Understanding Obamacare Employer Mandates

It’s clear that Obamacare isn’t something many like, but unless someone finds a way to repeal it, it’s mandates are reality on employers – and so are the potential penalties which can be imposed upon employers. Some of the provisions that are soon to kick in are not going to be easy for employers to navigate.

To help explain some of what’s coming up for employers, the IRS recently published a proposed Rule, Shared Responsibility for Employers Regarding Health Coverage, which provides some guidance for HR on how to comply with requirements which the law will place upon “large” employers – those with fifty or more full-time (or the equivalent of) employees, which is defined as those working an average of thirty hours a week or more. The legislation would require these employers to provide health care cover with a specified “minimum value” beginning in 2014, or pay penalties.

This proposed Rule has a comment period that ends on March 18. As part of this, the IRS posted a Q&A digest to help answer questions. Read on for more of what there is to learn about these proposed expectations:

95% STANDARD:

An employer would be liable for penalties if it fails to provide affordable coverage to at least 95 percent (or, if greater, five) of its full-time employees and one or more of those employees who are not offered coverage receive a premium tax credit or cost-sharing reduction when purchasing coverage on a state exchange, signifying the employee and/or dependents were unable to receive coverage through their employer.

Those “large” employers that don’t offer coverage to their full-timers could face a penalty of $2,000 times the total number of full-time employees if at least one employee receives a tax credit to purchase coverage through a state-based health insurance exchange. This penalty will not apply so long as employers offer coverage to at least 95 percent of their full-time employees and their dependents up to age 26.

If the coverage is deemed “unaffordable” to certain employees or does not provide minimum value, the employers face a penalty of $3,000 times the number of full-time employees receiving tax credits for exchange coverage (not to exceed $2,000 times the total number of full-time employees).

Those employees with household income between 100 to 400 percent of the poverty level are eligible for tax credits for exchange coverage if they do not have access to affordable employer-sponsored coverage that is of at least a minimum value.

WHAT IS FULL-TIME?

A full-time employee is an individual employed on average at least 30 hours per week, half-time would be 15 hours per week.

Among other points, the proposed rule and Q&As clarify that: Employers will determine each year, based on their current number of employees, whether they will be considered a large employer subject to the shared responsibility provisions for the following year. For example, if an employer has at least 50 full-time employees including a combination of full-time equivalents (FTEs) for 2013, it will be subject to the shared responsibilities provisions in 2014.

Employers average their number of employees across the months in the year to see whether they meet the threshold of 50 FTEs. The averaging can take account of fluctuations that many employers may experience in their work force across the year.

The proposed rule applies a calculation method for FTEs that was included in IRS Notice 2011-36, issued in June 2011. Under that method, all employees (including seasonal workers) who were not FTEs for any month in the preceding calendar year are included in calculating the employer's FTEs for that month by (1) calculating the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not employed on average at least 30 hours of service per week for that month, and (2) dividing the total hours of service in step 1 by 120.

In determining the number of FTEs for each calendar month, fractions are taken into account.

“AFFORDABILITY” AND “MINIMUM VALUE”

According to the legislation, insurance coverage is not considered “affordable” if the employee has to pay more than 9.5 percent of their household income to obtain the lowest-cost coverage that meets the minimum value requirement. This creates a problem for employers, as household income may not be established by a single earner or single paycheck and employers are not going to have that information.

“Safe harbors” have been created for employers if the cost of the coverage to an employee won’t exceed 9.5 percent of the wages paid by that employer (as reported in Box 1 of the W-2 form) or if it meets one of two other safe-harbor criteria (which the IRS website did not specify and I couldn’t find anywhere else).

Also, a “minimum value” calculator will be made available to employers by the IRS and HHS at some point in the near future.

SEASONAL WORKERS

An employer is not an applicable large employer subject to the shared responsibility provisions if:

• An employer's workforce exceeds 50 FTEs for 120 or fewer days during a calendar year, and,
• The employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers.

It also points out that the seasonal worker classification is not limited to agricultural or retail workers.

TRANSITION RELIEF: 

For those employers that may be close to the 50-FTE worker threshold and need to know what to do when 2014 gets here, special relief is available to help them count their employees in 2013.

Confused yet?

Expect more information and confusion soon. But given the potential penalties and the growing tendency of federal agencies to levy them, staying informed is the best defense for HR staff.