On June 25, 2015, the Supreme Court of the United States issued a ruling related to the Patient Protection and Affordable Care Act (the "Act") in the case of King v Burwell. The issue that the Court addressed was whether tax credits were available to individuals who purchased health insurance coverage through a Health Insurance Exchange ("Exchange") that was established by the Federal government.
An Exchange serves as a marketplace where individuals can compare various health insurance plans and ultimately purchase health insurance coverage. The Act requires an Exchange to be established in each State. If a State fails to establish its own Exchange, the Federal government is required to step in and establish the Exchange for that State. The Court's decision had the potential to preclude tax credits for individuals purchasing insurance through the Federal Exchanges in 34 States, including Michigan.
This issue was of significant importance because of its implications for the Act's Employer Mandate, which generally requires large employers to offer health insurance coverage to their full-time employees. The tax credits provided under the Act serve as the lynchpin for liability under the Employer Mandate. Despite the fact that a large employer may fail to offer health insurance coverage to its full-time employees, it will not be penalized if those employees do not obtain coverage through the Exchange and receive a tax credit. Therefore, large employers located in States that have a Federal Exchange could arguably avoid penalties for their failure to offer coverage to their full-time employees; such employees would not receive a tax credit when purchasing health insurance coverage on the Exchange and would not trigger the penalty.
In its ruling, however, the Court held that tax credits were available in all States, including those that have a Federally-established Exchange. As a result, large employers must continue to plan for the enforcement of the Act's Employer Mandate. Such plans should include the responsibilities that are noted below.
- Determining the number of full-time equivalent employees.
- Identifying full-time, part-time, variable hour and seasonal employees.
- Reviewing human resources policies concerning employee classifications.
- Implementing measurement and stability periods to track the average hours worked by employees.
- Shopping for affordable health insurance coverage for employees.
- Coordinating the effective dates of health insurance coverage.
- Calculating potential penalties.
- Developing systems and procedures to document the hours worked by employees.
- Continuing to disclose required notices to employees.
- Preparing for government reporting obligations.
The effective date of the Act's Employer Mandate for employers with 100+ full-time equivalent employees was January 1, 2015. The effective date for employers with 50+ full-time equivalent employees is January 1, 2016. It is not too late to take action now to plan and prepare for the Employer Mandate's enforcement. Please contact Mindi Johnson or Lauren Dunn to further discuss the options available to your company.