Foster Swift Employment, Labor & Benefits Quarterly
As employers work to evaluate the impact of the Patient Protection and Affordable Care Act ("PPACA") on their workers, insurance needs and balance sheet, many are wondering if and when the PPACA will apply to them. The good news is that penalties for failing to offer sufficient insurance coverage options will not be imposed until 2014. The bad news is that the calculation of whether an employer may be subject to penalties, requires more than one level of analysis and calculation. For companies whose workforce levels vary over time, it will take some on-going monitoring to ensure proper compliance.
PPACA Threshold for Coverage
Under the PPACA, employers with at least 50 full-time equivalent employees will be labeled as "large" employers. They will face penalties, beginning in 2014, if one or more of their full-time employees obtains insurance through a health care Exchange and qualifies either for a premium credit or a cost share reduction.
- A "large employer" is defined as one with more than 50 full-time equivalent employees during the preceding calendar year.
- Both full-time and part-time employees are included in the calculation;
- "Full-time" employees are defined as those working 30 or more hours per week;
- "Full-time" excludes seasonal employees who work less than 120 days during the year;
- Part-time employees’ hours as a group are included in the calculation also. Hours worked by part-time employees (those working less than 30 hours per week) are included by, on a monthly basis, dividing their total number of monthly hours worked by 120.
- for example, a firm with 35 full-time employees (30+ hours), also has 20 part-time employees who all work 24 hours per week (so each employee who works 24 hours per week, works a total of 96 hours per month).
- These part-time employees’ hours would be counted as the equivalent of having 16 full-time employees, as follows:
20 employees x 96 hours per month per employee /120
= the equivalent of 16 "full-time" (30+ hours a week) employees.
How Penalties Apply and are Calculated
Regardless of whether a large employer offers coverage, it will only be potentially liable for a penalty beginning in 2014 if at least one of its full-time employees obtains coverage through a health care Exchange and qualifies for either a premium credit or a cost share reduction. To qualify for premium credits in an Exchange, the employee must meet certain eligibility requirements, including that the employee’s required contribution for self-only health coverage (through the employer) exceeds 9.5% of the employee’s household income, or if the plan offered by the employer pays for less than 60% of covered expenses.
In sum, part-time employees and their hours worked count toward the 50 full-time employee threshold, but if they obtain health insurance through an Exchange, that won’t trigger a penalty against their employer. If an employer does not offer insurance, but a full-time employee obtains insurance through a health care Exchange, the penalty calculation against the employer is $2,000 per year multiplied by the number of full-time employees, excluding the first 30.
If an employer offers insurance, but full-time employees enter the Exchange, the penalty is the lesser of (1) $3,000 annually for each employee entering the Exchange, or (2) the penalty calculated for employers not offering insurance at all ($2,000 per year x the number of full-time employees, excluding the first 30).
This is just a brief overview of this very complex issue, and does not address all factors involved in the calculation of the "large" employer threshold or the possible imposition of penalties.
Please direct any questions to a member of Foster, Swift’s Employment, Labor and Benefits group.