New England Biz Law Update
Businesses got a temporary reprieve over the summer when the Obama administration announced a yearlong delay in the enforcement of the federal requirement that employers provide health care coverage to workers or pay a fine.
But even though the Affordable Care Act’s “shared responsibility” employer mandate — also known as the “pay or play” provision — won’t go into effect until January 2015, compliance will require business managers to make a host of complex decisions that will take a considerable amount of time. And the clock is already ticking.
“The one-year delay in the employer mandate does not mean that employers can just ignore the ACA,” said Ilyse Wolens Schuman, shareholder and co-chair of the Workplace Policy Institute in the Washington office of Littler Mendelson.
Several other requirements under the law are set to go into effect in 2014, including the individual mandate, which requires employees to obtain health care insurance either from their employers or elsewhere, and employers need to be armed with information to better inform their workers and also avoid costly compliance mistakes later.
“There are still a lot of compliance actions to take and a lot of decisions to be made,” said Cynthia A. Moore, a member in the Troy, Mich., office of Dickinson Wright, where she manages the domestic relations, employee benefits, estate planning, gaming and immigration practice areas.
Looming deadlines
The federal health care law requires employers with more than 50 full-time employees to either provide those workers with health care coverage or pay a federal penalty. The requirement was set to go into effect this upcoming January, but administration officials delayed the effective date to January 2015 in response to feedback from members of the business community who expressed concern about complying with the law’s employer and insurer reporting requirements.
Despite the delay, there are several provisions that employers must act on now. For example, the law requires nearly all employers, even small businesses who are exempt from the employer mandate, to give notice to current employees by Oct. 1 about the availability of coverage through the insurance marketplace exchanges created under the law, and within 14 days of hire from that point forward.
Because that notice must include information such as the availability of insurance premium credits and federal income tax exclusions, it’s a good idea for employers to prepare for the questions employees will have about their coverage options.
“There is a massive amount of misunderstanding when it comes to the requirements under the federal health care law,” Moore said. “Employees are going to have a lot of questions after receiving this notice. Employers need to have a solid understanding of the law to be able to answer these questions.”
There are also a number of rules that will go into effect in 2014 as health care plans renew, including requirements regarding pre-existing conditions, renewal rates and W-2 reporting. These rules apply to all employers, even those with fewer than 50 full-time employees.
That means business managers need to develop a plan with their attorneys and human resources officials to avoid potential pitfalls.
“You have all of these intricate pieces that all fit together,” Moore said.
Complicated compliance equations
Meeting the employer mandate itself is not a simple task. Each employer must conduct a case-by-case determination to decide how to comply with the requirement, and most if not all of the additional time afforded by the delay might be needed for that process.
Part of the problem is that employers need to consider at least three different alternatives, said Scott A. Dondershine, a partner in the Reston, Va.-based law firm of David, Brody & Dondershine.
Employers subject to the mandate can choose to provide health insurance to workers at a rate that is affordable enough to prevent any full-time employees from seeking coverage elsewhere, thereby avoiding any federal penalty.
Alternatively, covered employers can choose not to offer health care coverage at all and instead pay a $2,000 penalty for each full-time employee, the so-called “sledgehammer penalty.”
A third option is for employers to provide high-premium health care coverage, which would require employees to carry more of the cost burden. If an employee chooses instead to go to a health care exchange for coverage and receives a federal subsidy, the employer would be assessed a $3,000 penalty for that employee (as opposed to the sledgehammer penalty, which is assessed for every employee). That option is known as the “tack hammer penalty.”
To avoid all of those alternatives, some employers may opt to reduce the number of full-time employees in order to fall below the 50 worker threshold for the employer mandate.
Regardless of which option they choose, employers will have to report how many of their employees are eligible for coverage under the law once the mandate goes into effect, and determining that number may require them to track the number of full-time workers over the 12-month period beginning January 2014.
“It’s not like employers can put aside that determination and not worry about it until December 2014,” Dondershine said.
The key factor in the employer decision-making process, lawyers say, will be an assessment of short-term and long-term costs. But figuring out the most cost-effective approach won’t always be easy.
“There are a lot of factors involved, and certainly one of those factors is a comparison of the cost of providing health care coverage versus the cost of paying the penalty,” Schuman said. “Obviously that is a significant consideration. But there are other important things to think about, such as employee relation issues.”
Restructuring the workforce to reduce the number of full-time employees could have negative consequences, such as damaging morale and efficiency. Also, failing to provide health insurance as part of an overall compensation plan could make it more difficult to attract talented applicants or prevent workers from being hired away by competitors who do offer health insurance.
“It’s really a fundamental business decision that employers need to make looking at every aspect of the business, not just [monetary] costs,” Schuman said.
