What do you need to do NOW to comply with the Affordable Care Act (“ACA”)? While the Obama Administration recently delayed implementation of the employer mandate until 2015, other parts of the new federal healthcare reform law are scheduled to take effect shortly. The Chamber does not want any of its members to be caught unprepared. We asked Chamber Member Genova Burns Giantomasi Webster to provide insight on the key provisions you need to know now about the ACA.
First, did you know that some provisions of the Affordable Care Act (“ACA”) have ALREADY gone into effect; the mandatory ACA notice must be delivered to employees by October 1, 2013, others will take effect later this year, and still others like the employer penalty tax will take effect in January 2015?
For example, the law already requires that an employer’s health plan or policy that provides dependent coverage to continue to offer this coverage until the dependent turns age 26. Already various minimum standards for health insurance policies have taken effect and the prohibition against annual and lifetime coverage caps have started to phase in. A new 0.9% income tax and a 3.8% Medicare tax took effect in January 2013 and are designed to help pay the costs of ACA. Looking forward to the balance of 2013, by no later than October 1, any employer covered by the Fair Labor Standards Act must notify part-time and full-time employees of their rights to obtain health care coverage through health care exchanges, instead of through employer-sponsored plans, and of the right to a health care credit under certain circumstances. Beginning October 1, employers must provide the notice to each new employee at the time of hire. The Department of Labor’s approved employee notice is available on-line at www.dol.gov/ebsa/pdf/FLSAwithplans.pdf .
The state and federal health care exchanges will become operational on October 1, 2013 at which time employees will be able to purchase health insurance on these exchanges on the Internet.
The most significant recent development regarding ACA implementation is the postponement to January 1, 2015 of the employer mandate to offer coverage and the corresponding employer penalty tax for employers that do not offer affordable coverage. Other significant changes introduced by ACA, including the penalties on individuals who do not purchase health coverage, are still scheduled to take effect in January 2014. In August the Treasury Department issued final rules on the individual mandate, but last January the Department of Health and Human Services clarified that individual mandate penalties would be targeted “only to the limited group of taxpayers who choose to spend a substantial period of time without coverage despite having ready access to affordable coverage.” The Act requires employers to report the value of health care (including major medical, EAP, wellness programs and on-site medical clinics) on employees’ W-2 forms but the IRS has issued transition relief to small employers with the effect that this requirement is being phased in first for larger employers.
Second, did you know that not all employers are covered by the ACA?
Generally, under the proposed IRS rules, an employer will be covered by ACA on January 1, 2014 only if during the employer’s 2013 measurement period the employer employed full-time employees and full-time equivalent employees (including seasonal workers) who total at least 50. For employers that must provide ACA coverage on January 1, 2014 (subject to the penalty postponement), the employer’s 2013 measurement period (for determining if it is a covered employer on January 1, 2014) may be any consecutive three- to 12-month period prior to October 1, 2013. A full-time employee is any employee who works an average of at least 30 hours per week during the measurement period. A full-time equivalent employee (“FTE”) is any employee who averages fewer than 30 hours per week during the measurement period; the hours worked by all FTEs during a month are divided by 120 to determine how many FTEs the employer has.
Third, did you know that an employer that is covered by ACA must on January 1, 2015 either offer affordable health care coverage to at least 95% of its full-time employees and their dependents, or pay an ACA tax?
This is what is known as the mandate. The health care exchanges will be available to employees on October 1, 2013. The employer has the option to offer employer-sponsored coverage or simply allow its employees or a portion of them to purchase coverage in the exchanges, but this comes with a penalty which is discussed below. If the employer plans to offer coverage to its employees effective January 1, 2015, to avoid the ACA tax it must offer affordable coverage by no later than October 1, 2014 and then provide the coverage to employees who elect the coverage by no later than January 1, 2015. Coverage is deemed unaffordable if the employer does not cover at least 60% of the cost of the plan benefits, or the premium required to be paid by the employee exceeds 9.5% of the employee’s household income.
Fourth, did you know that an employer that fails to offer at least 95% of its full-time employees affordable health care coverage by January 1, 2015 will be required to pay a tax to the IRS?
The tax imposed on an employer that offers unaffordable coverage is $3,000 per year for each full-time employee who qualifies for and receives a premium tax credit or cost-sharing reduction from a state exchange. What’s more, the tax the employer will pay is calculated based on all of the employer’s full-time employees, not only employees not offered coverage, minus 30. An employer’s failure to provide a full-time employee with the opportunity to enroll in minimum essential coverage will trigger a penalty of $2,000 per year per full-time employee. Therefore, an employer with 100 full-time employees or FTEs that fails to offer just one full-time employee minimum essential coverage will pay a tax of $140,000 (100 minus 30 times $2,000).
Fifth, did you know that employees who work fewer than 30 hours per week are counted in determining whether the employer is covered by ACA?
ACA makes a clear distinction between measuring the workforce for purposes of coverage and determining who must be offered health care coverage. Once the employer is determined to be covered by ACA, the employer is required to offer affordable coverage only to employees who work an average of 30 hours per week or more, but not to employees whose average hours are below 30 per week. However, in determining whether the employer is even covered by ACA, the employer must calculate the hours worked by its FTEs each month, which produces the number of FTEs who are counted in determining whether the 50-employee threshold is met.
Sixth, did you know that the IRS will apply its single employer, common law employer, and controlled group employer rules to determine whether your business is covered by ACA?
Determining whether an employer is covered by ACA is often complicated by the employer’s corporate structure and indirect ownership issues. The IRS will disregard corporate structure and ownership formalities and inquire as to whether one business entity is controlled by another, and whether two or more entities should be treated as one because of overlapping management of the entities. Therefore, where there is doubt as to whether employees of multiple entities might be considered employees of a single entity and satisfy the 50-employee test for purposes of ACA coverage, legal advice is recommended.
Seventh, did you know that a small employer that is not subject to the ACA tax can qualify for a tax credit of up to 35% of its costs in providing health care coverage to its full-time employees?
In 2013 an employer that employs a total of no more than 25 full-time employees plus FTEs is eligible to receive a tax credit if it covers at least 50% of the premium for a plan for its employees and its employees’ wages average less than $50,000 a year. The maximum credit is 35% for a for-profit employer and 25% for a small tax-exempt employer. On January 1, 2014 the maximum credit will increase to 50% and 35% of the cost of the coverage, respectively.
If you have any questions or for more information about ACA and its impact on your organization or your employees’ benefit plans, please contact:
- Patrick W. McGovern, Esq., firstname.lastname@example.org,
- Gina M. Schneider, Esq., email@example.com,
- or Phillip M. Rofsky, Esq., firstname.lastname@example.org,
at Genova Burns Giantomasi Webster–in the firm’s Employee Benefits Practice Group.