Blog by: Jeanne Hines, SPHR
As indicated in my last blog, the Affordable Care Act has a number of requirements for 2013. Part 1 discussed the Summary of Benefits Coverage and reporting the cost of health care on W-2s. Although the following laws do not take effect until 2014, preparation during 2013 is needed to determine how your business will meet the requirements of the Act.
The requirements we’ll review today are often referred to as Pay or Play. The Kaiser Family Foundation has a marvelous flowchart on their website that is helpful when reviewing this portion of the ACA. If you’d like to see it, here’s a link: http://healthreform.kff.org/~/media/Files/KHS/Flowcharts/employer__penalty_flowchart_1.pdf
In general, there are two things to consider here:
- Are you going to offer health insurance? (Play)
- If you choose not to offer health insurance, you will pay an assessment. (Pay)
If you wish to offer health insurance to your employees, and you employ more than 50 full-time equivalent employees, health insurance must be offered to all full-time equivalent employees (FTEs). For purposes of the Act, anyone who works 30 or more hours per week is considered full-time. Proposed regulations are expected that will treat 130 hours of service in a calendar month as the equivalent of 30 hours of service per week.
IRS Notice 2012-58, “Determining full-time employment status for ‘play or pay’ requirements” details measurement methods and time frames. It allows employers to rely upon it through the end of 2014. We encourage employers to consider beginning their measurement periods during 2012, since eligible employees must be offered coverage during any open enrollment periods during 2013 for the 2014 plan year. Employers with more than 50 full-time equivalent employees will face IRS assessments if they fail to offer health plan coverage.
There are a number of requirements for when to offer health insurance, especially with regard to those who work variable hours. Some typical businesses that may be affected are retail stores, hotels and motels, and restaurants. The new guidelines allow for various ways to measure Safe Harbor, to avoid fines for periods of time when these workers were not receiving coverage but were working full-time hours. Please consult the notice for details on how to calculate their eligibility.
When determining whether variable hour employees are eligible for coverage, you may use a “look back” period. You will need to determine the length of your look back period from 3-12 months. You look back for a period of time to determine whether the person was averaging 30 hours per week during that period of time. If the answer is “Yes”, then you must offer that person coverage for a period of time equal to the look back period, but no less than 6 months.
Obviously, this brings about many questions, including those on COBRA. The length of this blog won’t allow me to get into the details, so for now, you should determine how you’ll calculate eligibility in time to determine who and how many employees will be eligible for coverage in January of 2014 or whenever your next renewal date occurs.
Under the “Play” scenario, there is also the question of affordability of the health plan and the fines that may be levied if the plan falls out of the stated parameters. Look for my blog next month for more information on this topic.
If you employ 50 or more full-time equivalent workers and you choose not to offer health insurance to them, you will pay an assessment of $2,000 per full-time employee less the first 30 full-time employees. While that may sound like an easy way out, there is much more at stake than the cost of health insurance. Some questions you’ll want to consider:
- How much of a tax break you will lose when you no longer allow employees an opportunity to pay a portion of their premium with pre-tax dollars?
- Employees will no longer receive a portion of their health insurance paid for by their employer, so they will be looking to you to make up the difference in wages. Whether you increase wages or not, how much of an increase in income and social security taxes would there be on your payroll?
- Perhaps your employees would choose to go without insurance. Without it, would they be more reluctant to seek medical attention upon becoming ill and possibly miss more work than if they had sought medical help?
- If your competitor offers a richer benefit package, would you lose your employees to them? Will it have an impact on attracting new employees to your company?
There are tough choices both ways. We encourage you to consult with your trusted advisors, such as your insurance agent and your accountant, to determine the best choice for your business. Be sure to follow up with the next blog about the guidelines for offering affordable coverage. Remember to sign up for our no-charge webinar, being held after the elections on November 14, in which we’ll be discussing health care reform more in depth. Registration is available on our webinar page.
This information is provided for general guidance only. Please consult your legal or tax advisor for specific requirements and guidance.