With the election behind us, employers can now anticipate that many of the provisions of The Patient Protection and Affordable Care Act, commonly called Obamacare, will need to be understood and followed. Beginning in 2014, large employers (employing 50 or more full-time employees), but not employers with less than 50 full-time employees, will be penalized if they fail to provide required healthcare coverage to their full-time employees and their dependants (the “Employer Mandate”). For small group and individual health insurance policies, as of January 1, 2014, with certain exemptions, California will require small group and individual health insurance policies to cover the same health benefits provided by the Kaiser Foundation Small Group HMO 30 plan. The plans offered by large and small employers must generally pay 60% or more of the covered expenses. A large employer failing to offer the required coverage during a month will be fined $166.60 for each full-time employee in excess of 30; and so, for example, an employer of 80 workers would be fined about $6,700 per month. If a large employer provides coverage to full-time employees but the employee’s share of premium costs exceeds 9.5% of an employee’s household income, that employee may opt out and receive a tax credit to purchase coverage through an Exchange. The employer will generally be penalized $250 for each such full-time employee during the month.
The number of full time employees includes those employed, on average, at least 30 hours per week. Employers are not required to provide coverage for part-time or seasonal workers; however, part-time workers impact whether an employer is subject to the Employer Mandate. Under the following formula, the hours worked by part-time employees will be counted to determine whether a company is a large employer subject to the Employer Mandate.
- Number of Full-Time Employees (FTE)+ (Total number of hours worked by part-time employees each month divided by 120)
- Example: An employer has 43 employees who work in excess of 30 hours per week. The employer also has 20 employees working less than 30 hours per week, for a combined total of 1200 hours per month (15 hours per week per part-time employee). The employer has 53 FTEs (43 + (1200/120)), meaning it is a large employer, subject to the Employer Mandate.
An employer is not required to provide healthcare if it has more than 50 FTE Employees for fewer than 120 days and the employees in excess of 50 during that time are “seasonal workers” as defined by statute. Special aggregation rules may result in combining the employees of multiple related employers under “common control” for purposes of determining whether the employers are subject to Employer Mandate. Large and small employers are defined differently when it comes to offering coverage through an Exchange. A “small employer” for this purpose is one with 100 employees or less. Initially, states could limit the number to 50 employees for purposes of “small employers” eligible to offer health insurance plans through an Exchange. California’s Health Benefit Exchange is called “Covered California.” California elected to limit the number to 50 in its initial legislation. For plan years beginning after January 1, 2016, this election will no longer be available to California or other states; 100 or less employees will be considered “small” for this purpose and states can elect to permit “large employers” with more than 100 to offer coverage through the Exchange. Tax credits for a portion of the health insurance premium will be available to qualified small employers with less than 25 full time employees. There will be extensive employer reporting requirements. California and federal regulations are and will be rolling out over the next several months further defining such questions as how to calculate hours of service when employees are not compensated on an hourly basis, reporting requirements and notices to employees, handling of cafeteria plans, and defining health plans and services that will be made available to small businesses under Covered California’s Small Business Health Options Exchange Program (SHOP). Questions for the SHOP program include: (1) how to establish the risk pool for small employers and individuals so as to have uniform and affordable premiums, (2) whether employers or employees, or both will have choice as to the coverage to be provided, (3) systems for billing employers, receiving employee and employee contributions, and forwarding aggregated premium payments to insurers, (4) systems for managing late or nonpayment of premiums, and (5) coordination with the IRS for the premium tax credit.