“Pay or play” refers to the idea that employers must either provide healthcare insurance coverage that is above a certain standard (yet affordable for all employees), or they must pay a penalty for failing to provide such coverage. This will start on January 1, 2014. This is just one of the many issues employers are trying to understand with the Affordable Care Act (ACA). Thankfully, we have experts on hand to lend their expertise on the topic.
Ashley Gillihan outlined pay for play and many other aspects of the ACA in a recent CER webinar and lent his expertise at the conclusion of the webinar to answer participant questions. Here’s a summary of some of the questions.
Q. If a small employer chooses to provide employee health coverage, must that coverage comply with the healthcare reform requirements?
A. Great question, and the answer is yes. If you’re a small employer (smaller than 50 full-time equivalents), you won’t be subject to the “pay or play” penalties. However, the health insurance reforms are in an entirely different section of the law.
These reforms apply to healthcare plans, regardless of how many people are covered. In short, the healthcare reform regulations contain many sections and most of them will still apply (besides the pay or play provision).
Q. Can an employer provide a certain dollar amount to give employees to let them purchase their own insurance?
A. This is being called a “private exchange.” Many people want to set up a defined contribution arrangement in which every employee is given the same dollar amount to use to purchase individual coverage. There are many issues to consider with this.
What a lot of people don’t realize is that if an employer pays any portion of the premium for a policy issued on the individual health insurance market, then that policy becomes a group health plan, subject to federal group health plan rules. In many instances this may not be a big deal, but it can become a big deal for a variety of reasons.
For example, healthcare policies on the individual market are not required to provide COBRA coverage, yet if it becomes a group plan, now you are required to ensure that COBRA is offered (assuming you’re subject to COBRA). Also, many states don’t allow policies in the individual market to be paid for with tax-free dollars.
In short, this situation might be feasible, but there are a lot of issues to navigate. It may however, help employers meet the minimum essential coverage requirements under the pay or play component of the healthcare reform laws; however, this remains to be seen.
Q. We understand that employers who provide coverage must ensure that the coverage meets affordability standards or be subject to a penalty. Since the affordability standard is 9.5 percent of the amount in the employee’s W-2, box 1, is that information going to be based on a lookback year? We are a staffing agency and don’t know how long our employees will be working.
A. It’s actually based on the current year. So, when you make your initial calculations for the year you would have to annualize. For employees that may be temporary in nature, it can be a monthly assessment. That said, they’re still working on a lot of guidance for employers to navigate these types of details.
Q. In W-2 reporting of healthcare costs, do you report the employer payments to a Health Reimbursement Account (HRA)?
A. Not now. Under a transitional rule, those are currently exempt. This could change, however.
Q. As a fully-insured group of 62 employees, must we comply with the W-2 reporting of healthcare costs?
A.If you’re not required to file your W-2s electronically, then you probably don’t have to report the healthcare costs on the W-2 either. The standard is to ask whether you’re exempt from filing electronically under the code because you file less than 250 W-2s. If the answer is yes, then you don’t have to meet the reporting requirements at this time. Being fully insured or self insured isn’t relevant in this situation.
Q. What if some of our full-time employees have coverage and we have part-time employees who do not have coverage (yet are considered full-time-equivalent) – how would we have to pay a penalty?
A. You’re only required to offer full-time employees healthcare coverage, not full-time equivalents. The full-time equivalents, however, will determine whether or not you’re an “applicable large employer” or not. So, their hours will factor in to see whether you are subject to the pay or play portion of the regulation. But if you are, you are still only required to provide healthcare benefits for the true full-time employees (working 30 hours or more per week).
However, this is a month-to-month calculation. If you fail to offer a full-time employee coverage for a month and they enroll in the exchange, you could face penalties. This becomes an issue in situations where a part-time employee occasionally works full-time hours.
The above information is excerpted from the webinar “Play or Pay Under the Affordable Care Act: Short-Term Obligations and Long-Term Strategy.” To register for a future webinar, visit CER webinars.
Attorney Ashley Gillihan is counsel in the Atlanta office of Alston & Bird. He focuses his practice exclusively on health and welfare employee benefit compliance and litigation issues for employers, health plan administrators, and other health and welfare benefit plan service providers.