not provide a specific effective date for this provision. However, Internal Revenue Service Notice 2012-17 issued in February 2012 indicated that groups will not have to comply with this provision until after regulations are issued, and it is not anticipated that regulations will be issued for a 2014 effective date.
Requirement to Inform Employees of Coverage Options
This provision requires employers to notify new hires and existing employees of Exchange related information and if the employer’s group health plan does not cover at least 60 percent of costs on average, then the employee may be eligible for a premium tax credit.
The effective date of this notice requirement is Mar. 1, 2013. To date, a notice template or other guidance has not been issued.
Shared Responsibility for Employers Regarding Health Coverage
Commonly referred to as “play or pay”, this provision specifies certain penalties that may be applied to large employers who do not offer affordable, minimum essential coverage to full-time employees. Several definitions that pertain to this particular provision may be helpful:
- Full-time employee – an employee who has worked an average of 30 hours per week with respect to any month
- Applicable large employer – an employer with more than 50 full-time employees, including full-time equivalents. Minimum essential coverage with minimum value – includes employer-sponsored group health plans with coverage that has a minimum actuarial value (at least 60 percent)
- Minimum essential coverage with minimum value – includes employer-sponsored group health plans with coverage that has a minimum actuarial value (at least 60 percent); note that the calculator for determining minimum value is not yet available.
- Affordable coverage – coverage is affordable if the employee’s cost for single coverage is less than 9.5 percent of household income (which may be measured by the employee’s W-2 wages under a regulatory safe-harbor), even if the employee is enrolled in family coverage
If an applicable large employer does not provide coverage to full-time employees, and at least one full-time employee enrolls in the Exchange and receives a premium tax credit or cost-sharing reduction (a subsidy), certain penalties may be assessed to the employer. Eligibility for the tax credit and/or cost-sharing reduction is based on factors such as the percentage of poverty level in which the employee falls (generally less than 400 percent) and the employee’s premium cost as a percentage of total household income, if he or she were to purchase coverage through the Exchange. If an employer has no employees who enroll in the Exchange that qualify for the tax credit or cost-sharing reduction, then, absent regulations to the contrary, it seems that no penalty will be assessed if the employer chooses not to provide insurance for full-time employees. The assessment (penalty) is 1/12 of $2,000 per month times the total number of full-time employees reduced by 30.
There is also a tax assessed on applicable large employers who offer coverage, but have one or more full-time employees enroll through the Exchange and receive a premium tax credit or cost-sharing reduction. This assessment is also effective in 2014, and is 1/12 of $3,000 per month per employee enrolled in the Exchange and receiving a subsidy, not to exceed 1/12 of, $2,000 per month times all full-time employees. If an employer offers coverage that is considered affordable, minimum essential coverage with minimum value, then the employee will not be eligible for a subsidy through the Exchange.
These penalties are effective in 2014, but it’s not yet clear if they will be effective at each group’s renewal during that year or on January 1. Prior Update articles may provide additional information regarding the following topics:
- May 16, 2011 – Request for comments regarding definition of full-time employee
- May 21, 2012 – Minimum value
- June 18, 2012 – Premium tax credit
Reporting of Health Insurance Coverage
This provision sets forth reporting requirements for applicable large employers that are subject to the employer shared responsibility – play or pay – requirement summarized above. In addition to reporting the information to the Internal Revenue Service (IRS), the employer will have to provide a statement to each employee including the information that was reported and contact information.
The effective date of this provision is periods ending on or after Jan. 1, 2014. For more information, please refer to the May 21, 2012 publication of the Health Care Reform Update.
Offering Exchange-Participating QHPs through Cafeteria Plans
This provision amends section 125 of the Internal Revenue Code relating to cafeteria plans. It states that a qualified benefit does not include a qualified health plan (QHP) offered through an Exchange unless the employer is Exchange-eligible and offers employees the opportunity to enroll in a QHP through the Small Business Health Options Program (SHOP) Exchange.
Essentially this provision prohibits employers from permitting employees to enroll in the Individual Exchange using pre-tax dollars through their cafeteria plan. It does permit SHOP enrollment using a cafeteria plan if the employer is eligible for the SHOP.
The effective date of this provision is taxable years ending on or after Jan. 1, 2014.