Health Care

Readying for Obamacare

by Patrick Flanagan

Companies with 50 or more full-time employees must offer "minimum essential coverage" that is "affordable" by 2014.

Now that President Obama has won re-election, it is safe to assume that the Patient Protection and Affordable Care Act is here to stay. In the coming months, employers will need to make plans to comply with reform regulations before penalties are imposed.

So, if you are an employer, what should you expect?

The first thing you must consider is the number of full-time employees you have on staff. Employers who have 50 or more full-time employees or full-time employee equivalents must offer medical coverage that provides "minimum essential coverage" and is determined "affordable" in order to avoid penalties. However, determining if you have 50 employees is not as simple as you would think.

Nothing about this law is simple. There is actually a formula for equating full-time employees.

An employee is considered full-time if they work an average of 30 hours per week, and a part-time employee counts toward a full-time equivalent employee if they work less than 30 hours per week. When calculating the number of FTEs, the average hours of all part-time employees will be totaled, converted to a monthly total and then divided by 120. You then add the FTE count to the full-time employee count to determine if you exceed 50. In addition, there are also special rules for employers with seasonal employees or retail workers employed only during holiday seasons. If you have employees with variable hours, final rules have not yet been released, but at least for 2012, you will be able to average hours over a specified "look-back" period of three to 12 months. You can then project that the person's hours will remain at that level over the next specified "stability" period. This must be at least as long as the look-back period.

Let's assume you have 50 full-time employees and offer a health plan. Less significant parts of the law are already in effect, but the major changes are set to take place in 2014. There are two main requirements that employers will have to consider: the "minimum essential coverage" requirement and the "affordability" requirement. The good news is that if you are already offering a fully-insured health plan to your employees, you are most likely in compliance and have nothing to fear. However, if you want to know for certain, here are the qualifications.

"Minimum essential coverage" is coverage that is expected to cover at least 60 percent of expected claims costs. Rules outlining how the 60 percent threshold will be decided have not been issued, but the government is considering safe harbors. It is likely that plans meeting minimum requirements for hospital and emergency care, physician and mid level practitioner care, pharmacy, and laboratory/imaging will be considered to be adequate for "minimum essential coverage" under the safe harbor. The government has also said it will provide a calculator for plans with standard features, and that non-standard plans will be expected to obtain an actuarial certification. It is not clear yet whether a stand alone Health Reimbursement Arrangement, or an HRA, will qualify as "minimum essential coverage."

Regarding the "affordability" requirement, coverage is considered affordable if the employee-only health premium costs less than 9.5 percent of the employee's household income. Because employers typically do not know their employees' household income, single coverage will be considered affordable for purposes of the employer shared responsibility penalty if it is less than 9.5 percent of the employee's W-2 income for employee-only coverage. Employer contributions to Health Savings Accounts are not expected to count toward affordability.

If the coverage you offer is considered "inadequate" because it is not "affordable" and/or it does not provide the "minimum essential coverage," the "inadequate coverage" penalty will be imposed. The penalty is $250 per month ($3,000 per year) for each full-time employee who: 1) is not offered coverage that is both "minimum essential coverage" and "affordable" 2) purchases coverage through an exchange, and 3) is eligible for premium credit (so his household income must be less than 400 percent of federal poverty level). This penalty will be increased each year by the growth in insurance premiums.

If you have 50 full-time employees and do not offer a health plan, the "no offer" penalty will be imposed. The "no offer" penalty for employers is $166.67 per month ($2,000 per year) for each full-time employee who is not offered basic medical coverage. The penalty does not apply to the first 30 employees. The penalty would not apply if the non-offering employer had no employees who qualified for a premium tax credit. This penalty will also be increased each year by the growth in insurance premiums.

What decisions do you now have to make as an employer?

The most basic decision for employers is whether to establish a health plan, or continue to offer your current health plan.

Employers should consider the following: 1) Why they currently offer coverage, when there is no requirement to do this? 2) Do they believe that their current reasons for offering coverage will still apply post-2014? 3) What is the full cost of adding or dropping a health plan?

In addition, employers historically offer health plans to attract and retain quality employees. Employer-provided health benefits also have a favorable status under the Internal Revenue Code. For this reason, many employers will choose to continue to offer health benefits to their employees.

Jimmy S. Mallia is president of the Employee Benefits Division at Dwight Andrus Insurance and has been with the agency for the past 18 years. In addition to individual health policies, his division specializes in self-funded and employer group plans.