Businesses and the Employer Mandate
The health care law, also known as the Patient Protection and Affordable Care Act, includes an Employer Mandate that will go into effect in 2015. The precise impacts depend on the size of the company, how much employees are paid, the type of coverage the company currently provides, and whether the existing health plan qualified for grandfathered status.
The law may also impact health insurance products and rates, coverage requirements, administration, reporting, and more. Here are some of the key parts of the Health Care Law and Employer Mandate that may affect businesses:
- Group size
- How to determine group size
- Some employers may pay penalties
- Tax credits
- Grandfathered status
- Notification requirements
- Wellness provisions
- Cadillac tax
- New taxes and fees
- 90-day waiting period
- New maximum out-of-pocket limits
The size of a business is an important factor that determines how benefits or rates are constructed, and whether or not the business will be penalized for not offering health coverage.
The Health Care Law defines small groups as those with a total of 2-100 full time and full-time equivalent (FTE) employees.
(The law allows states to modify the FTE employee number for small businesses to 2-50 for 2014 and 2015. Most states, including the Commonwealth of Pennsylvania, are choosing that option and will classify small business as those with 2-50 FTEs. Starting in 2016, businesses in every state with 2-100 employees will be classified as small business.)
The Health Care Law does not mandate that small businesses provide health care coverage to their employees, but if you do provide coverage and it does not meet the law’s requirements, then the company may be subject to penalties.
The Health Care Law defines large businesses as those with a total of 50 or more employers.
Beginning in 2016, the law mandates that businesses with 50 or more full-time employees must provide coverage to their employees or they could pay a penalty.
There are two types of penalties, one for not providing coverage at all, and one for not providing the minimal level of coverage or affordable coverage. It is important to discuss the specific requirements for your company with your legal advisor.
How to Determine Group Size
Starting in 2014, the federal government will define full-time workers as those who work 30 hours per week or more. Part-time employees will be counted as part of the total employee count.
To do this, you add the total hours worked by part-time employees per month and divide the number by 120 (the minimum amount of hours an employee must work per month to qualify as a full-time employee). Add the full-time equivalent number to the number of full-time employees, and this is your total group size.
The law specifies how to handle other types of workers, such as seasonal workers and variable hour staff, and requires you to maintain monthly records on the total number of employees
Some Employers May Pay Penalties
The size of the company determines whether it will be assessed penalties starting in 2015 if failing to offer affordable coverage. Groups with up to 50 full time equivalent employees are not required to offer health insurance coverage and are not penalized if they do not provide it.
Employers with 50 or more full-time equivalent employees must decide if they will continue to offer a group health plan, or instead pay the penalty for failing to offer coverage — the “play or pay” mandate. There are two possible penalties that the federal government could impose on a group under this provision:
- The Mandate Penalty ($2,000) applies if an employer does not offer group health coverage. The penalty is calculated on all full-time employees, less the first 30. At least one employee has to purchase subsidized coverage on the Marketplace for this penalty to apply.
- The Qualification Penalty ($3,000) applies if the employer fails to offer a qualifying plan (minimum and affordable) to any employee. The penalty applies if any of those employees purchase subsidized coverage through the Marketplace. This penalty is assessed based on the number of employees that are not offered qualifying coverage and subsequently purchase subsidized coverage through the Marketplace.
You may be eligible for a tax credit if you offer your employees health insurance. The health care law includes tax credits for businesses with fewer than 25 employees whose annual average wages are less than $50,000. Visit the Tax Credits FAQ section of our site for additional questions and answers about tax credits for businesses.
If you offer a health insurance plan that existed on March 23, 2010, your plan may be eligible for grandfathered status. That means your health plan would have to comply with some but not all provisions of the Health Care Law. Your plan could lose that status if you make significant changes to things like the benefits it includes or the amounts employees pay in cost-sharing fees (deductibles, premiums and copayments).
Employee Notification Requirements
As part of the Health Care Law, you are required to notify all employees about the new Health Insurance Marketplace Exchange, an online shopping tool for individual health insurance plans. In Pennsylvania, the federal government will administer the Marketplace Exchange.
With respect to current workers, employers were required to provide the notice by October 1, 2013. The notice should have been provided automatically, free of charge, and written in language that the average employee could understand. Beginning no later than October 1, 2013, employers should have provided the Marketplace notice to each new employee at the time of hiring.
For 2014, the government will consider a notice as having been delivered in a timely manner if it is provided within 14 days of an employee’s start date.
The notice you provide your employees must:
- Provide a description of the services the Marketplace offers
- Provide instructions about how to contact the Marketplace and request assistance
- Let employees know that they may be eligible for premium tax credits if the company plans offered pay less than 60 percent of the costs of covered services
- Explain that if employees purchase a qualified health plan through the Marketplace they may lose any employer contribution to any health plan offered by the employer, and all or a portion of the contribution may be excluded from income for federal income tax purposes
The U.S. Department of Labor is providing guidance on issuing this notice, as well as two model documents on which employers may base their communications. One is available for employers who are offering health insurance plans to employees, and one is available for those offering no group health insurance plans.
For more information about the notification requirements, visit the U.S. Department of Labor website or contact your legal advisor.
Starting in 2014, the Department of Health and Human Services has issued rules to increase the incentives employers can offer employees who participate in wellness programs. The issued rules would affect the two types of wellness programs offered to employees:
- Participatory wellness programs: These programs are generally available to everyone, regardless of their health status. Examples of participatory wellness programs include: reimbursement for gym memberships rewards for attending no-cost health education seminars, or completing a health risk assessment without requiring any further action. The proposed rules do not alter the incentives available for these programs.
- Health-contingent wellness programs: These programs generally require individuals to meet specific standards to obtain rewards. For example, employees may receive rewards if they do not use tobacco or if they decrease the use of tobacco products, or they may receive awards if they achieve a specified cholesterol level or weight.
The final rules would allow employers to increase the rewards offered for these programs from 20 to 30 percent of the cost of health coverage (total premium). The maximum reward could increase to as much as 50 percent for programs that prevent or reduce tobacco use.
The final rules would require health-contingent wellness programs to meet certain requirements. To qualify, you must offer rewards for programs designed to promote health or prevent diseases, offer rewards to all similarly situated individuals (the program should have provisions for those whose medical conditions make it inadvisable or difficult to participate), and notify employees about their opportunity to qualify for the rewards.
The Health Care Law imposes a 40 percent tax on high-value health plans starting in 2018. The tax applies to an amount above established dollar thresholds and is levied on insurers for fully-insured plans, employers for health spending account (HSA) contributions, and plan sponsors for self-insured plans.
Taxes are imposed when employee health plan costs exceed $10,200 for single person plans and $27,500 for other plans, such as family plans. This limit is subject to annual adjustments. Higher benefit limits are allowed for retirees aged 55 and older who are not eligible for Medicare and for people in high-risk jobs.
The health plan costs are defined by the total cost of premiums, including employer and worker contributions to flexible spending accounts or HSAs. Stand-alone vision, dental, accident, disability, and long-term care benefits are not included in the limits under the Cadillac tax rule.
New Health Care Taxes and Fees
The Health Care Law includes mandated taxes and fees from nearly all health insurers to build a pool of funds for several initiatives. These funds will be used to help stabilize premiums for persons who are newly insured and develop best practices to improve the quality of medical outcomes.
After basic medical rates are calculated, health insurers will add the following fees to employer plans:
- Patient-centered outcomes research trust fund fee: This fee funds research to help patients and health care providers make more informed decisions. The fee started in 2011 at $1 per enrollee and doubled to $2 per enrollee in 2012. This fee will continue through 2019. Health insurance companies collect this fee from fully-insured employers. The plan sponsor is responsible for paying the fee for self-funded groups.
- Reinsurance program contribution: This fee will be used to fund state-based transitional reinsurance programs. The fee, which will be collected from 2014 to 2016, will be based on the number of enrollees. The contributions will be set each year by the Department of Health and Human Services. It’s estimated that the amount assessed in 2014 will be from $61-$105 per enrollee.
- Health insurance provider tax/fee: This tax helps fund the Health Care Law. Health insurers must pay an annual non-deductible tax/fee to the Internal Revenue Service. The amount assessed is calculated by market share based on premiums written.
90-day Waiting Period
Coverage waiting periods of greater than 90 days are eliminated for group health plans.
New Maximum Out-of-Pocket Limits
New maximum out-of-pocket limits take effect in 2014 for non-grandfathered and small group plans. As part of the Health Care Law, the maximum out-of-pocket expenses for members will be the same as the maximum out-of-pocket limit for high deductible health plans. The amounts for 2014 are $6,350 for individual plans and $12,700 for family coverage.