Employers face new requirements under Affordable Care Act

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The federal Affordable Care Act (ACA) contains several key provisions that are important for employers to understand.

Beginning in 2014, individuals are mandated to have health insurance and will be able to access health coverage through new or expanded health insurance marketplaces (called the Connector in Massachusetts). Individuals who fail to obtain health coverage and have no exemption will be subject to penalties.

Under the original ACA regulations, employers with 50 or more employees or full-time equivalents also faced penalties in 2014 if they did not provide health coverage to at least 95 percent of their eligible employees, or if their health plans did not meet minimum value standards or were not “affordable” for certain employees. Early this month, however, the Internal Revenue Service issued a notice delaying implementation of the penalties, as well as related reporting requirements, until 2015.

Critical to the statutory scheme are two new standards (the minimum value standard and the affordability standard) and a new employee notice requirement. As of this writing, it is expected that the implementation of these provisions will not be delayed.

Minimum Value Standard
Under the ACA, a “large employer” is one with at least 50 full-time employees or 50 full-time equivalents. The ACA defines a full-time employee as one who averages at least 30 hours of work per week. Large employers must offer full-time employees a plan that covers at least 60 percent of health care expenses for a typical population when considering all enrollee out-of-pocket costs, such as copays, co-insurance, deductibles and out-of-pocket caps. It is likely that all health plans currently offered by Massachusetts governmental units already meet this requirement.

Affordability Standard
Under the federal law, large employers must offer full-time employees an affordable plan. Coverage is affordable if the employee’s share of the premium expense for the employer’s lowest-cost individual plan does not exceed 9.5 percent of the employee’s household income. Since employers will not know total household income, the federal regulations allow employers to use information that is available to them, such as W-2 wages for the employee, as the basis for making the calculation.

If the coverage that satisfies the minimum value standard is not available to an employee or is not affordable to the employee, the employee may obtain coverage through the Commonwealth Health Insurance Connector Authority (Connector). Further, if the employee’s household income is less than four times the federal poverty level ($94,200 for a family of four), the employee will be eligible for premium tax credits, triggering employer penalties.

Beginning in 2015, if an employee obtains coverage through the Connector and applies for and receives premium tax credits, his or her large employer will be assessed a penalty. If the employer does not offer coverage to at least 95 percent of its eligible employees, the penalty will be $2,000 per year per full-time employee, after excluding the first 30 workers. If the employer offers coverage but it does not meet the minimum value or affordability standards, the penalty will be the lesser of two options: $2,000 per full-time employee after excluding the first 30 workers, or $3,000 per year for each employee who obtains subsidized coverage through the Connector.

Because the affordability test is based on household income compared to the cost of individual coverage, employees may find family health care coverage to be too expensive, but not be able to qualify for premium subsidies.

Employee Notice Requirements
As of mid-July, all employers that are subject to the Fair Labor Standards Act, including all state and local government agencies, will be required to provide a notice of coverage options to each employee, regardless of plan enrollment status or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees.

The notice must inform employees of coverage options through the Connector and include contact information and a description of services provided by the Connector.

The notice must also inform the employee that:
• He or she may be eligible for a premium tax credit by purchasing a qualified health plan through the Connector, if his or her employer does not offer coverage or if the coverage offered is not affordable.
• He or she may lose the employer contribution if coverage is obtained through the Connector and that there may be some income tax implications.

The Department of Labor has developed a model notice, which is available at www.dol.gov/ebsa/healthreform.

As of Oct. 1, 2013, new employees must receive the notice at the time of hire. This requirement is met so long as the notice is provided to the employee within 14 days of an employee’s start date.

Existing employees must receive the notice before Oct. 1. It must be provided in writing and may be provided either by first-class mail or electronically if specific requirements are met, including assuring that the document is actually received and personal information is protected. These notices to employees must be provided for free.

Beneficiaries who qualify for the COBRA health insurance law may want to consider health coverage available through the Connector and compare it to COBRA continuation coverage, particularly if he or she may qualify for premium tax credits. The Department of Labor has created a model election notice that meets the COBRA requirements and makes qualified beneficiaries aware of options available through the Connector. This model is available at www.dol.gov/ebsa/cobra.html.

Implications for Employers
Before the 2015 penalty becomes effective, local government employers will need to review their policies for offering health care coverage to part-time, seasonal and temporary employees, such as substitute teachers.

Generally, the ACA requires that coverage be offered within 90 days of employment to any employee who, when hired, is expected to work at least 30 hours per week for longer than 90 days. An exception to this rule applies to an employee who is reasonably classified as a seasonal employee. (It is doubtful that substitute teachers could reasonably be classified as seasonal employees.)

Employers with seasonal and variable-hour employees may determine retrospectively the eligibility of these employees for health insurance coverage. To do so, employers may average the hours worked by their seasonal and variable-hour employees over a period of not less than three but not more than 12 consecutive months to determine whether these employees average 30 hours per week during the measurement period. The employer must offer health insurance, prospectively, to any seasonal or variable-hour worker who averages 30-plus hours of work during the measurement period, for a period of time equal to the measurement period.

Municipalities that do not meet the affordability test for their lower-paid employees will need to determine the cost of meeting the affordability standard versus the cost of paying annual penalties. Employers with lower contribution levels will be particularly affected.

Employers with questions about meeting these requirements are advised to speak with their municipal counsel.

Marge Houy is a Senior Consultant with Bailit Health Purchasing. Paul Mulkern is a privately practicing municipal labor law attorney.