If you are an employer subject to the Affordable Care Act, you should be starting to feel its presence– or maybe that started for you already. You are subject to what is known as the Employer Mandate–and you may have to worry about penalties. As with many parts of the ACA, misconceptions abound. Let’s have a good look at the penalties and transitional relief that may be available, after the jump…
Let’s dive right in there. First, here’s the employer mandate in a nutshell: Certain employers have to offer certain coverage to certain employees or risk having penalties assessed against them. For purposes of this discussion we are assuming that you are one of the certain employers and that your employees are among the certain employees. If you either do not offer any insurance to any of your eligible employees or you don’t offer it to enough of them, you have one type of penalty that you might end up paying. If you do offer insurance to enough of your eligible employees, but it either is not “affordable” or does not offer minimum value within the meaning of the ACA, that subjects you to another, usually less draconian penalty.
If you are subject to the employer mandate you must offer insurance to at least 95% of your eligible employees. Note that I said offer, not provide. If you can prove that you offered at least 95% of your eligible employees medical coverage, then, even if some of them decline the offer, you have satisfied this requirement and you avoid the stiffer penalty. What happens if you either do not offer any coverage or you do not offer it to enough eligible employees? You may be subject to a penalty. Many people are not aware that the penalty is not automatic. One or more employees must go to an exchange for help with coverage and receive a subsidy or tax credit. Only individuals or families with low, or relatively low income will qualify for a subsidy or tax credit. In other words, if you fail to offer coverage to at least 95% of your eligible employees and nobody goes to an exchange for help, there is no penalty. If someone does go to an exchange for health benefits but is not eligible for a subsidy or credit, then again, there is no penalty.
What happens if you offer less than 95% of your eligible employees coverage and one of them goes to an exchange for coverage and s/he gets a subsidy or tax credit. Now you will be subject to a penalty, which has been referred to as either the 95% penalty or the Shared Responsibility Penalty. How much is that penalty? Take your total number of employees, subtract 30 and then multiply either by $2000 a year or $166.66 a month. So, for example, if you have 100 employees then you multiply $2000 by 70 and you would pay $140,000 in penalties for the year. If you offer enough eligible employees insurance for 6 months out of the year, you can prorate the amount and you would pay $70,000. From this example, you have probably noticed that: a) this penalty can get very steep very fast; and b) it doesn’t matter whether only one or many employees qualify for a subsidy. The penalty is triggered once one employee receives a subsidy or tax credit and is the same whether one or many receive one.
There is some good news here for at least some of you, though. There is transitional relief available in 2015. If you have fewer than 100 employees and your plan year begins in 2015, and you did not offer any insurance or you didn’t offer insurance to enough of them, you will not have to pay any penalties as long as you did not move your plan year, reduce your workforce, workers’ hours or the percentage of your contribution after February 9, 2014. Again, to qualify for this relief, you must have under 100 employees, and the relief is available for 2015 only. What if you have more than 100 employees? There is still some transitional relief available for you in 2015. For 2015 only, you need only offer 70% of your eligible employees coverage. If not, you calculate the penalty calculated by taking your total number of employees and subtracting 80 (rather than 50) and multiplying that number by either $166.66 or $2000 depending on whether you would be paying a prorated or full year’s penalty for 2015. For example, if you have 110 employees and you don’t offer any coverage, you subtract 80 from 110 and multiply by 30. Annually that number would be $60,000. Monthly it would be $4999.80. While that amount can still add up, it’s not as much as it would be without the transitional relief.
Suppose you do offer coverage to enough of your eligible employees and to save on your premium you pay for half the premium and the plan covers 55% of the cost of actual services. The ACA requires that insurance have minimum value, meaning that it must cover at least 60% of expected in-network expenses on average for a standard population. Alternatively, suppose you decide to cut your costs by requiring your employees to contribute more toward the premium, and the contribution for individual-only coverage ends up for some being more than 9.5% of their income. The coverage then does not satisfy the ACA’s affordability requirement. You won’t be subject to the Shared Responsibility Penalty, but you will have to pay the Affordability/Minimum Value penalty. How much will that be? The penalty is $3000 for each employee that gets coverage through and exchange and receives a subsidy or tax credit. This penalty too is only triggered by an employee seeking coverage through an exchange and receiving a subsidy or tax credit. Note that this penalty amount is only multiplied by the number of employees actually receiving a subsidy or tax credit. If only one employee gets a subsidy or tax credit you pay no more than $3000 for the year. This penalty will usually be significantly less than the Shared Responsibility penalty. In other words, it’s better to at least try to offer compliant coverage to enough people. NOTE: There is no transitional relief for this penalty. Other NOTE: Just because you avoid the Shared Responsibility penalty doesn’t mean you are in the clear. You could still have this penalty assessed against you.
What should you do then? Speak with your numbers-people about a) what you are facing if you do not even try to comply; or b) if you do want to comply, confirm that your coverage is “affordable” within the meaning of the ACA; c) keep really, really good records of what you are doing and d) get knowledgeable experts in your corner to help you–don’t try to do this on your own!
C’mon back next week to talk about wellness plans under the ACA and also EEOC guidelines. See you then!
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Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent employment counsel on any issues discussed here.
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