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[IWS] CRS: Potential Employer Penalties Under the Patient Protection and Affordable Care Act (ACA) [22 July 2013]

IWS Documented News Service

_______________________________

Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

________________________________________________________________________

 

Congressional Research Service (CRS)

 

Potential Employer Penalties Under the Patient Protection and Affordable Care Act (ACA)

Janemarie Mulvey, Specialist in Health Care Financing

July 22, 2013

http://www.fas.org/sgp/crs/misc/R41159.pdf

[full-text, 18 pages]

 

Summary

On Tuesday July 2, 2013, the Obama Administration posted a blog on employer requirements and

the Patient Protection and Affordable Care Act (ACA, P.L. 111-148), as amended. Based on the

White House blog, the administration (1) plans to revamp employer reporting requirements, and

therefore suspend employer reporting requirements for 2014, and (2) because employer payments

are dependent on the reporting requirements, no payments will be collected in 2014. The

Administration noted that these changes were in response to employers’ concerns about the

reporting requirement.

 

On July 17, 2013, H.R. 2667, the Authority for Mandate Delay Act, passed the House. H.R. 2667

would delay by one year the applicable effective date for the employer requirements, employer

penalties, and related reporting requirements specified under ACA.

 

This report provides information on the statutory requirements and the proposed regulations

issued to implement these statutory requirements in December 2012. This report does not yet

reflect the proposed Administration changes. The report will be fully updated once additional

information becomes available.

 

The White House blog posting is available at
http://www.whitehouse.gov/blog/2013/07/02/we-re-listening-businesses-about-health-care-law

 

The ACA increases access to health insurance coverage, expands federal private health insurance

market requirements, and requires the creation of health insurance exchanges to provide

individuals and small employers with access to insurance. To ensure that employers continue to

provide some degree of coverage, the ACA includes a “shared responsibility” provision. This

provision does not explicitly mandate that an employer offer employees health insurance;

however, the ACA imposes penalties on “large” employers if at least one of their full-time

employees obtains a premium credit through the newly established exchange. According to the

Congressional Budget Office (CBO), employers are projected to pay $130 billion in penalty

payments over a 10-year period.

 

The ACA sets out a two-part calculation for determining, first, which firms are subject to the

penalty (e.g., definition of large), and, second, to which workers within a firm the penalty is

applied. Because the treatment of part-time and seasonal workers differs across these two parts of

the calculation, this has led to some confusion among policymakers and employers. For example,

part-time employees are included in what is termed a full-time equivalent calculation to

determine if an employer has at least 50 full-time equivalent employees (FTEs) and is thus

considered large for purposes of applying the penalty. However, the actual penalty, if applicable,

is levied only on full-time workers (those working at least 30 hours a week on average). This

report discusses these definitions and the application to the employer penalty in greater detail.

 

The potential employer penalty applies to all common law employers, including an employer that

is a government entity (such as federal, state, local, or Indian Tribal government entities) and an

employer that is a nonprofit organization that is exempt from federal income taxes. If a franchise

is owned by one individual or entity, employees in each of the franchises must be aggregated to

determine the number of both full-time equivalent and full-time employees.

 

The actual amount of the penalty varies depending on whether an employer currently offers

insurance coverage or not. In order for employers who do provide health insurance coverage to

avoid paying a penalty, health insurance coverage that is both affordable and adequate must be

offered to the employee. Coverage is considered affordable if the employee’s required

contribution to the plan does not exceed 9.5% of the employee’s household income for the taxable

year. However, IRS has provided a safe harbor for employers to use the employee’s W-2 income

for this calculation (since most employers do not readily have information on an employee’s

household income). A health plan is considered to provide adequate coverage if the plan’s

actuarial value (i.e., the share of the total allowed costs that the plan is expected to cover) is at

least 60%. This report provides greater detail on these requirements.

 

The total penalty for any applicable large employer is based on its number of full-time

employees. The ACA specified that working 30 hours or more a week is considered full-time.

However, the statute did not specify what time period (i.e., monthly or annually) employers

would use to determine if a worker is full-time. To address this issue, the Secretary of Health and

Human Services (HHS) and the Secretary of Labor have published proposed regulations to

provide guidance for employers to use to determine which employees are considered full-time

employees for purposes of administering the ACA employer penalty provision. The proposed

regulations provide employers some flexibility to designate certain measurement or look-back

periods (up to 12 months) during which they will calculate whether a worker is full-time or not.

Once an employee is determined to be full-time, there will then be an administrative period to

enroll employees in a health plan, if necessary. If an employer penalty is levied under the ACA

requirements, it applies only for the time period following the administrative period, which is

called the stability period. Employers are not penalized if an employee enters the exchange and

receives a premium credit during the measurement period. In addition, because of this latest

guidance, it is unlikely that employers will pay a penalty for seasonal workers who do not work at

least 30 hours, on average over a pre-specified time period (up to 12-months). This report

describes these proposed regulations in greater detail and provides examples of potential dates

when employers will need to begin measuring full-time status for their on-going employees.

 

Contents

Employer Penalty Calculation ......................................................................................................... 1

Employers Subject to the Potential Penalty ............................................................................... 1

Potential Tax Penalties on Large Employers ............................................................................. 3

Penalty for Large Employers Not Offering Coverage ......................................................... 3

Penalty for Large Employers Offering Coverage ................................................................ 4

Implementation Issues ..................................................................................................................... 5

Definition of Employer .............................................................................................................. 5

Definition of Seasonal Workers ................................................................................................. 6

Definition of Variable Hour Employees .................................................................................... 7

Methodology to Determine Full-Time Status ............................................................................ 7

On-Going Employees .......................................................................................................... 7

New Employees Reasonably Expected to Work Full-Time ................................................ 9

Variable Hour and Seasonal Employees .............................................................................. 9

Effective Dates for Employer Penalty ..................................................................................... 10

Coverage Requirements for Employers ................................................................................... 11

Definition of Dependent Coverage.................................................................................... 11

Definition of “Affordable” Coverage ................................................................................ 12

Definition of Adequate Coverage ...................................................................................... 13

Reporting and Other Requirements ......................................................................................... 13

 

Figures

Figure 1. Determining If an Employer Will Pay a Penalty .............................................................. 5

Figure 2. Determining Full-Time Employees ................................................................................ 10

 

Tables

Table 1. Determination and Potential Application of Employer Penalty for Categories of Employees ........................... 3

Table 2. Time Frame for Determining Full-Time Status .................................................................. 8

Table 3. Examples of Start and End Dates During Transition Period ............................................ 11

 

Contacts

Author Contact Information........................................................................................................... 14

Acknowledgments ......................................................................................................................... 14

 

 

________________________________________________________________________

This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

 




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