On Feb. 12, the Obama administration issued the long-awaited final rules for implementing the employer mandate of the Affordable Care Act. The rules are aimed at making it easier for both large and midsize employers to comply with the law:
- Midsize employers (those with 50 to 99 employees) now have an extra year to meet the mandate. They have until Jan. 1, 2016, to comply, as long as they meet several certification requirements.
- Large employers (those with 100+ employees)—while they still have to meet the previously set Jan. 1, 2015 compliance deadline—are now required to provide coverage to only 70% of their full-time employees for 2015, not 95% as stipulated earlier when the administration issued preliminary ACA employer mandate rules in July 2013.
We talked with Stephanie Vasconcellos, an attorney with Neal, Gerber & Eisenberg who advises corporations on employee benefit issues, to get her take on the ACA employer mandate as it pertains to large and midsize manufacturing companies.
IndustryWeek: You have said that from your viewpoint, most employers are still in the process of figuring out how they're going to apply the ACA employer mandate. Why has this been such a drawn-out process?
Stephanie Vasconcellos: A lot of the reason it's drawn out is because the government has made it drawn out. It took the federal government an incredibly long time to issue proposed regulations. As you'll recall, originally the act was signed into law in March 2010, and it wasn't until last year that proposed regulations came out. And from everyone's perspective who saw them and read them, the regulations were quite complicated, and it was clear that it was going to cost employers a lot of money and a lot of time to figure out how to apply them.
The Treasury delays/eases penalties for insurance coverage -February 19, 2014
In July 2013, the government came out with a delay postponing compliance for everyone until 2015 and indicating that they were going to issue final regulations some time after that. Those final regulations didn't come out until a couple weeks ago [Feb. 12].
So employers have felt like they're playing a waiting game. Every time they start to try to do something, the government issues something new or delays something. And the people I know that spent a lot of time preparing in advance got burned when the delays happened; they had made a large investment, and now it wasn't going to happen for a year. And now, for some of them, it won't happen for two years. People have been hesitant to act when they feel like this could all be postponed or changed at a whim.
IW: What are the key points that manufacturers need to know about applying the ACA employer mandate?
SV: The mandate applies to employers that have 50 or more full-time employees or full-time-equivalent employees. Generally the penalty only applies after the first 30 full-time employees. It's complicated to explain—but you could have an employer that had 30 full-time employees and 1,000 part-time employees, and they wouldn't experience any penalties under the Affordable Care Act, because the mandate says you only need to provide your full-time employees with coverage. So an employer with 50 full-time employees is in a worse spot than one with 30 [full-time employees] plus 1,000 part-time employees.
SV: There are a couple types of penalties. The first is the availability penalty. This would apply if an employer decided not to make any health coverage available to its employees. Assuming the employer is a large employer, if it chooses not to offer coverage to its employees, it would be penalized $2,000 a year for every full-time employee over the first 30 to whom it doesn't offer coverage.
There is another trigger [that must be met] in order for the penalties to apply: At least one of the company's employees has to go to one of the health insurance exchanges or marketplaces and buy coverage, and either be eligible for a premium subsidy or a cost-sharing reduction. If you're one of those employers where none of your employees end up going to purchase coverage in the exchange, then you don't have to pay a penalty at all. But I think it's anticipated—especially as the exchanges and the marketplaces get more stable—that people will buy coverage.
Premium subsidies and cost-sharing reductions are available to people up to 400% of the federal poverty level. So there are certainly a lot of people who are eligible for them.
Then there's a second penalty: Employers that decide to offer coverage can still be penalized if the coverage they offer either doesn't provide minimum value or isn't affordable to the employees. The minimum value [requirement] usually isn't that hard to achieve; something like 99% of all health plans offered will be considered to have met the minimum value.
But the affordability requirement [mandates] that the plan has to come in at less than 9.5% of the employee's household income. To the extent that the plan is not affordable for any single employee (or that it doesn't provide minimum value), if that employee goes and enrolls in an exchange, the employer would be penalized $3,000 a year for that individual.
You would expect the affordability penalty to be lower [than the availability penalty], because, say you're providing coverage and it's just a handful of your lower-income employees for whom it's not affordable: You'd only get penalized for those five or six employees. Whereas the availability penalty would be applied on a companywide basis.
IW: What, in a nutshell, is the look-back method?
SV: If you read the law strictly, you would think that you'd have to be making these calculations about who [qualifies as] a full-time employee every month, and then offering them coverage, and then checking again the next month—which obviously would be untenable for any company with more than a few employees.
So the regulations put in place a look-back method that allows an employer to use what's called a measurement period over which they can look to see whether an employee qualifies as a full-time employee. And if they do [qualify], then the employer can offer them coverage for a specific period of time.
What a lot of people are doing is, say for example you were looking at coverage for the year 2015: You would look at the hours an employee worked from mid-October 2013 to mid-October 2014; and if they were full-time during that period, you would then use that October-November-December period to offer them coverage, to get them signed up through their open-enrollment forms, and then their coverage would be effective for the 2015 calendar year.
So you'll have measurement periods happening every 12 months. One runs right into the next. It's somewhat complicated, but it's much less complicated than having to look at it on a going-forward basis every month. This is intended to provide both employers and employees with some stability in knowing whether or not they'll be eligible for health insurance.
Why Compliance Is Easier
IW: Are there any other major impacts of the final rule issued Feb. 12 that manufacturers should know about?
SV: For midsize manufacturers—the ones that have between 50 and 100 full-time employees and full-time equivalents—they have an extra year to comply, but they definitely shouldn't be thinking that now they can just sit back and wait another year. This is going to take some upfront investment, figuring out how to do the measurements, getting your insurance in place, and making sure it covers dependents, which is one of the requirements of the Affordable Care Act. It's a blessing to be able to have more time to start figuring it out, but I don't think this is going to be delayed again, and I don't anticipate that we're going to get another set of regulations on this. So now is really the time for those midsize employers to start putting it into place.
The key thing for larger employers is that they weakened the penalties a little bit. The availability penalty I mentioned earlier normally applied if you offered fewer than 95% of your full-time employees coverage; but now, for the first year, they've dropped that to 70%. That only applies for 2015—it will go back up to the 95% standard in 2016. This is intended to give employers time to figure out how to do the look-back measurement, how to do their counting appropriately, and not to penalize companies that are getting it mostly right and still working the kinks out.
IW: What are some key actions manufacturing companies can take now to help them avoid future litigation related to the ACA?
SV: Employee communication is key. If an employer decides that they're not going to offer health coverage, that they'd rather take the penalty, it's worth being upfront with your employees so they have time to go and get their coverage in the health insurance marketplace—because that's not something where if you go and sign up, you'll have coverage immediately. There can be up to a month and a half delay before you get it. So that's important for employees to know.
And for other employees, it's important to communicate how the health plan is changing and what they'll be eligible for.
The other thing [manufacturers should be doing] is working on implementing the systems they need to count hours, so that if the federal government ever comes and says, "You didn't provide coverage consistent with the law," you can say, "Look—here's what we did, here's how it worked." I think there's going to be some understanding that this is still a learning process for everyone, so the more documentation you have showing how and why somebody was or was not offered health insurance, the better off you'll be.