With a substantial portion of the Patient Protection and Affordable Care Act (PPACA) set to go into effect in 2014, employers are working to determine how the law will impact them, their business and their employees. Because the law will require most employers to provide affordable minimum essential health insurance coverage to full-time employees or face financial penalties, employers must understand how the law defines full-time workers, as well as the penalties that businesses can face for failing to comply or choosing not to provide coverage.
Under provisions called the employer shared responsibility rules, the PPACA requires large employers (generally those with 50 or more full-time employees) to provide affordable group health coverage with sufficient value to full-time employees and their dependents. Full-time employees are generally defined as those who work on average at least 30 hours per week. Employers that fail to comply with these rules can face penalties.
What Are the Potential Penalties?
The failure to offer coverage penalty applies if at least one full-time employee obtains subsidized coverage on an exchange where the employer does not offer coverage to at least 95 percent of its full-time employees and their dependents. This penalty – which can be up to $2,000 per year for each full-time employee (in excess of 30) – will be based on the total number of full-time employees an employer has, regardless of how many employees have government-subsidized exchange coverage.
The insufficient coverage penalty applies if the employer offers full-time employees coverage, but the coverage is either unaffordable (individual premium cost exceeds 9.5 percent of the employee’s household income) or does not provide minimum value (pays less than 60 percent of the covered costs). Proposed regulations released by the IRS provide guidance and alternative safe harbors for calculating whether health coverage is unaffordable, including use of an employee’s W-2 earnings. The potential penalty for insufficient coverage is $3,000 per year for each employee who obtains government-subsidized coverage on an exchange.
Employers should also note that in determining whether an employer is subject to these provisions (i.e. is a “large employer”), the IRS controlled group rules are applied – meaning that all affiliated employers for which there is 80 percent or greater common ownership will be treated as a single employer. However, compliance with the employer shared responsibility rules – and any associated penalties- will generally be assessed on an employer-by-employer basis.
By L. Scott Austin and David Mustone
Check back tomorrow for part 2 of this article.