Employers making the decision to play or pay under the Affordable Care Act (ACA) have a lot of questions right now because the mandate to provide insurance to full-time employees goes into effect January 2014. In a recent CER webinar, Ashley Gillihan explained some of the factors that employers should consider when making this decision. At the conclusion of the webinar, Gillihan answered questions about who the penalty applies to and what the penalties are. Here’s a sample of the questions and answers.
Q. If we provide an affordable health insurance plan to our employees that includes the minimum essential benefits, does the $2,000 sledgehammer penalty or the $3,000 tackhammer penalty apply to our company?
A. Offering a plan that provides essential health benefits may or may not help you avoid the penalty. First we have to remember what minimum essential coverage is: bare bones, group health plan coverage. A truly minimal play may or may not even cover all essential health benefits. However, if an employer offers that to at least 95 percent of their employees, then that employer won’t be subject to the sledgehammer penalty.
The next step in the analysis is to determine whether the healthcare insurance provided is affordable and whether it provides minimum value required by the Affordable Care Act. Simply providing essential health benefits does not mean you provide minimum value. To provide minimum value, the plan has to pay at least 60 percent of the allowed costs, and that must take into account deductibles and co-payments. After that, you have to determine affordability.
That’s not based on the coverage level, that’s based on what the plan costs employees (for employee-only coverage). This full analysis must be done—it’s not enough to assume that if minimum coverage is offered that it will be enough to avoid all penalties.
Q. If we are self-funding our health insurance plan, are we sill liable to comply with the new regulations?
A. Yes.
Q. We have employees who get benefits through their union-sponsored plan—do we need to be concerned about the details of the plan since we are not the plan originator?
A. The good news in this situation is that coverage provided by multi-employer plans to which you (as the employer) contribute, will count as coverage offered through you and help you meet your legal requirements. So, if you’re not offering coverage to a segment of your union employees on your own because they’re receiving coverage through this multi-employer plan to which you contribute, then you can count that union insurance plan as an offer of coverage.
The bad news in this situation is that you don’t have any control over who it is offered to, how much it costs, or whether or not it provides minimum value. If you’re making contributions to a multi-employer plan, you are going to have to coordinate with that plan to determine affordability and minimum value. If you determine that the coverage they offer isn’t minimum value and then those employees enroll in an exchange and receive a subsidy, you will still have to pay the penalty because it’s an employer excise tax—it’s the employer’s responsibility.
Q. If we offer health coverage and it meets the requirements to be deemed to provide “minimum essential coverage” and it also provides “minimum value” but the employee declines coverage and also does not enroll their dependent children—are there penalties to us or to the employee?
A. The key thing to remember here is that the action that triggers the penalty is when an employee receives a subsidy in order to get insurance from the exchange. In order to qualify for a subsidy, the employee must not be above 400 percent of the poverty line, and also cannot be eligible for minimum essential coverage from an eligible employer-sponsored plan that is affordable and provides minimum value.
As such, if your coverage is affordable and provides minimum value and the employee is eligible for it yet doesn’t enroll, that employee cannot qualify for a subsidy (even if their income is within the required 100-400 percent of the poverty line, which would qualify otherwise). If the employee cannot qualify for a subsidy, then the employer cannot be penalized. That employee could still choose to get their health insurance from the exchange—that would not trigger a penalty because it’s the subsidy that triggers the penalty.
The above information is excerpted from the webinar “ACA’s Play-or-Pay Safe Harbors and Guidelines: How to Determine If You Have to Pay.” To register for a future webinar, visit CER webinars.
Attorney Ashley Gillihan is counsel in the Atlanta office of Alston & Bird LLP. 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.