By Nancy Lopez

Background

Under federal law, employers are not required to offer health insurance coverage to their employees; however, most do voluntarily. In fact, employer-sponsored health insurance is the primary source of health care coverage for most Americans, with roughly 60 percent of the non-elderly receiving health coverage through the workplace.^[1] Initially offered as a way to attract workers during wartime wage freezes and price controls, health insurance coverage is still used as a way to recruit and retain workers, and as a means of improving employees’ health and productivity. However, not all workers have health insurance. Indeed, three-fourths of the approximately 50 million uninsured Americans are working people and their dependents.^[2]

In 2011, 60 percent of employers offer health insurance to their employees, marking a decrease from 2000 (68 percent) in the percentage of employers offering health insurance coverage.^[3] Despite the decline, employer-sponsored health insurance remains popular in part because premium payments are excluded from taxable income for enrolled employees and the employer’s premium contribution is tax deductible to the company. Additional benefits of employer-based insurance include the ability of employers, especially large ones, to purchase insurance at lower costs than individuals could buy on their own in the open market, lower premiums for participants, non-discrimination for participants with pre-existing conditions, and the opportunity to keep coverage for a certain period after loss of employment.^[4] However, some employees are not eligible for the health coverage offered because of waiting period rules for new employees or minimum work-hour rules. Other employees are unable to afford the coverage offered.

Under the Affordable Care Act (ACA), individuals without access to employer-sponsored coverage may purchase health insurance coverage through newly established health insurance Exchanges.^[5] Low- and middle-income individuals and families will receive premium tax-credits and cost-sharing subsidies to assist in the purchase of coverage if health insurance offered through an Exchange exceeds a certain percentage of their income.^[6]

Changes Made by the Affordable Care Act (Pub. L. 111-148 §§1511, 1512, 1513, 1514, 10106 and 10108, as modified by Pub. L. 111-152 §1003)

In an effort to incentivize employers to continue offering health insurance coverage to their employees and to broaden coverage to more employees, the ACA sets forth the following provisions:

Shared Responsibility for Employers (ACA §1513 and §10106)

Beginning in 2014 under the ACA, certain large employers will be subject to an assessable payment for any month any full-time employee is certified to receive a premium credit, cost-sharing reduction, or advanced payment of such credit or reduction for coverage purchased through a health insurance Exchange if either:

• the employer fails to offer minimum essential coverage through an eligible employer-sponsored health plan to any full-time employees; or
• the employer offers minimum essential coverage under an employer-sponsored plan to its full-time employees that, with respect to those employees that are certified to receive applicable premium tax credits or cost-sharing reductions, is either unaffordable (employee’s contribution is more than 9.5% of their household income) or does not provide minimum value (health plan’s share of health care expenses is less than 60% of total covered health care costs). For additional information on the premium tax credit, click here.

Applicable Large Employer

• A large employer is defined as an employer (including a predecessor employer^[7]) who employed 50 full-time employees on business days during the preceding calendar year.^[8] Both full-time (those working an average of 30 hours per week^[9]) and part-time (called “full-time equivalents”) employees are included in the calculation to determine whether an employer is defined as a “large employer”.^[10] Part-time employee hours are included by calculating the total monthly hours worked divided by 120.^[11]
• An employer that was not in existence the preceding calendar year can be deemed a large employer if it can be reasonably expected to employ at least 50 full-time employees on business days during the current calendar year.^[12]
• An employer is not considered “large” if the number of its full-time employees was greater than 50 for 120 days or less and the employees employed during that 120 day period were seasonal workers.^[13] In other words, seasonal workers who work up to 120 days in a year would be excluded from the calculation determining whether an employer is deemed “large”.

Calculating Payment Amount

Liability for Large Employer not offering coverage: For large employers not offering coverage, the assessable payment is $2,000 annually for each full-time employee, excluding the first 30 employees (i.e., $2,000 x FT employees – 30).^[14] This dollar amount will be adjusted yearly based on health insurance premium growth.^[15]

Liability for Large Employer offering coverage: For large employers offering coverage, the assessable payment is $3,000 annually for each full-time employee receiving a premium credit, up to a maximum amount of the following: $2,000 x (FT employees -30).^[16] These dollar amounts will be adjusted yearly based on health insurance premium growth.^[17]

Part-time workers are not included in the penalty calculations even if they receive a subsidy.^[18]

Reporting Requirements

• The Secretary of the Department of Labor is required to conduct a study on the effect of assessable payments on employee’s wages and report findings to the House Committee on Ways and Means and the Senate Committee on Finance.^[19]

Automatic Enrollment for Employees of Large Employer (ACA §1511)

Employers with more than 200 full-time employees offering enrollment in at least one health benefit plan must automatically enroll new employees in one of the offered plans and continue enrollment for current employees. The employer must provide the employee with adequate notice and the opportunity to opt out of any coverage in which the employee was automatically enrolled. This provision is subject to any waiting period authorized by state law.^[20]

Employer Requirement to Inform Employees of Coverage Options (ACA §1512)

An employer must give written notice to current employees (no later than March 1, 2013) and to all new hires at the time of hiring informing the employee of the following: the existence of an Exchange; its services and how to contact the Exchange to obtain assistance; the availability of premium tax credits and cost-sharing reductions if the employer’s health plan covers less than 60% of the total allowed costs of benefits provided under the plan; and, the fact that if the employee purchases a health plan under the Exchange,^[21] the employer contribution to any health benefit plan offered is forfeited by the employee.^[22]
Annual Reporting of Employer Health Insurance Coverage (ACA §1514)

Every “applicable” large employer meeting the requirements under Internal Revenue Code §4908H (as described above) must submit an annual return to the Secretary of Treasury on or before January 31 of the year following the year for which the return was required that is in the form prescribed by the Secretary and which contains the employer’s name, date and employer identification number.^[23] The return must contain the following information:

• whether the employer offers minimal essential coverage to full-time employees;
• if minimal essential coverage is offered: the length of the waiting period; the months in which the plan was available; the monthly premium for the lowest cost option in each enrollment category; the employer’s share of total allowed costs of benefits under the plan; and the option under which an employer pays the highest share of plan costs; and
• the number, name, address and the taxpayer identification number of each fulltime employee and the months during which employee was covered.^[24]

Implementation

Agency

The Department of Treasury (ACA §1513, 1514), the Department of Labor (ACA §1511, 1512, 1513) and the Department of Health and Human Services (ACA §1514) are all involved in the administration of the employer responsibility provisions.

Key Dates

The shared responsibilities for employers under ACA §1513 and the annual reporting requirements under §1514 become effective after January 1, 2014.^[25]

The employer requirement to inform employees of coverage options under ACA §1512 becomes effective March 1, 2013.

Process

The Secretary of Health and Human Services (HHS) is required to issue regulations or guidance on the repayment of any assessable payments that were made based on a subsequently disallowed premium tax credit or cost-sharing reduction.^[26] In addition, the Departments of Labor, HHS and Treasury have the discretion to use a range of tools to implement the statute, such as publishing regulations in the Federal Register with a public notice and comment period, or using other types of approaches such as posted policy instructions, funding availability announcements (where applicable), official letters to affected entities (such as letters to state Medicaid agencies), and posted rulings and notices. Agency websites can be checked regularly for updates.

Recent Agency Action

On May 3, 2011, the Treasury Department and Internal Revenue Service issued a Notice for Request for Comments (RFC) on Shared Responsibility for Employers Regarding Health Coverage (Section 4908H).^[27]

On September 13, 2011, the Internal Revenue Service issued a Notice for Request for Comments (RFC) on Health Coverage Affordability Safe Harbor for Employers (Section 4980H).^[28]

Key Issues

Definitions: How will IRS define: “employer”, “employee”, “full-time equivalents”, and “hours of service”?

Calculations: How will “hours of service” be calculated? What methods will be used by the employer to include hours worked by a non-hourly employee under “hours of service”? Is the employer required to use the same calculations and classification of employees each month? How will employers be required to calculate the number of full-time employees for a preceding calendar year? Or on a monthly basis?

Determining “large employer” status: How will the IRS determine who is an applicable large employer? How will “full-time equivalents” and “full-time employees” be calculated for determining large employer status? How will seasonal employees be factored into the determination of “large employer”?

Possible methods for determining full-time employee: How will employers be able to forecast potential assessable payment liability if they are uncertain as to who is a full-time employee (e.g., employees with limited contracts or who vary in hours week to week)?

Other issues noted in the IRS Request For Comment: Should there be any exceptions to the employer responsibility provisions? How will the employer responsibility provision work with the 90 day waiting period limitation provided by Public Health Service Act §2708 and related ERISA provisions? How or will wages and employee contribution amounts be determined for an employee who works less than a full year, moves between full-time and part-time status, circumstances where a plan year is not a calendar year, and other special situations?

Safe Harbor Provisions: Should a look/back stability rule be implemented by the IRS (where the employer looks back between 3 and 12 months at the employee’s average hours of service to determine said employee’s full-time status)? Should IRS implement its affordability safe harbor method to make affordability more predictable to employers (where affordability would be measured by an employee’s wages and not by household income)? Are there other possible safe harbor methods to determine affordability of coverage under an employer-sponsored plan for purposes of determining an employer’s potential assessment penalty?

Assessing how employers will respond: There has been much debate on how this provision will impact employer-sponsored coverage — will it result in employers dropping health insurance coverage for their employees? (See Urban Institute’s report on employee sponsored insurance.)

Authorized Funding Levels

No funding has been authorized or appropriated for this provision.