As has previously been reported, the Obama Administration announced that for a variety of reasons, it was postponing enforcement of the Employer Mandate to provide health insurance to employees authorized under the Patient Protection and Affordable Care Act (ACA), until January 2015.
Just as there is an individual mandate included in the ACA, there is also a requirement that employers with 50 or more full-time employees or equivalents must provide Qualified Health Insurance to the company’s employees. Both the individual mandate and the employer mandate were supposed to take effect on January 1, 2014. As it currently stands, only the individual mandate will take effect on January 1, 2014.
Beginning January 1, 2014, employers that do not offer health insurance coverage to their full-time (30 or more hours worked per week) employees face a penalty of $2,000 per employee if at least one full-time employee receives a premium tax credit/subsidy to purchase coverage through a state-based health insurance exchange established under the PPACA.
If employers with 50 or more full-time employees or equivalents do offer health insurance coverage to their full-time employees, but the coverage is deemed “unaffordable” to certain employees or does not provide minimum value, the employer faces a penalty of $3,000 per full-time employee receiving a premium tax credit/subsidy for exchange coverage (not to exceed $2,000 times the total number of full-time employees).
Determining “Affordability” and “Minimum Value”
If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5 percent of that employee’s annual household income, the coverage is not considered affordable for that employee. If an employer offers multiple health care coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement.
Because employers generally will not know their employees’ household incomes, employers can take advantage of one of the affordability safe harbors set forth in the proposed regulations. Under the safe harbors, an employer can avoid a payment if the cost of the coverage to the employee would not exceed 9.5 percent of the wages the employer pays the employee that year, or if the coverage satisfies either of two other design-based affordability safe harbors.
A minimum value calculator will be made available by the IRS and the U.S. Department of Health and Human Services (HHS) so employers can determine their potential exposure to penalties. The minimum value calculator will work in a similar fashion to the actuarial value calculator that HHS has made available through its Center for Consumer Information & Insurance Oversight (CCIIO).
Once it is up and running, employers will be able to enter certain information into the on-line calculator (employee out of pocket for premiums, deductibles, co-pays, etc.) and get a determination as to whether the plan provides minimum value by covering at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan.
HHS and the IRS hope to have the calculator up and running in either late 2013 or early 2014.
ADVOCATE will continue to provide updates as information becomes available.
Kirk Reinitz, CPA