For most employers, the most important part of the Patient Protection and Affordable Care Act (commonly referred to as the “ACA” or “Obamacare”) will be the section known as the employer shared responsibility provision. Many media outlets continue to incorrectly suggest that this provision requires employers to provide health insurance to all of their employees. This is not actually the case. Instead, this provision subjects employers to taxes or penalties if they fail to offer “adequate” and “affordable” health insurance to their employees. Another fact commonly misunderstood is that for now, the only employers who need to be concerned about this issue are those who employ 50 or more “full time” employees (the ACA uses a very specific formula to determine who is considered full time) or those who employ under 25 employees and are looking to take advantage of the small business tax credit.
The employer shared responsibility provision goes into effect on Jan 1, 2014. In most cases, in order to determine who is a full time employee, the employer reviews each employee’s full time status by “looking back” at a past employment period of between three (3) and twelve (12) months. As a result, it is critically important that employers start thinking about their obligations under the ACA right now so they can be prepared for January 1, 2014.
Determining who is considered a full time employee under the ACA can be complex. Under the ACA, a full time employee is someone who works 30 or more hours per week, on average. Also taken into consideration are full time equivalent employees (“FTE”). The number FTE employees are determined by adding up the total number of hours worked in a given month by part time employees and dividing than number by 120. So for example, 10 part time employees working 60 hours per month would be counted as 5 FTE employees (10×60 = 600; 600/120=5). Special rules also apply for seasonal employees, temporary employees, etc.
For those employers who have 50 or more full time employees under the ACA, the employer shared responsibility provision leaves the employer with several options:
Option 1– Provide health care coverage that is both “adequate” and “affordable” under the ACA. Determining if coverage meets these requirements requires analysis of the costs of the plan to full time employees and the number of full time employees eligible under the plan. The employer must also determine if providing coverage is more costly than the fines it would be subject to if it chose not to provide coverage.
Option 2 – Do nothing and provide no coverage to the employees, potentially subjecting the employer to a $2000 fine per employee. Rather than simply rejecting this option of out of hand, the employer needs to determine the potential fine it faces and whether or not certain exemptions are applicable that could greatly reduce, if not eliminate the fine entirely.
Option 3 – Provide coverage that is not considered “affordable” under the ACA, subjecting the employer to a $3000 fine for each employee who chooses not to partake in the employer offered health plan and who instead purchases coverage through an insurance exchange and receives a tax credit or subsidy. Before taking this route, an employer must carefully consider whether it believes its employees will seek coverage through an exchange and whether the savings it will gain from not paying its portion of the employee’s health care coverage will offset any potential penalty.
