Many employers put off making plans to deal with the employer shared responsibility penalty provision of the 2010 health care reform law until after the November elections. With President Obama’s re-election and no real possibility of legislative repeal, procrastinating further would be ill-advised. Employers need to understand now the way the penalty can be triggered in 2014, its potential financial impact for them, and how alternatives to avoid the penalty could affect their businesses.
Beginning in 2014, the health care reform law requires each employer with 50 or more “full-time” equivalent employees to either –
- provide at least a specified minimum level of health coverage that its employees can afford or
- pay a penalty.
If minimum essential coverage is not offered to substantially all full-time employees (and dependents) and at least one full-time employee obtains subsidized exchange coverage, the employer must pay an annualized penalty equal to $2,000 multiplied by the number of full-time employees in excess of 30 full-time employees.
If affordable minimum essential coverage is offered to substantially all full-time employees (and dependents) but at least one full-time employee nevertheless obtains subsidized exchange coverage, the employer must pay an annualized penalty equal to the lesser of –
- $3,000 multiplied by the number of full-time employees who decline employer coverage and receive subsidized exchange coverage, or
- $2,000 multiplied by the total number of full-time employees in excess of 30 full-time employees.
To avoid being blind-sided by unanticipated costs in 2014, employers that have not already done so must strategize now and complete their game-plans early in 2013. Among other things, an employer must know how to determine whether it has the threshold number of full-time equivalent employees, whether it is offering the minimum level of coverage to all full-time employees and dependents, what its projected health plan costs are, how important its health plan is to attracting and retaining employees and meeting other objectives, the cost of various alternative changes necessary to avoid penalties, what “full-time” means and alternative methods for measuring and classifying workers as full-time or not full-time, and how a full-time employee can qualify for subsidized exchange coverage.