What are An Employer’s Obligations Under “ObamaCare”?
The Patient Protection and Affordable Care Act, commonly known as “ObamaCare,” remains intact even after the Supreme Court considered the constitutionality of some of its key provisions.
Hotly debated both before and since its passage in 2010, there likely will be more legal challenges, rules, and regulations before most of ObamaCare’s requirements for employers take effect in 2014. But as the law stands now, the significant obligations for employers under ObamaCare are summarized below.
Overview of Impact on Employers
ObamaCare’s impact on employers is largely dependent on the number of employees, whether the company offers employer-sponsored healthcare plans and, if so, the comprehensiveness of coverage offered. ObamaCare’s impact on employers with less than “50 full-time equivalent employees” (defined below) appears minimal at this time. On the other hand, employers that have more than “50 full-time equivalent employees” (defined below) may have to pay substantial penalties if they don’t comply with ObamaCare. If they haven’t done so already, larger employers should start analyzing their obligations under ObamaCare so that they are prepared by 2014.
By January 1, 2014, ObamaCare requires states to set-up a marketplace that will offer certain employers and individuals a choice of healthcare plans that meet coverage standards. This marketplace is referred to as an “exchange.” Only citizens and legal residents who are not eligible for Medicare, Medicaid, or an employer-sponsored healthcare plan that meets certain standards are able to participate in the exchange. Certain employees may qualify to enroll in a healthcare plan through an exchange instead of the employer-sponsored healthcare plan even though the employer-sponsored healthcare plan meets coverage standards. If the employee chooses a plan through an exchange instead of the employer-sponsored plan, the employer must issue a “free-choice voucher” to the employee equal to the amount the employer would have paid under the employer’s plan. An employer will not receive a penalty for employees who are provided a voucher. Beginning on March 1, 2013, all employers are required to provide to their employees information about the exchange in writing. The Secretary for the Department of Health and Human Services will issue regulations detailing the information employers are to provide in the notice.
Employers who employ more than 200 full- time employees and offer an employer-sponsored healthcare plan must automatically enroll employees into the plan unless an employee opts out of the coverage. The effective date of this requirement has not yet been set.
Only “Large” Employers are Subject to Penalties
ObamaCare does not require employers to provide health insurance to its employees. It does penalize certain employers for not providing a healthcare plan that meets coverage standards. Employers who employ less than “50 full-time equivalent employees” will not face any penalties under ObamaCare. The number of “full-time equivalent employees” is determined by adding the number of employees who work 30 or more hours per week (excluding some seasonal employees) plus a percentage of parttime employees.
Beginning on January 1, 2014, “large” employers – those that employ more than “50 full-time equivalent employees” – will be penalized if one or more of their full-time employees obtain health insurance coverage through an exchange. To determine if employees obtain coverage through an exchange, only full-time employees who work more than 30 hours per week or more will be considered. If a part-time worker obtains coverage through an exchange, the employer will not have to pay a penalty for that worker.
If a large employer does not have an employer-sponsored healthcare plan, the employer will have to pay an annual penalty of $2,000 for every full-time employee who obtains coverage through the exchange. Importantly, an employer will not have to pay a penalty for the first 30 full-time employees who obtain coverage through the exchange. This penalty will be adjusted annually to reflect growth in the national insurance premium costs.
If a large employer does have an employer-sponsored healthcare plan but the plan does not meet certain standards, the employer will have to pay an annual penalty of $3,000 for each full-time employee who obtains coverage through the exchange. Specifically, an employer-sponsored healthcare plan is insufficient if (1) the employee’s required contribution toward the plan premium for self-only coverage exceeds 9.5% of his or her household income, or (2) the plan pays for less than 60% of covered healthcare expenses. Again, the employer will not be penalized for the first 30 full-time employees who obtain coverage through the exchange.
Determining Employers’ Liability Under ObamaCare
Employers should count their number of “full-time equivalent employees” to determine if ObamaCare’s penalties may be applicable to them. If employers determine that they may be subject to penalties, they should consult with their accountants, attorneys, and, if applicable, health insurance providers, to weigh their potential for liability under ObamaCare with their business needs and goals.