Health care reform is now law and many of the so called “insurance market reforms” go into effect for most employers on January 1, 2011. However, the portion of the law that will require certain large employers to offer and contribute to employees’ health insurance or pay a penalty are deferred until 2014.
Under the law, effective January 1, 2014, each Applicable Large Employer must offer minimum essential coverage to its full-time employees (and their dependents) or it will be required to pay a penalty for each month that any of its full-time employees purchases health insurance through a state health insurance exchange (“Exchange”) and receives a tax credit or cost-sharing reduction (generally granted to individuals based on income levels).
An Applicable Large Employer is one that employed an average of at least 50 full-time employees during the preceding calendar year. A full-time employee is one who for any month works an average of at least 30 hours or more each week is counted as one employee and those employees who work less than 30 hours per week are counted as proportionate employees based on 30 hours per week. An Applicable Large Employer will be subject to the penalty only if the employer has any full-time employees who are certified as having purchased health insurance through an Exchange and received a tax credit or cost-sharing reduction.
No minimum essential coverage
If an Applicable Large Employer fails to offer its full-time employees and their dependents the opportunity to enroll in at least minimum essential coverage, the employer must pay a monthly penalty if at least one of its full-time employees enrolls in health insurance coverage purchased through an Exchange and received a premium tax credit or cost-sharing reduction. The penalty is a nondeductible excise tax equal to the number of full-time employees over 30-employees (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by one-twelfth of $2,000 ($166.67).
With minimum essential coverage
An Applicable Large Employer who offers minimum essential coverage but has, nonetheless, at least one full-time employee receiving a premium tax credit or cost-sharing reduction is subject to a different penalty. The penalty is an excise tax that is imposed for each employee who receives a premium tax credit or cost-sharing reduction for health insurance purchased through an Exchange. For each full-time employee receiving a premium tax credit or cost-sharing subsidy through an Exchange for any month, the employer is required to pay an amount equal to one-twelfth of $3,000. The penalty for any month is capped at an amount equal to the number of full-time employees during the month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) in excess of 30, multiplied by one-twelfth of $2,000.
Vouchers relieve penalties
Employers offering minimum essential coverage and paying a portion of the coverage must also provide qualified employees with a voucher that can be applied to the purchase of coverage through an Exchange. Qualified employees would be those employees who do not participate in the employer’s health plan; whose required contribution for employer sponsored minimum essential coverage exceeds 8%, but does not exceed 9.8% of household income; and whose total household income does not exceed 400% of the poverty line for the family. The value of the voucher would be equal to amount of the employer contribution to the employer offered health plan. Employers providing free choice vouchers will not be subject to the two penalties outlined above for employees that receive a voucher.
*This post was written by Timothy J. Snyder, Esq. Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections. His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA. He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.