The Employer Mandate

COLUMN # 3: The Employer Mandate

 

What is the Employer Mandate and how does it affect my business?

 

That depends on the size of your business.  If your group is a large employer then you are subject to the "Employer Shared Responsibility" provisions.  Essentially, you must offer coverage to your employees that meet the Essential Benefits or Minimum Value Test as well as the Affordability Test. You may be subject to penalties of either $2000 per employee or $3000 per employee if any of your employees receives a tax credit for purchase of health insurance on the Exchange.  Note that implementation of the employer mandate has been postponed until 1/1/2015.

 

You may be assessed a fee of $2,000 per full-time employee, (excluding the first 30 employees), if you do not offer coverage and have at least one full-time employee who receives a premium tax credit. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees.

 

Remember from a prior column that the Exchange is an additional marketplace for health insurance that offers coverage that may be subsidized by the government.

 

How do I know if my group is a large employer?

Count the number of employees that work or were hired to work at least 30 hours per week, including seasonal. Then count the number of employees considered full time by adding the total number of hours worked by all part-time employees and divide by 120, rounding up to the nearest whole number.

 

If the result is less than 50, you are likely not a large employer.  Don't forget that all employees employed by firms with common ownership must be aggregated together. 

 

If you have seasonal or variable hour employees you are allowed some relief.  For example an employee works 120 days or less or four months can be excluded. More detailed guidance can be provided by your broker or insurer. 

 

What is the Affordability Test?

 

The safe harbor calculation say that the coverage is affordable if the cost of self-only coverage is no more than 9.5% of the employee's W-2 wages with the employer.

 

What is the Minimum Value Test?

This is an actuarial calculation that provides jobs for math majors.  A short cut explanation is that the plan pays at least 60%.  Insurers will be able to advise you if your plan meets the minimum value test.  There are calculators available as well, but I recommend that you ask your insurer to verify that status.

 

How are small business effected by the mandate to offer coverage?

Small (less than 50 employees) are not required to offer coverage now or after 2014.  However there are a few provisions that are important for small employers to address if they do offer benefits. 

 

1) The Tax Credit for qualifying small employers will only be offered if the coverage is purchased through the Exchange starting in 2014.  The Exchange in California is called SHOP (Small Business Health Options Program). If the business has 25 full-time equivalent employees who are paid an average annual salary of less than $50,000 and the employer contributes at least 50% toward the employee's premium cost. They may qualify for a credit of up to 50% of the premium paid.

Employers with 10 or fewer full-time equivalent employees paying an annual wage of $25,000 or less qualify for the maximum credit.

2) If the employer provides "affordable coverage" for the employee, the employee may be disqualified for tax subsidies through the Exchange for their dependents.  This provision will require small employers to work with their brokers to determine if they wish to continue to offer health insurance benefits or pursue an alternate strategy.

One safe harbor for defining "affordable coverage" is if the employee's share of premium for employee only coverage does not exceed 9.5% of the employee's W-2 wages with the employer. 

So as the law is understood now, if the employer pays 100% for the employee but nothing for dependents, the family is deemed to have affordable coverage.  Even if the family income is low enough to qualify for subsidized coverage, the family is not eligible.  To date, we have seen no fix for this situation. 

 

There are two calculations. First is the minimum essential coverage test.   If the employer does not offer coverage that meets that standard, then the fine is $2000 per full time employee, less 30.

 

Am I required to notify my employees about the new law?

All employers regardless of size are required to notify their employees about the Exchange and the status of the employer sponsored coverage.  These are now due out no later than 10/1/2013. The notice is fairly simple and a sample can be found at:

 

http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf for those that have a health plan

http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf those that don't have a health plan.