Four months since the new Patient Protection and Affordable Care Act took effect, many Arizona business owners and managers are still struggling to understand how to comply with the law and embrace it in a way that makes sense economically. It continues to be a confusing time for employers, particularly since the Federal government has changed the deadlines and rules several times.
Compliance
It’s easy to be confused when the deadlines keep changing. The employer mandate start date was initially pushed from January 2014 to January 2015. That changed in February. “Now, employers with 50 to 99 full-time workers won’t be subject to the employer mandate until 2016, unless they make personnel adjustments for the purposes of squeezing below the 99 full-time worker threshold,” explains Rick Mahrle, attorney for Phoenix-based Gammage & Burnham. Employers with 100 or more employees are still under the mandate starting in 2015, but they avoid some penalties as long as they insure at least 70 percent of their workforce that first year and 95 percent of employees by 2016.
Thomas M. Murphy, attorney for Phoenix-based Gust Rosenfeld P.L.C., says rule changes also have been hard to keep track of. “There was a requirement of minimum coverage which included certain medical procedures and medications. However, the government now says this requirement will not apply to those who currently have insurance, at least through 2016,” Murphy says.
Then there is the rule for large employers that coverage offered to full-time employees (30 or more hours per week) must be “affordable” and “minimal essential.” Coverage is “affordable” when the premium to be paid by the individual employee does not exceed 9.5 percent of the employee’s household income. “Minimal essential” means that the policy must cover 60 percent of the actuarial value of the cost of the benefits, and certain benefits are mandated. “It is the ‘minimal essential’ factor that has caused the ‘you will not lose your coverage’ flap. The policies that were, and in many cases still are, being cancelled do not meet the minimum essential criteria and so insurers were understandably cancelling these policies,” Mahrle says.
Ramifications
The ramifications for noncompliance are equally confusing. Penalties can be imposed on employers with 50 or more full-time employees if the business does not provide health insurance coverage, if the coverage is not deemed as minimum essential and affordable, and if at least one full-time employee receives a tax credit or subsidy through a state exchange. “Then the employer is subject to penalties levied by the IRS,” Mahrle says.
The penalty is $2,000 per year for each of the employer’s full-time employees, but in calculating the penalty, the first 30 full-time employees are not counted. For an employer with 50 full-time employees, then, the penalty is $40,000 — $2,000 times 20. If the employer provides minimum essential coverage but it is not affordable and one or more employees receives a tax credit or subsidy to purchase health insurance through an exchange, the employer is subject to a penalty equal to the lesser of: $2,000 a year for total number of employees minus 30, or $3,000 a year for each of the employer’s full-time employees who obtain a tax credit or subsidy through the exchange.
Murphy says it is important to keep good documentation regarding what is offered to employees. “The ‘checking’ entity is the IRS, and no one wants to have a visit from the IRS,” he says. “The IRS will look for compliance with the law by determining the company’s size, and, whether the company is medium or large, whether the employer offers the required level of coverage and whether it is affordable.”
Mahrle notes that a long-standing practice among the majority of employers, wanting to attract and retain a high-quality work force, has been to offer employer-paid or at least employer-supported, group health insurance. “That dynamic has not changed and is not likely to,” he says. Where change is being felt is in business sectors where group health insurance has been the exception rather than the rule — such as fast food, hospitality, farming and some retail; industries in which businesses have no need to offer health insurance as an incentive to attract or retain workers. “Now, under the employer mandate when it eventually phases in, employers in these industries with more than 50 full-time employees will be subject to the play-or-pay analysis,” he says.
For help in sorting it all out, Mahrle recommends businesses hire an experienced employment or benefits lawyer to determine what parts of the Affordable Care Act apply to their firm, and when. And, because full implementation of SHOP (Small Business Health Options Program) has been delayed, Mahrle says small businesses are better off working with a licensed independent insurance broker who can assist in canvassing the market for available coverage.
