Like many, I was initially relieved when I read the July 2, 2013, announcement by the U.S. Treasury Department, effectively providing "large" employers with up to an additional year (to 2015) to comply with the ACA's Employer Mandate requirement before they must face the threat of tax penalties. Many employers had expressed substantial concern, and some had even expressed dismay, over their ability to satisfy those new rules by the original 2014 effective date.
I then recalled a conversation I had with, ironically, the owner of a Florida-based third party administrator (TPA) back in 1992. Our conversation took place three days after Hurricane Andrew (the now-legendary Category 5 storm) had devastated the southern part of Florida, all but wiping out the city of Homestead. The owner's business had been spared, but he faced a different problem: as many as 35-40 percent of his employees were either homeless or missing. To his credit, the owner was calling about how best to provide shelter, funding and relief for those employees left homeless by the storm and how to provide for dependents of those who could not be found. But, he also called because he had a business problem: the TPA could not operate without its staff, and he expected the TPA would not be able to satisfy its many contractual commitments and statutory obligations.
That is similar to a key problem all employers face today in the context of what is commonly called Health Care Reform: they won't have to face the ACA music in 2014, but their employees and family members will. So, how much does the enforcement delay really change things? Surprisingly, it may turn out that things may just be different. Employing organizations are likely to face different -- and more subtle -- challenges because their employees and non-employee workers will still be motivated (some, highly motivated) to seek out and acquire health insurance coverage in 2014. And that fun starts in only eight weeks when the new health insurance exchanges (now called Health Insurance Marketplaces, or just Marketplaces) begin taking applications from those individuals who want or need to buy individual coverage for 2014.
Employee Problems Beget Employer Problems
In the article, "Now for Everything Else," my partner, Jenny Mills, points out that many of the new ACA requirements employers are scheduled to face on January 1, 2014, have not been postponed despite the announced enforcement delay of the Employer Mandate. Her article should be required reading because all employers will soon have a shared experience: beginning October 1, 2013, tens of millions of individuals -- many of them someone's employee -- will be prompted and prodded (perhaps, even shamed and scared) into seeking individual health insurance coverage for themselves and their families through one of the new Marketplaces. Indeed, to quote a phrase, it is much too soon to "get out the party hats."
The focal point of my article draws inspiration from my "Hurricane Andrew" story: it looks (briefly) at how the oncoming ACA changes will directly affect individual employees and non-employee workers starting October 1, 2013, and how those changes will indirectly affect those for whom they work. Why? Because the ACA in 2014 will substantially alter the health insurance landscape just as much as Hurricane Andrew altered the Southern Florida landscape in 1992. Because all other stakeholders must deal directly with the ACA in 2014, no organization that depends on employees and non-employee workers to function will have the luxury of simply taking a year off and revisiting the ACA sometime next summer when it comes time to figure out what to do for 2015.
Things to Consider
Accordingly, and in no particular order, I offer just a handful of ACA issues and events which individuals will have to address as soon as October 2013 and which seem likely to create issues (and problems) for the organizations that employ those individuals or otherwise use their personal services:
- Whether the individual knows who his or her "employer" is, when applying for individual policy coverage through a Marketplace. For "traditional" employees, this one is easy: they simply identify their employer and provide information to the marketplace about whether that employer provides (or at least offers) them health insurance coverage on an affordable basis. But that won't help all those other individuals who either don't know if they have an "employer" (e.g., because they technically are partners, are self-employed, etc.), or don't know who their "employer" is because they are paid by one company but provide services to another (e.g., employees involved with a leasing company, "PEO," staffing agency, etc.). For many individuals, it will be a trick question and many of them will get it wrong.
The reality here is that the ACA defines "employee" using at least three different standards:
- the federal income tax laws, which are being used to define an "employee" for the Employer Mandate and other penalty tax purposes;
- the federal wage-and-hour laws (known as the Fair Labor Standards Act, or FLSA), which are being used to define an "employee" for the Marketplace notice, employer retaliation and automatic enrollment purposes; and
- the Public Health Service Act (PHSA) (and, indirectly, the Employee Retirement Income Security Act (ERISA) for private sector employers and state law for public sector employers), which is using a hybrid definition to identify who qualifies as an "employee" for Marketplace and coverage purposes. (Notably, for private sector employers, the definition of "employee" is determined by reference to who can qualify as a "participant" for ERISA purposes. Thus, a partner in a partnership covered by an ERISA-regulated group health plan that also covers common law employees of the partnership is considered a "participant" in that plan who is receiving employer-provided coverage, even though the partner would not count as an "employee" for purposes of the Employer Mandate and several other ACA requirements.)
While an oversimplification, the above standards can be synthesized into the following two principles:
- Any individual who has health insurance coverage and gets that coverage from an organization that has common law employees likely is getting "employer-provided" coverage, even if that individual is not a common law employee. (There are some exceptions, but they are few in number.)
- An individual who merely is eligible for coverage, or who, in any event, is not enrolled in such coverage, must look at his or her status under the PHSA (and, as relevant, under ERISA or state law) to know whether he or she even has an "employer," much less whether the coverage being offered at work constitutes "employer-provided" coverage.
- Delayed ACA compliance by some employers and aggressive ACA compliance by other employers will create enrollment and coverage problems for many of their employees. Due to the delayed enforcement of the Employer Mandate, some employers that would have offered affordable coverage to all their full-time employees (and their dependents) are likely to just postpone things until 2015. Other employers may press forward with their current strategy, which often consists of offering affordable coverage to full-time employees -- but no one else -- since the proposed Employer Mandate regulations generally permit employers to delay until 2015 the obligation to offer coverage to full-time employees' dependents. Many restaurants, hotels, salons, grocery and convenience store operators and general retailers fall into this category. In contrast, virtually all employees will face "individual mandate" penalties if they fail to obtain coverage, starting January 1, 2014. Of equal importance, the "individual mandate" tax penalty applies to the entire family starting in 2014: an individual with dependent children faces a penalty tax by failing to obtain coverage for those children, even if the individual gets coverage for himself. (See the article, "Stand Up and Be Counted," in which my partner, Georgeann Peters, highlights the key rules for identifying full-time employees under the Employer Mandate.)
An example illustrates the problems that can and will arise, particularly in 2014. If an employer offers its full-time employees affordable, self-only coverage, but does not offer dependent coverage, the employer creates a dilemma for that employee. The employee who accepts the coverage for himself must choose between incurring a tax penalty for failing to cover his children and buying coverage for them through the Marketplace on a completely unsubsidized basis. Conversely, the employee who turns down such an affordable coverage offer may be able to purchase taxpayer-subsidized coverage for his children -- just not for himself -- which could substantially lessen the tax penalties and the employee's overall economic burden.
An employee offered affordable coverage in 2014 faces an even stranger choice if his dependents are eligible for employer-provided coverage (just at a price the employee cannot afford). The only way an employee can get taxpayer-subsidized coverage for those dependents would be to, in effect, disavow them by no longer claiming them as dependents on the employee's income tax return. An employee with a chronically ill or disabled child, confronted with these sorts of Hobson's choices, is not likely to respond favorably to it.
- Some 2014 transition rules are likely to dissipate by January 1, 2015. Several ACA regulations contain transition rules that are designed to provide employers (and related third parties, like Taft-Hartley funds) additional time to put in place all the personnel, hours-tracking and information reporting systems needed to comply with the Employer Mandate. Specifically, the proposed Employer Mandate tax rules provide relief for fiscal year plans, employee staffing companies and employers that contribute to Taft-Hartley funds, to name a few. The one-year enforcement delay renders much of this transitional relief unnecessary -- but not all. Employers need to go back and revise their thinking and re-set their deadlines.
- The Marketplace open enrollment period this year will last six months, adding up to six months of confusion. Many employers do not realize that the Marketplaces will have an extended sign-up period this coming year -- from October 1, 2013, through March 31, 2014 -- and individuals will be able to enroll at any time during that period without needing an excuse (e.g., loss of eligibility, change in family status, etc.). Particularly for those employers that wait until 2015 to make major changes in coverage, this expanded enrollment period could set off a wave of comparison shopping as individuals consider all their costs and coverage options, both for themselves as well as for their spouses and dependents. For employers with calendar year plans, the first Marketplace open enrollment period is likely to open weeks before -- and close several months after -- the enrollment period for the employer's own plan. During this period, it will be increasingly important for employers to avoid miscommunications and to avoid being drawn into providing tax, coverage or other type(s) of advice about the coverage choices being made available to employees. For example, an employer that misinforms an employee as to the coverage the employer will be offering, or the employee's eligibility for coverage, could cost the employee thousands of dollars in foregone taxpayer subsidies, mistakenly-provided taxpayer subsidies (which could be recouped) or lost employer subsidies. The entire process could be a litigation-breeder for employers who aren't careful.
- The Marketplace open enrollment period this year also could be a source of mischief. Many employers also don't realize that if an employed individual applies for taxpayer-subsidized health insurance through a Marketplace, the individual will be required to declare that his or her employer is not offering affordable coverage that provides minimum value. (NOTE: An employer's offer of coverage has to be both affordable and provide minimum value to render the individual to whom the coverage is offered ineligible for taxpayer-subsidized coverage.) In those instances where the employed individual's declaration cannot be verified through existing database information (including, for example, the W-2 coverage information many employers were required to provide to the IRS and to their employees starting in 2012), Marketplace administrators will be required to contact the employer to see if the coverage declaration can be verified or will be challenged. Some employers may be peppered with Marketplace requests from several different Marketplaces (depending on where their employees reside and who seeks such coverage). Employers will need to watch how they respond and react to such requests. An employer that responds inaccurately could be accused of negligently depriving the employee of the opportunity for tax subsidies worth thousands of dollars. An employer that discharges or disciplines an employee shortly after being contacted by a Marketplace administrator in respect of that employee could leave itself open to a charge of unlawful retaliation.
- Employees eligible for coverage under a fiscal year health plan will have more opportunities to shop and switch coverage, which will present special challenges for the employers that maintain such plans and for the Marketplaces that have to deal with such individuals. Employees offered coverage by an employer with a contributory calendar year health plan will face new, more complicated choices this year: whether to enroll in the employer-provided coverage this autumn or turn down that coverage offer and instead purchase individual coverage (if at all) through one of the new Marketplaces at approximately the same time. Employees of employers with fiscal year plans, though, will find themselves in an enviable position: they will have more flexibility because they will get two open enrollment periods each year: the one the Marketplace provides and the one the employer provides. Neither the employer nor the marketplace will be able to deny coverage or impose any pre-existing condition limitation rule starting January 1, 2014. Any individual with the ability to enroll at two separate times during the year, without precondition and without having to satisfy any sort of "special enrollment" requirements, is in a much better position to simply wait to purchase coverage until the individual needs it, particularly since the individual mandate tax penalty contains an exemption for coverage lapses of up to three consecutive months.
No [Employer] Is an Island
The above items constitute just a few of the complications likely to surface in the next 12 to 18 months as individuals and those that employ them or utilize their services come to grips with the new Marketplaces and all the new rules that they will bring, including the promise of taxpayer subsidies for millions of individuals and expanded access to a variety of different types of coverage (including access to widely divergent provider networks and provider organizations).
While so-called "large" employers certainly have been provided additional time due to the Employer Mandate delay to get their plans and systems in order, it certainly does not mean they can sit on the sidelines. All of their employees, indeed, all of their workers, whether or not they acknowledge them as employees for one purpose or another, will be facing a Brave New World of coverage decisions starting October 1. At least some of them will be profoundly affected by all of those new choices. Anything that affects all of an employer's employees inevitably will affect the employer. Why? Simple: a hurricane by any other name remains a hurricane.