Pay or Play Employer Guide

Pay or Play Employer Guide

Pay or Play Health Reform Tax Penalty

Pay or Pay Employer Guide

Pay or Play Employer Guide

Tick! tick! tick!  As the 2014 Employer Mandate to either pay or play  gets closer the nation’s employers move a step closer to having to make a decision: Do I play or pay? This Employer mandate under Patient Protection and Affordable Care Act (PPACA)  does not apply to smaller groups under 50 FTE (full time equivalent) employees.  Many small groups such as food service industry, retailers, construction etc. in fact have many FTE and while they may work minimal hours can trigger the “pay or play” mandate.

The IRS has released recently guidance published in the form of a Notice of Proposed Rulemaking (NPRM), addresses a number of issues tightly linked to an array of practical considerations related to the employer mandate.  These include defining a “large employer,” determining “full-time” status for employees, clarifying the meaning of “dependents,” and determining what constitutes “affordable” coverage.

The guidance also tackles several stickier questions such as how and whether to count foreign or seasonal workers, as well as how to calculate the full-time status of employees who work unusual hours, such as teachers or airline pilots.

Three safe harbors relating to the provision of “affordable” coverage to employees in order to avoid exposure to the mandate penalties are also included in the guidance.  Transition relief is offered in recognition of certain employers’ needing time to bring their plans into compliance.

Still, there are several regs that the IRS is awaiting commentary and resolution on due on March 18, 2013.

A Q&A summary of the rule has been released by the IRS and is available by clicking here.

Some employers assert that the play-or-pay mandate will raise their costs and force them to make workforce cutbacks. As a result, a number are considering eliminating their health care coverage altogether and instead paying the penalty on their full-time employees. While the “pay” option might be worth considering, there are strong reasons why employers should look carefully at all of their options and do their best to calculate the actual outcomes of each.

Other Key Issues Addressed in the Proposed Rules
Additional issues addressed in the proposed regulations include:

  • Determining which employers are subject to the “pay or play” requirements;
  • Determining who is a full-time employee, including approaches that can be used for employees who work variable hour schedules, seasonal employees, and teachers who have time off between school years;
  • Determining whether coverage is affordable and provides minimum value; and
  • Calculating the amount of the penalty due and how the penalty will be assessed.

When conducting a cost-benefit analysis, the key tax issues the employer should consider are:

  • Employer Tax Penalty for Not Offering “Qualified” Group Health
    • Not applicable for employers with less than 50 FTEs
    • $2,000 penalty per full-time employee (minus 30 employee credit)****
  • Employer Tax Penalty for Offering “Qualified” Health That is Not “Affordable”
    • Not applicable for employers with less than 50 FTEs
    • $3000 per employee receiving subsidy

 

Example:

Jungle Corp. has 100 full-time employees and is a leader in its market, using a talent differentiation strategy. Jungle’s family coverage costs $15,000, of which employees pay $3,000. Bob Smith, a highly skilled worker with a strong performance record, earns $50,000 and has family coverage through Jungle’s plan.

On Jan. 1, 2014, Jungle Corp. announces it is dropping its group health plan coverage and will instead pay the $2,000-per-full-time-employee penalty. On Jan. 2, Bob walks into HR and asks about receiving replacement compensation for the $12,000 that the business had been paying toward his family coverage.

Wanting to retain Bob in accordance with its strategy of maintaining market leadership with an experienced workforce, Jungle offers him another $12,000. But clever Bob points out that his share of Social Security and Medicare payroll (FICA) taxes will take a bite out of that $12,000, as will federal and state income taxes, so the HR manager agrees to make good on those amounts as well. Of course, the company will also have to pay its share of FICA taxes on Bob’s additional compensation. As a result, instead of paying $12,000 toward Bob’s family coverage using pre-tax dollars, Jungle Corp. now finds itself paying an additional:

  • Bob’s salary adjustment: $14,500
  • Employer’s share of FICA taxes: $1,109
  • Excise tax (penalty): $2,000
    ———————————-
  • Total: $17,609
    (versus $12,000 currently)

Similar per-employee costs will be reflected across the company’s workforce. A move that seemed like a no-brainer, the consequences could make you look silly.

For More Information
Due to the complexity of the law in this area, and the absence of finalized guidance, employers are strongly advised to review their benefit plans  to  prepare for the changes ahead.  Additional information regarding the penalty is featured on our Employer Shared Responsibility page.

Ask us about our Health Care Reform Compliance Audit Assessments. See Health Care Reform Timeline and Preparing for Reform by UHC.

In the coming months, Millennium Medical Solutions Inc will host seminars and will share information you’ll need to know as the countdown continues to October 1st.   Please contact us for immediate information on how to implement these initiatives for your group-specific needs at info@medicalsolutionscorp.com or  Call (855) 667-4621.

The Employer Mandate under Patient Protection & Affordable Care Act (PPACA)

The Employer Mandate under Patient Protection & Affordable Care Act (PPACA)

Will Employer Pay Penalty in 2014?

Larger employers that don’t offer minimum essential health coverage to full-time workers may face penalties under health care reform if any full-time employees receive a government premium credit or subsidy to buy their own insurance through an exchange.

The so-called employer mandate and the health insurance exchanges both go into effect in 2014 under the Patient Protection and Affordable Care Act.

The penalties generally apply to all employers with 50 or more full-time equivalent employees. An employer with at least 50 FTEs that provides access to coverage but fails to meet certain requirements, outlined below, may also be subject to a penalty.

To determine the FTE (Full Time Equivalent) you must count FT and PT employees.  Full Time Employees are those working 30 hours+/week.  See blog post “What does FTE mean?”

Affordability of the employer plan remains a consideration, however, since just one employee qualifying for federal premium assistance for exchange coverage will trigger a penalty for employers with 50 or more employees

Minimum essential coverage generally includes any coverage offered in the small or large group markets. Excepted benefits, such as limited-scope dental or vision offered under a separate policy, certificate or contract of insurance and Medicare supplemental plans, do not qualify.

Penalties explained

Starting in 2014, large employers that don’t offer coverage face a penalty of $2,000 per full-time employee (excluding the first 30) if at least one FTE receives a government subsidy to buy coverage on an exchange. This is sometimes referred to as the “play or pay” penalty.

Employers that offer coverage to employees may still face a “free rider” penalty if the coverage offered is deemed unaffordable or low in value.

If an employer offers coverage, but a full-time employee receives a premium credit subsidy through an exchange, the employer must pay an assessment equal to the lesser of:

  • $3,000 for each employee that receives a subsidy
  • $2,000 for each full-time employee after the first 30

The monetary penalties listed above are annual figures and may be pro-rated to the number of months for which the penalty applies.

Who’s eligible for a subsidy?

Employees who are offered coverage from their employer could be eligible for subsidies on the exchange if they don’t qualify for Medicaid or other programs, are not enrolled in their employer’s coverage and meet either of the following conditions:

  • The employee’s share of the premium exceeds 9.5 percent of their household income
  • The plan pays for less than 60 percent on average of covered health care expenses (e.g. coverage offered does not have at least a 60-percent actuarial value).

After 2014, penalty amounts are indexed by a premium adjustment percentage for the calendar year.

The Congressional Budget Office expects the penalties to generate $52 billion toward the overall cost of health reform by 2019. The Department of Health and Human Services estimates that fewer than 2 percent of large American employers will have to pay the assessments.

Disclaimer: This blog is not intended to represent legal advise and one should consult with a tax and/or legal expert.