Health Law Consulting Blog

Monday, February 16, 2015

The Affordable Care Act’s Employer Mandate Takes Effect in 2015

Last year, the launch of the Affordable Care Act affected Americans nationwide.  Now it’s making its way into the business world.  Beginning in 2015, the “employer mandate” of President Obama’s Affordable Care Act (“ACA”) will take effect.  The provision, titled 4980H, was supposed to start in 2014 but was postponed by the IRS for another year.  Under the mandate, “large” companies will have to reevaluate the coverage they provide to their full-time employees.  In just another year, the same provision will apply to companies deemed “mid-size.”

Under the ACA mandate, employers are considered large if they employ 100 or more people.  These companies must now provide a reasonable health care package to at least 70% of their full-time employees and dependents this year.  In 2016, the requirement will extend to 95% of full-time employees.  Some argue the change is redundant as most large companies already offer competitive healthcare packages.  According to a survey by Kaiser/HRET, 94% of larger firms affected this year already offer health benefits to their employees.  However, the mandate also changes the definition of “full-time.”  Anyone working more than 30 hours per week must now be fully-covered. The definition of “full-time” employee is now in flux since the Republican-controlled House of Representatives vote passed to change the definition back to 40 hours per week and such measure is likely to pass in the now Republican-controlled Senate.

Another important change was a new standard of acceptable care. Health coverage plans must be both affordable and comprehensive.  To be affordable, coverage cannot cost the employer more than 9.56% of his/her income.  To be comprehensive, the package must provide at least 60% of the cost of benefits.  Missing the mark in either category could result in severe penalties for these larger companies.  Human resource employees will have to work harder in 2015 to document their compliance with these rules.  Employers must report whether they offer these minimum health benefits and their share of the total cost of benefits for full-time employees.

Penalties for a violation come in two forms.  The first is penalty “a” and results in a $2000 per full-time employee in excess of 30.  This fine will be assessed if any full-time employee receives a federal subsidy for insurance through a health exchange.  If even one employee qualifies for that subsidy due to an inadequacy in coverage (as defined above) the fines are much worse.  Under penalty “b”, the IRS will assess the lesser of a $2000 fine per full-time employee in excess of 30 or a $3000 fine per employee who receives the subsidy.  In other words, the IRS will assess stricter fines for companies that do not comply with the affordable and comprehensive aspects of the plan.  To make the transition a little smoother for larger companies, the 30-employee bar has been changed to an 80-employee bar for 2015 only.  Starting in 2016, the full letter of the law will apply. 

In 2016, a company defined as mid-sized, employing 50-99 employees, must comply with the regulation.  But only 2% of American companies are defined as large, and only 2% more are considered mid-sized.  Companies with less than 50 employees, the bulk of American employers, will never be affected by the legislation.  This means roughly 96% of American companies do not have to offer health benefits, which makes the mandate counterintuitive to some.

Nonetheless, the regulation requires larger companies to make changes to healthcare plans to avoid penalties.  They must now adhere to stricter reporting requirements and adjust to the challenging redefinition of a “full-time” employee.  This could be financially difficult for companies that employ a large number of part-time or seasonal workers who add up to full-time equivalents under the new rule.


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