Health Reform Questions
- Employer Mandate
By Larry Grudzien
What employers are subject to the employer mandate in 2014? When are they subject to any penalties? What are these penalties?
In general:
Beginning in 2014, certain large employers may be subject to
a penalty tax (also called an "assessable payment") for failing to
offer health care coverage for all full-time employees (and their dependents),
offering minimum essential coverage that is unaffordable, or offering minimum
essential coverage under which the plan's share of the total allowed cost of
benefits is not at least 60% (referred to as "minimum value"). The
penalty tax is due if any full-time employee is certified to the employer as
having purchased health insurance through an Exchange with respect to which a tax credit or
cost-sharing reduction is allowed or paid to the employee, as provided in Code
section 4980H.
What is a large employer for purposes of the employer mandate?
The penalty tax (or assessable payment) applies to
"applicable large employers." An applicable large employer for a
calendar year is an employer who employed an average of at least 50
"full-time employees" on business days during the preceding calendar
year, as provided in Code Section 4980H(c)(2)(A).
What factors are used to determine whether an employer is an "applicable large employer"?
For purposes of determining whether an employer is an
applicable large employer, an employer must include not only its full-time
employees but also a full-time equivalent for employees who work part-time. To
do so, the employer must add up all the hours of service in a month for
employees who are not full-time and divide that aggregate number by 120. The
result of that calculation is then added to the number of full-time employees
during that month. Then, if the average number of employees for the year is 50
or more, the employer is an applicable large employer, as provided in Code
Section 4980H(c)(2)(E).
Under Code Section 4980H(c)(2)(C)(i), all entities treated
as a single employer under the employer aggregation rules will be treated as
one employer.
How are seasonal employees counted in determining whether an employer is an "applicable large employer?
Under Code Section
4980H(c)(2)(B)(i), a special rule enables an employer that has more than
50 full-time employees solely as a result of seasonal employment to avoid being
treated as an applicable employer. Under this rule, an employer will not be
considered to employ more than 50 full-time employees if (a) the employer's
workforce only exceeds 50 full-time employees for 120 days, or fewer, during
the calendar year; and (b) the employees in excess of 50 who were employed
during that 120-day (or fewer) period were seasonal workers.*"Seasonal
worker" means a worker who performs labor or services on a seasonal basis
as defined by the DOL, including agricultural workers covered by 29 CFR §
500.20(s)(1) and retail workers employed exclusively during holiday seasons ,
as provided in Code Section
4980H(c)(2)(B)(ii).
Which employees are considered "full-time" for the employer mandate?
Under Code Section 4980H(c)(4)(A), a "full-time
employee" for any month is an employee who is employed for an average of
at least 30 hours of service per week.
What is the penalty if an applicable large employer does not offer minimum essential coverage to its employees?
Beginning in 2014, Code Section 4980H(a) provides that an
applicable large employer will pay a penalty tax (i.e. make an assessable
payment) for any month that-
(1) the employer fails to offer its full-time employees (and
their dependents) the opportunity to enroll in "minimum essential
coverage" under an "eligible employer-sponsored plan" for that
month; and
(2) at least one full-time employee has been certified to
the employer as having enrolled for that month in a QHP for which health
coverage assistance is allowed or paid.
What is the amount of assessable payment (penalty tax)?
Code Section 4980H(a) provides that the penalty tax
(assessable payment) is equal to the product of the "applicable payment
amount" and the number of individuals employed by the employer (less the
30-employee reduction) as full-time employees during the month. The
"applicable payment amount" for 2014 is $166.67 with respect to any
month (that is, 1/12 of $2,000). The amount will be adjusted for inflation
after 2014.
What is "minimum essential coverage"?
Under Code Section 5000A(f)(1), the term "minimum
essential coverage" means coverage under any of the following: (a) a
government-sponsored program, including coverage under Medicare Part A,
Medicaid, the CHIP program, and TRICARE; (b) an "eligible employer-sponsored
plan;" (c) a health plan offered in the individual market; (d) a
grandfathered health plan; or (e) other health benefits coverage (such as a
State health benefits risk pool) as HHS recognizes.
What is an "eligible employer-sponsored plan"?
Under Code Section 5000A(f)(2), it means a group health plan
or group health insurance coverage offered by an employer to an employee that
is (a) a governmental plan, or (b) any other plan or coverage offered in a
state's small or large group market
Under what circumstances will an applicable large employer be subject to the penalty tax if it offers its employees minimum essential coverage?
Beginning in 2014, Code Section 4980H(b)(1) provides that an
applicable large employer will pay a penalty tax (i.e., make an assessable
payment) for any month that-
(1) the employer offers to its full-time employees (and
their dependents) the opportunity to enroll in "minimum essential
coverage" under an eligible employer-sponsored plan for that month; and
(2) at least one full-time employee of the employer has been
certified to the employer as having enrolled for that month in a QHP for which
a premium tax credit or cost-sharing reduction is allowed or paid.
If an employee is offered affordable minimum essential
coverage under an employer-sponsored plan, then the individual generally is
ineligible for a premium tax credit and cost-sharing reductions for health
insurance purchased through an Exchange.
When would employees offered minimum essential coverage by an employer be eligible for a premium tax credit and cost-sharing reductions for health insurance purchased through the Exchange?
Under Code Section 36B(c)(2)(C), employees covered by an
employer-sponsored plan will be eligible for the premium tax credit if the
plan's share of the total allowed costs of benefits provided under the plan is
less than 60% of those costs (that is, the plan does not provide "minimum
value"), or the premium exceeds 9.5% of the employee's household income.
The employee must seek an affordability waiver from the Exchange. The penalty
tax applies for employees receiving an affordability waiver. In order to get
the premium tax credit and cost-sharing reduction, however, an employee must
decline to enroll in the coverage and purchase coverage through the Exchange
instead, as provided under Code Section 36B(c)(2)(C).
When would the penalty tax be assessed?
To be considered minimum essential coverage, the coverage
will need to meet an affordability requirement (which compares cost to income
and provide minimum value (i.e., it will need to pay at least 60% of the total
allowed cost of benefits. The penalty tax is due if any full-time employee is
certified to the employer as having purchased health insurance through an
Exchange with respect to which a premium tax credit or cost-sharing reduction
is allowed or paid to the employee. Employers who provide coverage under an
eligible employer-sponsored plan that does not meet the affordability and
minimum value requirements may nevertheless avoid the tax to the extent
employees actually participate in the plan, as provided under Code Section 36B(c)(2)(C)(iii).
What is the amount of the assessable payment (penalty tax?)
Code Section 4980H(b)(1) provides that the penalty tax
(assessable payment) is equal to $250 (1/12 of $3,000, adjusted for inflation
after 2014) times the number of full-time employees for any month who receive
premium tax credits or cost-sharing assistance (this number is not reduced by
30). This penalty tax (assessable
payment) is capped at an overall limitation equal to the "applicable
payment amount" (1/12 of $2,000, adjusted for inflation after 2014) times
the employer's total number of full-time employees, reduced by 30, as provided
in Code Section 4980H(b)(2).
How will the minimum value for an employer-sponsored plan be determined?
In IRS Notice 2012-31, the IRS requested comments on several
approaches to the minimum value determination, including evaluating plan
designs that will cover part or all of 2014 and suggestions for transitional
relief for plan years that start before and end in 2014. This determination of
minimum value for employer plans will be consistent with previous HHS guidance
on "actuarial value," which is relevant for determining coverage
levels for qualified health plans ("QHPs) offered through the Exchanges.
In IRS Notice 2012-31, the IRS described three potential approaches, for determining minimum value. They include:
- Minimum Value Calculator:
The IRS will develop a MV calculator for use by self-insured plans and
insured large group plans. Under this approach, plans with certain standard
cost-sharing features (e.g., deductibles, co-insurance, and maximum
out-of-pocket costs) will be able to enter information about four core
categories of benefits (physician and mid-level practitioner care, hospital and
emergency room services, pharmacy benefits, and laboratory and imaging
services) into the calculator based on claims data of typical self-insured
employer plans. The calculator would also take into consideration the annual
employer contributions to an HSA or amounts made available under an HRA, if
applicable. Comments are specifically requested on how to adjust for other
benefits (e.g., wellness benefits) provided under a plan using the calculator.
-Design-Based Safe Harbor Checklists: As an alternative, an array of safe harbor
checklists would be provided so plans may compare to their own coverage. The
safe harbor checklists would be used to make minimum value determinations for
plans that cover all of the four core categories of benefits and services
(physician and mid-level practitioner care, hospital and emergency room
services, pharmacy benefits, and laboratory and imaging services) and have
specified cost-sharing amounts. Each safe harbor checklist would describe the
cost-sharing attributes of a plan (e.g., deductibles, co-payments,
co-insurance, and maximum out-of-pocket costs) that apply to the four core
categories of benefits and services.
-Actuarial Certification:
The last approach would be
available for plans with "nonstandard" features (such as quantitative
limits on any of the four categories of benefits, including, for example, a
limit on the number of physician visits or covered days in a hospital) since
these plans would not be able to use a calculator or the safe harbor
checklists. Plans would be able to generate an initial value using a calculator
and then engage a certified actuary to make appropriate adjustments that take
into consideration the nonstandard features. Plans with nonstandard features of
a certain type and magnitude would also have the option of engaging a certified
actuary to determine the plan's actuarial value without the use of a
calculator.
How can employer determine whether its coverage is
affordable when it will not know the employee's household income?
In finalized
regulations to implement the premium tax credit through the Exchange, the IRS
indicated that it was their intention to issue proposed regulations or other
guidance that would allow employers to use an employee's Form W-2 earnings
(instead of household income) in assessing affordability.
