Janemarie Mulvey
Specialist in Health Care Financing
The
Patient Protection and Affordable Care Act (ACA, P.L. 111-148), as amended,
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, ACA includes a “shared responsibility” provision. This provision does
not explicitly mandate that an employer offer employees health insurance;
however, ACA imposes penalties on “large” employers if at least one of
their full-time employees obtains a premium credit through the newly
established exchange. Employers are not subject to a penalty if their fulltime workers
are eligible for Medicaid or CHIP. According to the Congressional Budget Office (CBO),
employers are projected to pay $130 billion in penalty payments over a 10-year
period.
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. 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.
Date of Report: March 6, 2013
Number of Pages: 18
Order Number: R41159
Price: $29.95
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R41159.pdf
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