Employer requirements and guidelines

Pay or play employer mandate.
Beginning in 2014, certain self-funded employers may be subject to a penalty tax for failing to offer "minimum essential health care coverage" for all full-time employees (and dependents) or for offering eligible employer-sponsored coverage that is not "affordable" or does not offer "minimum value."

The penalty tax would be assessed if any full-time employee receives a premium tax credit for health insurance purchased through a health insurance exchange.
  • Applicability
    An applicable employer is one who employed an average of at least 50 full-time and/or full-time equivalent, or FTE, employees. For the purposes of the mandate, full-time is considered 30 or more hours of service per week and 130 hours of service per month.

    While part-time employees are considered in the calculation for determining the number of FTE employees, an employer would not be assessed a penalty for not offering coverage to part-time employees, and part-time employees would not be considered in the calculation of any assessed penalty.

    See additional information on handling part-time employees and how to convert these to FTEs when trying to determine if the mandate applies.

    Dependents are defined to be children younger than age 26 years. Spouses are not included in the requirement to offer coverage to full-time employees and their dependents. Additionally, IRS rules and guidance indicate that the dependent requirement does not begin until 2015.

  • Affordability
    If an employee's share of the premium for employer-provided coverage would cost the employee more than 9.5 percent of that employee's annual household income, the coverage is not considered affordable for that employee. If an employer offers multiple coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement.

    Because employers generally will not know their employees' household incomes, employers can take advantage of one of the three affordability safe harbors set forth in the proposed regulations: the W-2 safe harbor, the rate-of-pay safe harbor and the federal poverty level safe harbor.

    Under the safe harbors, an employer can avoid a payment if the cost of coverage to the employee would not exceed 9.5 percent of the employee's income or if the coverage satisfies either of the two design-based affordability safe harbors.

    An applicable employer may use one or more the safe harbors only if the employer offers its full-time employees the opportunity to enroll in minimum essential coverage and it provides minimum value for self-only coverage.

  • Minimum value
    In order to achieve what the ACA defines as minimum value, the plan's share of the total allowed costs of benefits provided under the plan must be at least 60 percent of those costs.

    Providence Health Plan will use the minimum value calculator issued by the U.S. Department of Health and Human Services to conduct minimum value assessments for both standard and customized benefit plans held by its clients.

  • Penalty
    When applicable, the specified penalty actually consists of two separate taxes.

    The first applies when the employer does not offer its full-time employees and dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and at least one full-time employee is certified as having received a premium tax credit for health insurance purchased through a health insurance exchange.

    • A penalty of $2,000 for each employee eligible for coverage would be assessed, allowing for a 30-employee reduction.

      For example, an employer with 40 full-time eligible employees would be assessed the penalty on only 10 of those employees (40-30=10). The tax is payable monthly, so in this example, it would be (10 x 2000)/12= $1,666.67. Even if only one employee receives the tax credit, the penalty tax would be based on the total number of full-time employees.

    The second penalty applies when the employer offers its full-time employees the option to enroll in an employer-sponsored minimum essential coverage plan that is either unaffordable or did not provide minimum value, and one or more employees is certified as having received a tax credit or cost-sharing reduction.

    • The penalty is $3,000 for each employee that receives a tax credit. It also is calculated monthly, and there is not a first 30-employee reduction. The penalty is capped, however, so that it cannot exceed the amount of the "no coverage" penalty tax. If an employer's plan meets both minimum value and affordability, and an employee opts out of the employer's plan, the employee would not be eligible for a tax credit, and the employer would not be liable for a penalty.

    Both penalties will increase each year by the growth in insurance premiums.

    The IRS will contact employers to inform them of their potential liability and provide them with an opportunity to respond before any liability is assessed or notice and demand for payment is made. Penalties for the 2014 benefit year won't be assessed until 2015 (after individual tax returns and employer reporting are filed with the IRS). Employers will receive instructions on how to make payment, separate from any tax return filed.
    Waiting Period
    Eligibility waiting periods for group health coverage cannot exceed 90 calendar days. This provision takes effect in 2014.

    New Employee Enrollment
    Employers with more than 200 employees offering health coverage must enroll new full-time employees in one of the employer's group health plans (subject to any waiting period) and continue enrollment of current employees, unless the employee opts out of coverage. The effective date of this requirement has not yet been specified.

    Employee Health Coverage Equality
    Employers cannot provide more advantageous eligibility, health benefits, probationary periods or employer contribution to employees based on employee age, years of service or compensation. This mandate already is in effect.

    Employee Health Coverage Equality
    The maximum reward employers may offer under a wellness program offered in connection with a group health plan has been increased to 30 percent of the cost of coverage. An additional 20 percent will be allowed for programs designed to reduce or prevent tobacco use, for a total of 50 percent. This provision takes effect in 2014.

    Employee Notification
    Employers are required to notify or provide information to employees for the following:
    • A summary of benefits and coverage, or SBC, to all participants at the time of renewal, open enrollment or benefits change. It provides basic health plan coverage information in a standardized format. The SBC is designed to be a comparison tool for consumers while shopping for health insurance, and does not replace the plan benefit summary. Providence Health Plan creates group-specific SBCs and provides these to its employer customers. This mandate already is in effect.

    • A notice of any material modification to the terms of the plan or coverage 60 days in advance of the implementation of those changes. This mandate already is in effect.

    • Effective October 1, 2013, employers must notify employees of the existence of any available exchanges.

    • Employers filing 250 or more W-2 forms in the preceding calendar year are required to include the cost of employer-sponsored health coverage on employees' W-2s, including both employer and employee portions of the cost of health benefits. This mandate already is in effect.