Under the Affordable Care Act, or “Obamacare” employer mandate, all businesses with 50 or more full-time equivalent employees must offer all of their full-time employees “minimum essential” health coverage that is “affordable” and provides “minimum value,” or face a stiff penalty. The mandate does not apply until Jan. 1, 2014; however, employers would be wise to consider how to deal with it now.
There are two possible penalties for not complying with the mandate:
First, if an employer, subject to the mandate, does not offer a comprehensive medical plan (i.e., one that provides minimum essential coverage) to all of its full-time employees (those who work 30 or more hours per week) and their children; and, if just one of those employees receives a federal tax credit for buying coverage through a health exchange, then the penalty is $166.67 per month for every full-time employee in excess of 30. If an employer has 200 full-time employees, this penalty could be as high as $340,000 per year. We call this the Sledgehammer Penalty.
Second, if the coverage offered by an employer costs any of its full-time employees more than 9.5 percent of their pay (it is deemed unaffordable); or it pays less than 60 percent of the total allowed cost of the benefits provided under the plan (it does not provide minimum value), then the penalty is $250 per month, but only for each employee who receives a federal tax credit for buying coverage through a health exchange. We call this the Finishing Hammer penalty.
Many large Reno employers, particularly those in the retail and restaurant industries, don’t offer any health coverage to their employees. Others offer limited coverage that does not meet the minimum essential benefits or minimum value requirements, or that costs their employees more than 9.5 percent of their pay. If your business is one of these employers, you need a strategy to deal with these prospective penalties – Fast!
Here are some strategies to discuss with your insurance broker and benefits attorneys:
Offer all of your employees and their children a minimum essential health benefits plan that is fully paid for by the employee (i.e., no employer contribution), to avoid the Sledgehammer Penalty.
Compare the cost of providing the necessary coverage with the cost of paying the Finishing Hammer penalty. For some employers, it might be less costly to pay the penalty than to provide the necessary coverage at a price their employees can afford. Others will find it is less costly to bring their coverage and their contributions toward the cost of coverage up to minimum Obamacare standards.
Restructure your workforce. Some employers will eliminate as many full-time positions as they can, because the mandate only requires employers to offer coverage to their full-time employees (those working 30 or more hours per week). Other employers might find it helpful to eliminate some positions that work just over 30 hours per week and add hours to other positions where benefits are offered, so that the coverage becomes more affordable for their remaining full-time employees. Employers should be careful, though. Eliminating and restructuring positions is fraught with legal risks, including potential claims under Obamacare’s whistle-blower protections.
Naturally, employers should consider employee morale, turnover and productivity issues raised by these changes. None of this is easy, but employers who address these issues well in advance of January 2014 will be better prepared to deal with the consequences.
Ann Morgan is the managing partner of the Reno office of the law firm Fennemore Craig. Contact her at amorgan@fclaw.com. Erwin Kratz practices with Fennemore Craig in the areas of ERISA and employee benefits law including the tax and Department of Labor regulatory aspects of qualified pension and profit sharing plans. Contact him at ekratz@fclaw.com.
