Employer Coverage Requirements under theAffordable Care Act (ACA): A Brief Overview Karl Polzer, Senior Policy Director September 15, 2012
Major New Requirements in 2014 Building on the U.S.’ employment-based health coverage system, the ACA establishes many new responsibilities for employers. Most important, beginning in 2014, employers with 50 or more employee equivalents must offer their full-time employees health coverage that meets both minimum value and affordability standards – or potentially pay penalties.
Health Plan Reforms Employer health plans and insurance carriers also are subject to new requirements including a ban on lifetime coverage limits, restrictive annual limits, and cost sharing for certain preventive and wellness benefits. Plans offering dependent coverage also now must offer coverage to adult children until they reach age 26 unless they are eligible to enroll in their own employer- sponsored coverage.
Employer Responsibility Highlights New employer responsibilities and related requirements include: Reporting/disclosure. “Play or pay” – potential penalties for not providing coverage meeting specified standards. Minimum value of coverage offered. Coverage affordability standard. Definition of full time employees for purposes of applying standards. Automatic enrollment.
Reporting/Disclosure New reporting/disclosure requirements: Beginning in 2012, employers must report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12. Employers also must provide all employees with a Uniform Summary of Benefits and Coverage describing their health coverage, effective for plan years beginning on or after Sept. 23, 2012.
“Play or Pay” Penalties for not offering coverage, or for offering coverage not meeting affordability or minimum value requirements: Beginning in 2014, if an employer with more than 50 full- time employee equivalents (FTEEs) does not offer health coverage, and at least one full-time employee receives coverage through an exchange and qualifies for a tax subsidy, the employer will be assessed a $2,000 penalty (if calculated annually) for all employees minus 30 employees.
Potential Penalties If the employer offers coverage, for each full-time employee demonstrating that the coverage either does not meet the minimum value benefit requirements or affordability standard and receiving federally subsidized coverage through an exchange, the employer would be assessed a $3,000 penalty (if calculated annually). Unlike employer costs for providing employee health coverage, the penalties are not tax deductible for employers. A Congressional Research Service paper provides examples of employer penalties in greater detail at: http://www.ltgov.ri.gov/smallbusiness/employerprovisions.pdf.
Minimum Value Standard Minimum value of coverage: The federal government is developing options for determining the minimum actuarial value that employee health plans must provide for employers to avoid possibly facing a penalty.
Affordability Test Affordability: Beginning in 2014, employers with more than 50 FTEEs must offer at least one plan for individual coverage to full- time workers that meets an affordability test. The law requires that the employee’s share of the premium for self-only coverage not exceed 9.5% of the employee’s household income. However, because employers generally do not know their employees’ household incomes, federal agencies have provided guidance allowing employers to base an employee’s premium share on the employee’s W-2 income from that employer rather than household income (thereby providing employers that do so with a “safe harbor” from the penalty requirements).
Applicable Full-time Employees Applicable full-time employees: Employers potentially subject to penalties generally must offer health coverage to full-time employees – those working at least 30 hours on average per week. Federal agencies are developing methodologies to determine when existing employees and new hires are considered full- time employees.
Automatic Enrollment Automatic enrollment: Beginning in 2014, the law requires employers with more than 200 full-time employees that offer coverage to automatically enroll new full-time employees and continue the enrollment of current employees in a health plan; employees would be able to opt out of that coverage. The Department of Labor, however, has indicated that it will not enforce the automatic enrollment requirement in 2014.
Federal Guidance The Department of Labor and the Internal Revenue Service are developing regulations implementing the new requirements for employers. (As of September 6, 2012) More information can be found in a Department of Labor technical release at http://www.dol.gov/ebsa/pdf/tr12-01.pdf) Information is also on the IRS “Affordable Care Act Tax Provisions” site at http://www.irs.gov/newsroom/article/0,,id=220809,00.html?p ortlet=6
Implications for LTC Providers The new requirements for employers to offer specified levels of coverage or pay penalties may increase costs for many long term care providers in 2014. Working with employee benefit specialists and insurance brokers and carriers, providers have begun the process of analyzing their options for providing affordable coverage or potentially paying penalties. However, until more key policy decisions are made, it is impossible for employers to precisely gauge the extent of the financial impact of the new requirements.
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