The changes brought to the health care regulatory environment by the 2010 passage of the Patient Protection and Affordable Care Act are the most fundamental since the creation and implementation of Medicare and Medicaid in the 1960’s. As such, all parties involved in the delivery of health care services in the U.S. – patients, providers, insurers, and employers – have new rights and responsibilities. The most significant provisions affecting employers which have already begun the phase-in process or which will be implemented beginning January 1, 2015 include:
- Applicable large employers must offer minimum essential health insurance to full-time employees or face a substantial penalty beginning January 1, 2015
- Certain employers are required to implement automatic enrollment procedures for new employees
- Forms W-2 issued by employers must include information on the aggregate cost of applicable employer sponsored health coverage
- A tax credit is available to small employers who purchase health insurance coverage for their employees on the employer contribution towards the coverage
Of these, the requirement that “applicable large employers” offer “minimum essential health insurance” is perhaps the most significant. Generally, applicable large employers are employers who employed at least 50 full-time employees (defined as averaging more than 30 hours of service per week during the year) on business days during the preceding calendar year. Failure to offer “minimum essential coverage” to 95% of “on-going” employees as defined in the law may result in an annual penalty of $2,000 per employee over a thirty-employee threshold, computed on a monthly basis. Complications can arise in computing the number of full time employees, determining whether an employee is an “on-going” employee under the law, and determining what constitutes an “employer” under entity aggregation rules in the Internal Revenue Code.
Employers with over 200 employees are required to automatically enroll new employees in one of the health benefit plans the employer offers as well as provide adequate notice and an opportunity to opt-out of the coverage. Regulations to be issued by the Department of Labor regarding this provision are still forthcoming. The provision will not go into effect until the Regulations are issued; the DOL has stated such regulations will not be issued until after January 1, 2014.
The requirement that employers provide the cost of applicable employer sponsored health coverage was implemented in tax years beginning January 1, 2012 for employers required to file over 250 Forms W-2 in the preceding calendar year. The requirement has been indefinitely delayed for employers required to file less than 250 Forms W-2. Computation of the aggregate cost of applicable employer sponsored health coverage can prove to be somewhat time-consuming as most systems are not currently engineered to generate this information seamlessly. General penalties applicable to the failure to timely file accurate forms W-2 now incorporate this requirement.
A credit against federal income tax is now available for small employers who offer employees a qualified health insurance plan which requires the employer to make non-elective contributions of not less than 50% of the plan premium for each enrolled employee. The credit is up to 35% of the employer paid premium, this amount will increase to 50% for tax years beginning after January 1, 2014. Small employers are employers with less than 25 full-time equivalent employees. The credit incorporates two phase out ranges into its computation. The phase-out ranges are 10 to 25 equivalent full-time employees and average full-time equivalent annual wages of $25,000 to $50,000. For employers operating through the use of pass-through entities, the credit flows through to their individual income tax return. Besides these issues, complexities again arise in determining the number of full-time equivalent employees and as to what constitutes an employer for these purposes under entity aggregation rules in the Internal Revenue Code.
Levin Swedler Kennedy has been planning for these new issues and opportunities as well as handling the associated compliance work for clients since the passage of the Act, allowing employers to focus on their business without being bogged down with reporting and other related compliance headaches.
Written By: Brian Spencer