On March 23, 2010, the Patient Protection and Affordable Care Act (ACA) became law, initiating the most significant change in U.S. healthcare since the establishment of Medicare in 1965. Many significant health plan changes have already occurred. The rollout of ACA continues with the implementation in 2015/2016 of “employer mandate” and in 2018 of the controversial “Cadillac Tax.”
Beginning January 1, 2015, large employers are required to provide affordable coverage to full-time employees or face penalties. For purposes of the employer mandate, a “large employer” is one with 100 or more (in 2014 – for calendar year 2015) 50 or more (in 2015 – for calendar year 2016 and after) “full time equivalents.” Full-time employees are those working at least 30 hours per week. The monthly hours of workers working less than 30 hours per week must be aggregated and then divided by 120 to determine the number of “full time equivalents.” There are specific requirements for seasonal workers and new hires.
While employers are not required to offer coverage to part-time employees, the hours of the part-time employees count to calculate full time equivalents. If part-time employees are offered coverage, it does not have to meet affordability or minimum value standards.
Two possible tax penalties for large employers are:
(i) Penalty for not offering a health plan. If the Employer does not offer coverage, and if greater than 5 percent of full-time employees (or five employees total, whichever is greater) are not covered; and just one full-time employee receives a subsidy through an Exchange, the employer is subject to a penalty. The penalty is calculated on annual basis of $2,000 x (number of full-time employees minus 30) and assessed on a monthly basis. The plan is not affordable if an employee’s premium share exceeds 9.5% of household income; and
(ii) Penalty for not offering a health plan that meets affordability or “minimum value” standards. If a full-time employee receives a subsidy through an Exchange, the employer is subject to a penalty of $3,000 per employee receiving a subsidy, up to $2,000 x (number of full time employees minus 30). The penalty is calculated on an annual basis but assessed monthly.
Employers must make minimum value standards coverage available to full-time employees and their dependents, but there is no duty to pay, subsidize, nor share in dependent coverage. The employee’s self-only cost cannot be more than 9.5 percent of the employee’s household income. The plan must cover 60 percent of costs and there are three possible approaches to determine minimum value: (i) safe harbors (e.g. high-deductible Health Savings Accounts); (ii) actuarial certification (if a unique plan); and (iii) Minimum Value Calculator – enter information on deductibles, co-payments, coinsurance and out of pocket limits into online calculator. [See Minimum Value Calculator: http://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.] Under the “Plan Management” section, there are different calculators for plan years 2015 and 2016. Employers are required to report to the IRS: (i) names of employees and dates of coverage; and the (ii) portion of health plan premiums paid by the employer. Large employers are required to report additional information.
Scheduled to take effect in 2018, the so called controversial “Cadillac Tax” is a non-deductible excise tax on high-cost health plans assessed at the rate of 40 percent a year on total premiums that exceed an annually adjusted CPI-indexed threshold which is initially set at: $10,200 for individual coverage and $27,500 for family coverage. According to the Congressional Budget Office’s 2015 Budget and Economic Outlook Report, the tax will generate $149 billion from 2018 to 2025. The tax proceeds will be used to help fund insurance for previously uncovered Americans.
As with any sea change, ACA’s transformation of how healthcare is financed and delivered will continue to require employers to adapt including complying with the Employer Mandate and planning ahead for the 2018 implementation of the Cadillac Tax.
By Connie Akridge, partner and Kelly McIntosh, associate, Holland & Hart