The United States Supreme Court recently upheld the constitutionality of the Patient Protection and Affordable Care Act.Whilst it focused primarily on whether Congress had authority to require individuals to have health insurance, the decision will also have a significant impact on US employers.
- Requirements already in place: One provision of the Act, already in force, requires employers to provide reasonable breaks to nursing mothers for up to one year following the birth in order to enable them to express milk. Employers must also provide “a place, other than a bathroom, that is shielded from view and free from intrusion from co-workers and the public” for the nursing mother to express milk.
This mandate does not require employers to allow nursing mothers to breastfeed while at work; it only requires them to allow nursing mothers reasonable breaks and a place to express milk. Although the new Act does not require employers to pay employees during such breaks, it should be noted that the Fair Labor Standards Act normally requires employers to compensate employees for breaks of under 20 minutes. Also, if the employer pays employees who take other types of short break it may be prudent for employers to pay nursing mothers to ensure that all employees are treated the same.
Employers with fewer than 50 staff are not required to comply if they can demonstrate that this requirement would cause them significant difficulties or expense.
- Requirements that become effective January 1, 2014: Perhaps the most significant issue for employers is the Act’s requirement that “large employers” offer a medical plan that provides “minimum essential health benefits” to their full-time employees, or pay a tax. A “large employer” is defined as one with 50 or more full-time staff. Therefore, if such an employer fails to provide an appropriate medical plan to all its full-time staff and their dependents, that employer could be subject to a tax. This will be $2,000 if one employee, who is eligible for a tax credit or cost-sharing benefit, purchases coverage through a State sponsored exchange. This tax will be payable in respect of each full-time employee after the first 30, regardless of the number of employees who purchase medical coverage through an exchange. Employers could also be subject to a $3,000 annual tax even if they do have a medical plan if one or more employees receives a tax credit or costsharing benefit by purchasing coverage through a State sponsored exchange. Here, employees could be eligible for a tax credit or cost-sharing benefit if the employer’s plan does not offer sufficient coverage or costs the employee too much money. However, unlike the tax for employers without a plan, employers will only be required to pay the $3,000 tax for those employees who actually purchase coverage through an exchange. 12
- Employers’ choices: Employers subject to these rules have a few options regarding the new requirement to provide medical coverage to full-time employees. First, they may simply comply with the Act’s requirement and provide their full-time employees with a medical plan, ensuring that it provides sufficient coverage in a cost-effective manner. This should prevent them from being required to pay the tax.
Other employers may examine the penalties that could be imposed if they fail and decide that it is simply cheaper to pay the tax. There is however a risk that Congress could increase the penalties if employers start to go down this route too often. Employers should also consider whether their valuable employees or candidates would opt to be employed by competitors who provide health insurance.
Employers may also opt to structure their workforce in ways that will avoid the Act’s “employer mandate,” or at least mitigate its effects. Employers could seek to use categories of workers other than full-time employees in order to conduct their business. They could seek to outsource positions to foreign markets outside the reach of the Act or use the services of part-time workers who are not entitled to be offered health insurance under the Act.
Another option would be to use independent contractors to provide services normally provided by full-time employees. However, before doing so, employers should consider whether that individual is genuinely an independent contractor. Simply designating an individual as an independent contractor will not be sufficient. A true independent contractor will usually have the ability to control the means and manner in which his assigned task is completed and is not completely economically dependent upon the “employer.”
These new reforms contain a number of provisions that will affect the way in which US employers conduct business. Now that the Supreme Court has concluded once and for all that the Act is constitutional, employers should immediately begin developing a plan to implement the proposed changes.