On Jan. 1, 2014, the next wave of health care reform compliance mandates takes effect under the Affordable Care Act, commonly called Obamacare. These mandates will require many companies to make changes in whether and how they provide health care benefits to their employees. There are significant penalties for failure to comply, as well as incentives in some cases for voluntary compliance.
So although Jan. 1 may seem a long way off, employers are wise to start thinking about these issues now, to allow time for planning and compliance. Here is a list of the top items employers need to think about and what steps they can take to ensure they will be ready.
Determine whether you are a "large employer" subject to the coverage mandate. All employers with an average of at least 50 full-time-equivalent employees during 2013 will be required to offer health coverage. The word "equivalent" is key here. Full-time equivalence is determined by aggregating the number of "full-time employees" (those who average 30 hours of service, including paid time off, per week), and the full-time equivalent number of part-time employees (by aggregating part-time service hours, up to 120 hours for each employee, and dividing the sum by 120).
Furthermore, if businesses share at least 80 percent common ownership, or where certain service organizations have joint activity, common management or control, those businesses are considered a single employer. In fact, employees of a separate business owned by your spouse or certain family members can be attributed to you, even if that business is in a separate company or unrelated to your core business. Thus, related small employers may unwittingly be subject to the mandate as large employers.
If you are a large employer, you may need to redefine your policies governing eligibility for health insurance. The Affordable Care Act requires that large employers offer coverage to at least 95 percent of their "full-time employees." However, many employers currently consider "full-time employment" for health coverage eligibility to be 32, 35 or 40 hours per week (instead of the 30 hours per week required by the act). Some employers' policies even exclude entire categories of W-2 employees, such as temporary or seasonal employees, floaters, hourlies or per diems, all of whom may need to be offered coverage if they average 30 hours per week. Large employers who fail to comply with these ACA rules face an annual "sledgehammer" penalty equal to $2,000 times the number of all full-time employees (not just the ones to whom they failed to offer insurance).
Employers with fewer than 50 full-time-equivalent employees are not required to provide coverage to employees, but the ACA offers incentives and opportunities to do so. For example, a small employer that voluntarily provides health coverage to employees might consider whether to apply for a federal tax credit (if it has 25 or fewer employees) and whether to begin purchasing insurance through one of the new Affordable Health Insurance Exchange (for employers with 100 or fewer employees).
Determine whether you have any variable-hour or seasonal employees who may be subject to a special look-back eligibility period before you need to offer them coverage. If you have employees whose hours fluctuate above and below 30 per week, or if you employ individuals to do work that by its very nature can be performed for only part of the calendar year (think of amusement park employees and retail workers during the holiday season), then you may have the option to use a look-back method to determine whether those individuals average 30 hours of service per week. If an individual works an average of 30 hours of service during the "measurement period," that person must be offered health coverage during a "stability period" that follows, which must be at least six months and at least as long as the measurement period you designate. Using these optional methods can delay your coverage obligations for more than 12 months for new hires in these categories.
If you do offer health coverage, determine whether it satisfies the ACA standards for "minimum value" and "affordability." The "minimum value" standard requires that the plan must pay on average at least 60 percent of the costs for covered benefits. The regulators are developing a minimum value calculator to enable employers to input certain information about a plan, such as deductibles and co-payments, and get a determination of whether the plan complies.
The "affordability" standard requires that an employee's share of the premium for self-only health coverage cannot exceed 9.5 percent of the employee's wages. 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. If you discover that your current cost-sharing method makes coverage "unaffordable," you will need to decide whether to adjust your employer subsidy to make it affordable for all employees or pay the "tackhammer" penalty-$3,000 times the number of your full-time employees who receive a federal government subsidy through an Affordable Health Insurance Exchange.
Revise your health plan to comply with new mandates, including dependent coverage requirements, reduced waiting periods and new annual out-of-pocket maximums. The ACA requires that you offer coverage to full-time employees' biological, step, adopted and foster children. You do not, however, need to offer coverage to spouses. The law also limits eligibility waiting periods to 90 days (except with respect to variable-hour and seasonal employees, as noted above); today it is common for employees to wait six or 12 months before becoming eligible for health insurance.
The rules also impose a new limit on out-of-pocket maximums, which will not be permitted to exceed the statutory high-deductible health plan limits (currently $6,250 for single coverage and $12,500 for families).
Use data-based modeling tools to determine whether it is more affordable to "play" or to "pay," or to take a hybrid approach in which you offer affordable minimum value coverage to some but not all of your employees. Obamacare allows employers to pay a penalty and opt out of the coverage mandates. So you should think about which option is better for your business.
Consider whether to make changes to your business model. For example, some owners of multiple businesses are selling off shares to break up controlled groups and become "small employers" exempt from the coverage mandate. Employers that use large numbers of temporary employees are considering new policies that would limit the length of their employment to 90 days, to avoid the additional expense of providing health coverage after they cross that threshold. Some employers are even considering cutting employee hours and increasing the use of part-time employees who work less than 30 hours per week. These decisions need to be carefully vetted, because there are a lot of traps for the unwary.
If you have a unionized workforce, negotiate with the unions representing your employees for any changes needed to make your bargaining agreements comply. If your unionized employees participate in their union's own multi-employer health insurance plan, you are not off the hook either. You need to make sure the union's plan complies; if it doesn't, you as the employer will face the penalty.
Compliance with Obamacare is neither simple nor intuitive. It requires critical thinking and thoughtful planning to determine what options are best for your business. Start considering these matters now to avoid problems next January.
Jeffrey LaBarge is a partner with Nixon Peabody LLP. His colleague Ulrich Saracene, a labor and employment counsel with the firm, collaborated on this article.3/15/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email email@example.com.