Three years ago this month, one of the most significant changes in the U.S. health care system in history was signed into law. On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) became a fact of life. Its opponents challenged its constitutionality and lost at the Supreme Court in June of last year. Then, with the outcome of last November’s elections, any chance for outright repeal or significant modification vanished.
While a certain number of provisions in PPACA have gone into effect since 2010, the vast majority of the legislation will kick in January 1, 2014. As this is being written, various rules to enforce the new health care law are still being promulgated, and uncertainty reigns supreme with many Mississippi business people.
What seemed to be a long way away in the spring of 2010 is standing on the doorstep knocking in the spring of 2013. Now is the time to address what employers should know and what they should do.
First of all, it is key to understand which employers are subject to the law. The short answer is that it applies to “large employers,” which are defined as those with at least 50 full-time equivalent employees, or FTEs. However, the PPACA definition of “full-time” includes those working 130 hours per month, or 30 hours per week, along with special rules to account for variable hour and seasonal employees.
The 50-employee calculation is central to the law’s applicability to an employer, and it is important to note that related employers will be aggregated to determine whether the 50-employee threshold has been met. Smaller employers are not required to participate but are eligible for tax credits if insurance is provided. They also can make use of the new insurance exchanges that will be operating in 2014 that, in theory at least, will pool employers, spread risk, and lower premiums.
Once an employer determines they are subject to PPACA, then they must decide whether to “pay or play.” This euphemism refers to the decision to either pay a non-deductible penalty to the government or play by providing qualifying coverage. A plan is qualifying if it provides “minimum essential coverage” to “substantially all” its employees, provides “minimum value,” and provides “affordability.”
To play, each of these definitions is highly significant, and each is the subject of proposed rules and regulations, some of which are still not finalized, or are subject to modification. Broadly though, an employer-sponsored group health plan, whether self-insured or insured, that covers at least 95 percent of employees (and dependents) should pass muster if it covers not less than 60 percent of the cost of health benefits under the plan and its cost to the employee is less than 9.5 percent of an employee’s earnings.
Large employers that provide coverage but fail any of these tests can be subject to a $3,000 penalty per employee that qualifies for and receives subsidies for a plan through an insurance exchange. If an employer has 50 or more FTEs and chooses not to offer health insurance at all, that employer is subject to a $2,000 penalty per employee, minus the first 30 employees. This is the “pay” provision of “pay or play.”
So, this is the abridged version of the law. What should employers be doing right now? Well, for those who have not started, a thorough cost analysis is needed. Beyond that analysis, other important factors will also need to be considered. What are other local employers in the industry doing? What about employee morale? Issues around recruitment and retention will likely surface. All these, and more, must be addressed.
Bottom line, the last three years have flown by. With exchanges scheduled to open enrollment in the fall, the next nine months will be a blur.
John Scott, CPA, is tax partner at HORNE LLP who has more than 20 years of public accounting experience serving as a tax advisor to corporate, flow-through and individual clients.