Employer Mandate In a Nutshell – Are You Prepared?
Running a business is a difficult task. Running a large business adds to the complexity, and for companies employing 100 or more FTEs, 2015 brings a whole new element that only further increases that complexity.
As you will recall, 2010 was a landmark year for HealthCare Reform with the passing of the Patient Protection and Affordable Care Act (now trimmed down in title to the Affordable Care Act or ACA). With it’s passing, the law brought many new and revised aspects to managing healthcare, especially within the context of offering benefits to employees. One of the largest of those impacts, and one of the most controversial, was that of the Employer Mandate.
Originally slated to take effect for all businesses employing 50 or more FTEs (Full-Time Equivalent Employees) on January 1, 2014, it was delayed to implement a staggered start, and provide “transitional relief” to employers. Needless to say, it’s been a rocky rollout. Despite the delays, the time has now come that the employer mandate starts to hit home in a real sense. As of January 1, 2015, businesses employing 100 or more FTEs are now subject to “Pay or Play” or also known as the Employer Mandate.
With that, let’s take a quick dive into the nitty gritty of what is required. Here’s a quick review:
1. Who does Pay or Play Affect?
For 2015, it affects any employer that employed at least 100 full-time and full-time equivalent employees during the prior calendar year. (If you’re just counting bodies, you need to reconsider your counting method. You may be at or over 100 FTEs even if you only have 90 Full-Time employees, depending on the amount of hours worked by part-time employees. For assistance with counting, contact one of our professional agents)
It should also be noted that shared ownership or common ownership can cause the employer to be part of a controlled group under Internal Revenue Code Section 414. This common ownership may cause the employer to be subject to Pay or Play.
2. When is it Effective?
For companies employing 100 or more FTEs, the requirements generally become effective beginning January 1, 2015. For companies of 50 or more FTEs, the mandate generally becomes effective January 1, 2016. Now is a good time to begin preparing for 2016.
3. How Do I Comply?
For the basic purposes of this article, in order to comply, a business must meet the following criteria:
1. Offer Coverage
For 2015, an employer must OFFER coverage at least 70% of eligible employees.
2. Coverage must meet Minimum Essential Coverage (MEC) and Minimum Value (MV) requirements
Most plans currently meet these MEC and MVP requirements. Consult with your benefits professional for additional details.
3. Meet the Affordability Calculation for an employee
Generally an employer sponsored health plan is deemed affordable if the employee portion of the premium for the lowest cost plan (that meets MEC and MVP standards) does not exceed 9.5% of the employee’s annual income. For example, let’s assume Tom works at ABC Company and makes $40,000/yr. ABC Company’s lowest cost plan is the Healthy Insurance Silver 2000 plan, and for Tom the total monthly premium (for employee only) is $650 before employer contribution. Let’s assume that ABC Company is paying 50% of the premium for Tom, so Tom’s portion of the premium is $325/mo or $3,900/yr. We plug that data into our affordability calculator and determine that the percentage of income paid towards Tom’s medical plan is 9.75% (3900/40000=0.0975; 0.0975*100=9.75). This would be deemed unaffordable and Tom’s employer would need to increase the contribution to meet compliance.
4. Pay at least 50% of the lowest cost premium for employee only
To meet compliance, an employer must be paying at least 50% of the employee only premium. Employers are not obligated to pay for dependent coverage to meet compliance, though if an employer is offering dependent coverage (and not paying for it) it is often unaffordable for an employee to cover dependents. Additionally, those dependents would not be eligible for a subsidy through HealthCare.gov or your local state exchange.
4. What are the Penalties for not Complying?
If a business is not complying with the basic requirements as listed above, the business may be subject to a penalty as determined by the IRS. If an employer does not offer a health plan and is subject to Pay or Play, they may be subject to a penalty of $2,000 per eligible employee if one employee accesses a subsidy through the Exchange. (For 2015, a large employer is eligible to subtract the first 80 employees from the penalty calculation. In 2016, this number decreases to the first 30).
If a business does offer a health plan, but is not meeting the basic requirements as outlined above, they may be subject to a penalty of up to $3,000 per employee who obtains a subsidy from the Exchange.
There are many more detailed aspects that come into play with this mandate. The information above is intended as a basic overview, and is not a full outline of the requirements imposed on an employer.
The Employer Mandate, Pay or Play, can be very daunting. It is highly recommended that you consult with a professional employee benefits advisor for assistance in determining compliance and reviewing eligibility. We understand the difficulty of running a business. Reduce the complexity of benefits administration by working with Gabriel Insurance Agency.