In earlier posts, we looked ahead to 2014 to consider who will pay for coverage, focusing first on the individual mandate and the government subsidies. We explained that employers may want to consider how these provisions may affect their employee population. In today’s post, we consider how the employer mandates will work in 2014. We’ll discuss vouchers in our next post.
Large employers with 50 or more employees may be subject to two potential penalties: the No Coverage Penalty and the Unaffordable Coverage Penalty. The penalties are sometimes referred to as the Employer Mandate because they effectively require employers to offer coverage or pay a penalty. (See new Code Section 4980H.)
The employer penalties are based on the government subsidies. As we discussed in our earlier post, government subsidies are not available unless an individual’s household income is less than 400% of the federal poverty level ($89,400 for a family of four in 2011). If all employees of an employer have a household income greater than 400% of the federal poverty level, then these penalties would not apply. But, in reality, almost every employer will have at least one employee whose household income is less than 400%. The rest of this post assumes that an employer would have at least one such employee.
No Coverage Penalty (also known as “Pay or Play”)
If an employer does not offer full-time employees, and their dependents, an opportunity to enroll in employer coverage, and at least one full-time employee enrolls in the Exchange and the employee receives government subsidies to pay for Exchange coverage, then the employer is subject to this penalty. The penalty is $2,000 for each of an employer’s full-time employees. (In calculating the penalty, however, the first 30 employees are excluded). Employers can avoid this penalty by offering health coverage to full-time employees. However, the Unaffordable Coverage penalty may apply.
Unaffordable Coverage (also known as “Free Rider”)
If an employer offers full-time employees, and their dependents, an opportunity to enroll in employer coverage, that alone will not necessarily avoid penalties. Rather, the coverage offered must be both affordable and valuable. If at least one full-time employee enrolls in the Exchange and is certified to receive government subsidies because the employer’s coverage is considered either unaffordable or low-value, then the employer is subject to this penalty. The penalty is $3,000 for each full-time employee who is certified to receive government subsidies. (Unlike the no coverage penalty, this one is not based on all full-time employees.)
Synthesizing the government subsidies with the employer penalties, employers will need to offer coverage that is both affordable and high-value to avoid the employer penalties altogether. But doing so also means that the employees will not be eligible for government subsidies. Employers may want to consider whether their employee population would be better served in the Exchange with government subsidies or with affordable, valuable, employer-provided coverage. Employers will also want to consider how vouchers work, which we’ll discuss in our next post.
Postscript 4/19/11: See blog post regarding the repeal of vouchers.
Today’s post was contributed by Maureen Maly and Megan Hladilek.
Will employers, with 50 or more full time employees, be able to offer an actuarially equivalent contribution to an HSA or FSA so that employees can by health care coverage on the exchange or in the private non-group market, and avoid the No Coverage Penalty?
To avoid the employer penalties, coverage must be minimum essential coverage. Based on current interpretation by the Department of Labor [link to FAB 2004-1], HSAs are not minimum essential coverage because they are not considered group health plans under ERISA. For FSAs, it is not clear, but possible that FSAs could be minimum essential coverage if they are the only coverage offered by the employer and the employer contribution is greater than two times the employee contribution or $500 over the employee contribution. Additional guidance on FSAs will be needed to clarify if such FSAs are minimum essential coverage. If so, then perhaps an FSA contribution could avoid the employer No Coverage penalty. However, bear in mind that under current law, FSAs cannot be used to pay premiums for other coverage (other than COBRA coverage, if the plan allows). Accordingly, this would need to be changed in order for individuals to use FSA money to purchase exchange coverage.
Will employers, with 50 or more full time employees, be able to offer an actuarially equivalent contribution to an HSA or FSA so that employees can by health care coverage on the exchange or in the private non-group market, and avoid the No Coverage Penalty?
To avoid the employer penalties, coverage must be minimum essential coverage. Based on current interpretation by the Department of Labor [link to FAB 2004-1], HSAs are not minimum essential coverage because they are not considered group health plans under ERISA. For FSAs, it is not clear, but possible that FSAs could be minimum essential coverage if they are the only coverage offered by the employer and the employer contribution is greater than two times the employee contribution or $500 over the employee contribution. Additional guidance on FSAs will be needed to clarify if such FSAs are minimum essential coverage. If so, then perhaps an FSA contribution could avoid the employer No Coverage penalty. However, bear in mind that under current law, FSAs cannot be used to pay premiums for other coverage (other than COBRA coverage, if the plan allows). Accordingly, this would need to be changed in order for individuals to use FSA money to purchase exchange coverage.
Considering the cost to an emloyer to provide a meanningful benefit is much more, even after taking tax deductibility into account, tha the pposed penalty, why wouldn’t all employers just opt to pay the penalty and stop offering heath insurance benefits altogether? Is that what the government really wants?
Considering the cost to an emloyer to provide a meanningful benefit is much more, even after taking tax deductibility into account, tha the pposed penalty, why wouldn’t all employers just opt to pay the penalty and stop offering heath insurance benefits altogether? Is that what the government really wants?
Is there any requirement that employers pay for any of the coverage that they offer? My employer (4 employees) doesn’t pay for any of my coverage but he offers it if we want it.
If employers don’t have to pay, why are they complaining about the mandate?
My company with 200 employees (most minimum wage) doesnt make enough to pay the penalty. Obviously our government was not smart enough to figure out that not all businesses make tons of money. Is bankruptcy my only option? Can I just turn the keys over to Obama? It would be easier and less messy than going to bankruptcy court.