The Affordable Care Act (ACA) requires large employers (those with at least 50 full-time equivalent employees) to provide qualifying health care coverage to substantially all full-time employees and their dependent children or pay a monthly “Employer Shared Responsibility” penalty. The employer mandate was set to take effect in 2014 but was delayed until 2015. But, even without the threat of tax penalties in 2014, employers should practice complying with the mandate during the 2014 transition period.
Here is a blueprint for implementing a compliance strategy:
1. Amend health plans to comply with the ACA requirements that were NOT delayed. Required changes include eliminating annual dollar limits on essential health benefits; eliminating pre-existing condition exclusions for all enrollees; offering coverage to dependents to age 26 who are eligible for other employer coverage; and limiting benefit waiting periods to no more than 90 days. Non-grandfathered plans also must prohibit discrimination based on participation in a clinical trial; abide by cost-sharing limits; and prohibit discrimination against any health care provider acting within the scope of that provider's license or certification under applicable state law.
2. Determine whether the employer mandate applies. In general, the employer mandate applies to “large” employers that employed an average of at least 50 “full-time” equivalent employees on business days during the prior calendar year. A full-time employee is one that averages at least 30 “hours of service” per week (or 130 hours per month). All entities in a controlled group are treated as a single employer to determine large employer status.
3. If an employer is determined to be a large employer, assess financial risks under the employer mandate. A large employer that chooses not to offer minimum essential coverage (MEC) will be penalized $2,000 per full-time employee (minus the first 30) if one full-time employee receives a federal subsidy for Health Insurance Marketplace coverage. This is often called the “sledgehammer” penalty. If a large employer offers MEC, but the MEC fails to provide minimum value (60%+ of total allowed costs) or affordability (employee’s contribution toward the premium is ≤9.5% of household income), the employer will be penalized the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 per full-time employee (minus the first 30). This is known as the “tack-hammer” penalty. Most employer-sponsored group health coverage is MEC, including, apparently, so-called “skinny” plans that cover only ACA-required preventive services with no cost-sharing and with no annual or lifetime dollar limits on benefits.
4. For a large employer that wants to avoid the sledgehammer and/or tack-hammer penalty in 2015, rehearse employer mandate compliance in 2014. Finalize plan designs and amend plans now to conform to MEC, minimum value and affordability requirements. Offer coverage to employees performing 30 hours of service or more per week during a month and, at a minimum, their dependent children to age 26. If large numbers of variable-hour or seasonal employees make it difficult to track and manage full-time status, establish ACA-compliant “measurement periods” to determine whether these employees actually work enough hours to be offered coverage. Maintain detailed records, because informational reporting about the coverage and to whom it is offered must be provided to the Internal Revenue Service beginning in 2016.
Details of each employer’s situation are unique. But all employers should accelerate and simplify this complex compliance project. Many independent, third-party administrators can be an invaluable resource for navigating the employer mandate rules and penalties and other complexities of health care reform.