From an employer’s perspective, this is most likely the most feared aspect of Health Care Reform. In fact, the overwhelming majority of our Health Care Reform-related questions to date in 2013 have covered this topic. So the purpose of this article is to answer some of our most commonly asked questions surrounding the Employer Mandate in very clear terms.
The “Employer Mandate” is the provision in the Patient Protection and Affordable Care Act (PPACA) that requires “large” employers to provide health insurance to their full-time employees (those working 30 or more hours per week) or face a penalty. A “large” employer is defined as one that has an average of 50 or more “full time equivalent” employees on business days during the preceding calendar year. To calculate whether your organization is covered by the employer mandate, you must look at the twelve months of the preceding calendar year to determine the average number of full-time equivalents you employed over those months. Part time employees are considered fractions of full time employees for the purpose of the employer mandate calculation. Lastly, seasonal workers are excluded unless they work for the employer for more than 120 days.
The formula for determining full time equivalent employees is:
Part-time Employee Equivalents (Total Monthly Part-Time Hours/120) + Full-time Employees (30 hours/week or more) – Owners (Sole proprietors, Partners in a Partnership, Members of LLCs Taxed as a Partnership, and Shareholders who own two percent or more in an S Corporation) = Full Time Equivalent Employees.
Should you determine that your organization will average less than 50 full-time equivalent employees in 2013 (using the above calculation), you are not required to offer health insurance to employees in 2014, and, if you do offer health insurance, the federal law does not require that you offer any minimum employer contribution amount. It is important to note, however, that your state law or your insurance carrier may have minimum employer contribution requirements in order to participate in group health plans, but these are unrelated to the federal Health Care Reform laws.
Should you determine that your organization will average at least 50 full-time equivalent employees in 2013 (using the above calculation), you will be required to offer “minimum essential health insurance coverage” at an “affordable rate” to all full time employees (those working at least 30 hours per week) in 2014. While part time employees are included fractionally in the calculation, the federal law does not require the employer to offer health coverage to part-time employees. So what is “minimum essential coverage?” And what is an “affordable rate?”
“Minimum essential coverage” refers exclusively to the health insurance plan design, not how much the employer contributes to the plan. In order to offer minimum essential coverage under the federal law, the health insurance carrier must pay for at least 60% of treatment costs, commonly referred to as a health plan with a 60% actuarial minimum value. In the coming months, you will probably hear this level of plan referred to as a “bronze level” plan.
On the other hand, “affordable” coverage has everything to do with how much the employer contributes to the plan. It is a common misconception that a large employer is required to contribute a specific percentage to each employee’s health insurance plan (such as 50%, 60% or 75%). Rather, the federal law requires that the company contribute enough so that the employee’s portion of the premium for employee-only coverage of the bronze level or richer plan is no more 9.5% of the employee’s total household income. Since employers generally do not know an employee’s total household income, there is a safe harbor in place for 2014 stating that employees have access to “affordable coverage” as long as the employee’s portion of the premium for single coverage for the bronze level plan is equal to or less than 9.5% of the employee’s W-2 wages.
It is certainly time to calculate your organization’s projected full time equivalent employees in 2013 to determine if your business will be subject to the employer mandate in 2014. Remember, your Health Insurance Broker is a great resource for your questions in this regard.