With the King v. Burwell ruling upholding the validity of tax credits on federal exchanges, the Supreme Court removed one of the last hurdles to full implementation of the Affordable Care Act. Now, large employers – generally defined as 50 full-time equivalent employees or more – must move forward with coverage and reporting requirements in effect for 2015.
David Joffe, a partner with Bradley Arant Boult Cummings and head of the firm’s Employee Benefits and Executive Compensation Group said there really shouldn’t be anything new here because employers should have been planning for the play or pay mandate. However, he continued, a ‘wait and see’ attitude might have left a significant number of employers scrambling to catch up to this year’s requirements.
“Frankly, a lot of employers probably aren’t as far along as they should be for this year keeping track of their full time employees. I suspect towards the end of the year, it’s going to hit,” Joffe said.
“If you are an employer that is required to provide coverage, you’re going to be reporting for 2015 in 2016. This is the first time it happens. There was an optional reporting (for last year), but I don’t know anyone who did that,” he added.
In a brief following the Supreme Court decision in late June, Joffe said the important data points for employers to monitor are:
- Identifying and tracking full-time employees who must be offered coverage under ACA;
- Offering minimum essential coverage that is affordable and provides minimum value to substantially all full-time employees (70 percent in 2015 and 95 percent in 2016 and thereafter) and providing such coverage;
- Continue preparing for required IRS information reporting applicable to employer-sponsored health coverage;
- Continue preparing for the Cadillac Tax, including analyzing whether coverage changes will be required to avoid the tax when it becomes effective in 2018.
The reasons employers are lagging behind in this process are multifactorial. Joffe pointed out the history of the ACA has been a lot of delays so there was probably some wishful thinking involved. Also, vendors are at varying levels of preparedness so it has been difficult for some employers to update software to help keep track of compliance mandates.
“Some people are just waiting to do this at the end of the year like other year-end reports, but this one is a little more difficult to reconstruct what happened throughout the year,” Joffe noted. “If you don’t have a way of tracking how many full-time employees you have and who you are offering coverage to every month, then you’re going to miss somebody; and if you miss somebody, then you have the penalty issue,” he continued, adding those penalties could be quit substantial.
The general rule, Joffe explained, is that if an employer didn’t offer coverage to enough of their employees, they would be subject to a penalty based upon the total number of full-time employees less a pre-set threshold number. This is the A penalty.
The B penalty, he continued, is applied when you offer coverage to the correct percentage of people but didn’t offer it to someone who is a full-time employee and eligible for the subsidy. “If that person goes to the exchange and gets certified for the subsidy, you get penalized,” Joffe said. In this case, the employer is only penalized for the employees in question and the timeframe the company was out of compliance. In 2015, the penalty is $260 per month or $3120 for the year.
While there was a lot of initial talk of employers simply dropping coverage and paying penalties, Joffe said he hasn’t really heard of anyone who plans to do that. “The health insurance is deductible, the penalty is not,” he pointed out. Further, he questioned, “From a competitive standpoint could you really get away with it (dropping coverage)?” And, he continued, there is also a moral obligation many employers feel toward their employees.
The net effect, Joffe said, is that most large employers will continue to provide coverage so they must be prepared to play or pay.
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