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The Employer Mandate under Patient Protection & Affordable Care Act (PPACA)

The Employer Mandate under Patient Protection & Affordable Care Act (PPACA)

Will Employer Pay Penalty in 2014?

Larger employers that don’t offer minimum essential health coverage to full-time workers may face penalties under health care reform if any full-time employees receive a government premium credit or subsidy to buy their own insurance through an exchange.

The so-called employer mandate and the health insurance exchanges both go into effect in 2014 under the Patient Protection and Affordable Care Act.

The penalties generally apply to all employers with 50 or more full-time equivalent employees. An employer with at least 50 FTEs that provides access to coverage but fails to meet certain requirements, outlined below, may also be subject to a penalty.

To determine the FTE (Full Time Equivalent) you must count FT and PT employees.  Full Time Employees are those working 30 hours+/week.  See blog post “What does FTE mean?”

Affordability of the employer plan remains a consideration, however, since just one employee qualifying for federal premium assistance for exchange coverage will trigger a penalty for employers with 50 or more employees

Minimum essential coverage generally includes any coverage offered in the small or large group markets. Excepted benefits, such as limited-scope dental or vision offered under a separate policy, certificate or contract of insurance and Medicare supplemental plans, do not qualify.

Penalties explained

Starting in 2014, large employers that don’t offer coverage face a penalty of $2,000 per full-time employee (excluding the first 30) if at least one FTE receives a government subsidy to buy coverage on an exchange. This is sometimes referred to as the “play or pay” penalty.

Employers that offer coverage to employees may still face a “free rider” penalty if the coverage offered is deemed unaffordable or low in value.

If an employer offers coverage, but a full-time employee receives a premium credit subsidy through an exchange, the employer must pay an assessment equal to the lesser of:

  • $3,000 for each employee that receives a subsidy
  • $2,000 for each full-time employee after the first 30

The monetary penalties listed above are annual figures and may be pro-rated to the number of months for which the penalty applies.

Who’s eligible for a subsidy?

Employees who are offered coverage from their employer could be eligible for subsidies on the exchange if they don’t qualify for Medicaid or other programs, are not enrolled in their employer’s coverage and meet either of the following conditions:

  • The employee’s share of the premium exceeds 9.5 percent of their household income
  • The plan pays for less than 60 percent on average of covered health care expenses (e.g. coverage offered does not have at least a 60-percent actuarial value).

After 2014, penalty amounts are indexed by a premium adjustment percentage for the calendar year.

The Congressional Budget Office expects the penalties to generate $52 billion toward the overall cost of health reform by 2019. The Department of Health and Human Services estimates that fewer than 2 percent of large American employers will have to pay the assessments.

Disclaimer: This blog is not intended to represent legal advise and one should consult with a tax and/or legal expert.

Massachusetts: 5 Years after Health Reform

Massachusetts: 5 Years after Health Reform

This month on April 12th, 2011 marked the five-year anniversary of  Massachusetts 2006 State Health Care Reform.     The reform was signed into law by then-governor Mitt Romney with the goal of providing affordable health insurance coverage to the estimated 6% of Massachusetts residents that were uninsured at the time.

Massachusetts State Health Care Reform and the  Affordable Care Act are virtually identical.Both reforms rely heavily on state-based health insurance exchanges, subsidies for qualifying individuals, and mandates for employers and individuals. As a result, Massachusetts presents the most appropriate example of what to expect from federal health care reform.

So, what have we learned from Massachusetts state reform?  The 2006 Massachusetts State Health Care Reform:

  1. Created the  MAHealthConnector (a state health insurance exchange) to provide guaranteed issue health insurance to MA residents;
  2. Mandated that every resident of the state obtain a minimum level of health insurance or face penalties;
  3. Mandated that employers provide a “fair and reasonable contribution” to their employees’ health insurance premiums or face penalties; and
  4. Provided free health insurance and partially-subsidized insurance to qualifying residents based on income.

Proponents of the law argue that Massachusetts Health Reform:

  • Has resulted in Mass. being the state with the  highest percentage of insured residentsat 98% in April 2011, including 99.8% of children.
  • Has increased the percentage of private companies that offer health insurance from 70% in 2005 to greater than 77% today.
  • Has lowered the cost of individual health insurance premiums in Mass. due to the fact that primarily healthy people have moved to the individual market.

Opponents of the law argue that Massachusetts Health Reform:

  • Has increased costs for its residents, $13,788 for a family of four in 2010, in the state that  already had the highest medical costs in the nation prior to implementation.
  • Was setup for failure from the start due to its reliance on employer-sponsored health plans, plans that employers cannot afford due to rising costs.
  • Has resulted in more than half of the newly-insured residents receiving health insurance that is partially or completely subsidized by Massachusetts’ taxpayers.

Has Massachusetts health care reform been properly utilized as a test bed for Federal Reform? Will the costs associated with Massachusetts health care reform be sustainable over the long term?