During Friedman LLP's recent healthcare seminar, Healthcare Reform: Are You in Compliance?, Nixon Peabody LLP Counsel Kate Saracene and Friedman LLP Principal Michael Greenwald led a group of over 100 participants in an interactive discussion on healthcare reform compliance and provided detailed strategies to employers on how best to implement and meet the Affordable Care Act's ("ACA" or the "Act") deadlines over the coming months.
Key mandates for the years 2013 through 2015, as well as 2018, were reviewed in detail. Upcoming mandates for 2013 include the limiting of employee health Flexible Spending Account (FSA) contributions to $2,500, the PCORI Excise Tax, the new Summary of Benefits and Coverage (SBC) Template and the additional Medicare tax on individuals earning more than $200,000 annually.
The presenters also discussed the different penalties that will apply to large employers (those with 50+ full-time common law employees, or an equivalent combination of full-time and part time employees, (referred to as full-time equivalents) that do not offer affordable minimum value health coverage to their full-time employees beginning in 2015.
Those large employers that do not offer health insurance to 95% of their full-time employees and their dependents will pay an annual penalty of $2,000 per full-time employee (except that there is no penalty for the first 30 full-time employees). This is commonly referred to as the "Pay or Play Mandate". This mandate goes into effect on the first day of the employer's health insurance plan year that begins in 2015.
A different penalty is imposed if the employer offers coverage to 95% of its full-time employees, but the coverage is not "affordable" or does not meet "minimum value" standards. The affordability of employer coverage is calculated by measuring the employee premium contribution as a percentage of the employee's income. So long as the employee's contribution does not exceed 9.5% of his/her income, the coverage is deemed "affordable." Because employers generally will not have information about their employees' household incomes, proposed regulations provide three affordability "safe-harbors" that can be used as proxies for household income:
- the employee's Box 1 W-2 wages for the year in question,
- the employee's current monthly pay rate at the beginning of the plan year, or
- the Federal poverty line for a single individual.
The "minimum value" standard requires the plan to have a 60% actuarial value for covered benefits, equivalent to a Bronze Plan through the new health insurance marketplaces. This determination is generally made by an insurance carrier, but there is a minimum value calculator available for employers as well.
Important for employers to consider is the definition of a full-time employee. According to the Act, a full-time employee is an employee who averages 30 "hours of service" for the employer per week, or 130 hours of service per month. Hours of service include not only hours worked by the employee, but also those hours for which an employee was paid but did not perform work, such as vacation, and sick days or a leave of absence. They also include hours spent taking special job-protected unpaid leaves of absence, including family and medical leave and military leave. Generally speaking, employers will want to use the optional look-back methods to calculate employees' hours of service and full-time status. Hours for employees should be tracked during a "measurement period" and used to determine the employees' status and eligibility for benefits during a future "stability period." More precise information on determining this can be found in slides 72-75 of the presentation.
Also important for large employers to consider is the new definition of an eligible dependent. According to the Act, a dependent is defined as a biological, step, adopted or foster child under the age of 26. The Act does not require employers to offer coverage to spouses or any other type of dependent.
As you are aware, the Act, with its dozens of mandates, is complicated. The attached presentation addresses some of the salient features of the Act and provides a compliance checklist (slides 100-103).