The employee benefits attorneys at Bass, Berry & Sims PLC hope their new free Affordable Care Act webinar series will educate employers and employees about the upcoming health care reform.
In the series, which began last week, they plan to demystify some of the confusion centering on the formation of the new insurance exchanges later this year and explore potential penalties for those that do not participate in the new system.
On Dec. 28, the IRS issued proposed regulations and explanatory Q&As to help clarify some of the many questions employers have heading into the latter part of this year when the first insurance exchanges will be established.
On Jan. 17, the firm’s first webinar session, titled “Play or Pay 101,” looked at topics like the basic penalty structure, transition relief and which employers are subject to the penalties. The second session, on Feb. 7, will be a more in-depth look at the new regulations. And the third and final session, on Feb. 28, will present an action plan for this year.
Under the new mandate, individuals will be required to maintain minimum essential coverage each month or pay a penalty, which will be either the greater of a flat dollar amount per individual or a percentage of the individual’s household income.
“The idea (for the exchanges) is intended to balance adverse selection created by guaranteed issue of insurance for insurers,” said David Thornton, member of Bass, Berry & Sims. “So we have to get everybody covered to balance against the adverse selection. It really remains to be seen whether the penalties are going to be strong enough incentive for the healthy to participate in the exchanges.”
The flat dollar amount per individual will be $95 in 2014, $325 in 2015 and $695 in 2016 (indexed for inflation thereafter) with a cap at 300 percent of the flat dollar amount. For any dependent under age 18, the penalty is half of the flat dollar amount.
An employer’s “play or pay” penalty is triggered only if a full-time employee enrolls in subsidized coverage from an Exchange.
Eligibility will be based on an individual’s household income level, and individuals with household income less than 400 percent of the federal poverty line may be eligible.
“All employers really need to know from looking at their workforce who might be eligible for purposes of accessing the penalty,” Thornton said.
An individual cannot trigger the play or pay penalty if he/she is enrolled in any employer eligible plan or if he/she is eligible for certain other specified coverage, including Medicare Part A and Medicaid.
Bass, Berry & Sims is awaiting more guidance on the definition of “minimum essential coverage” (MEC).
“We have no specific definition on how minimal an employer group plan must be,” Thornton said.
Many larger employers with an average of 50 or more employees will be subject to the play or pay penalty, but there will be a special rule for new employers, an exception for seasonal workers, and some transition relief for 2014.
“Basically no employers are left out,” said Fritz Richter, member of Bass, Berry & Sims. “It applies to all common law employers including government entities, tax-exempt entities, churches and associations and conventions of churches.”
An employee is considered a full-time employee if he/she works an average of at least 30 hours of service per week, or if he/she works 130 hours of service in a calendar month (the monthly equivalent of 30 hours of service per week). Actual hours must be counted for hourly employees.
“The rules look pretty similar to rules from the Department of Labor rules that apply for qualified retirement plans, but there are some differences,” Richter said.
Larger employers will be subject to two types of possible penalties: 1) if they do not offer minimum essential coverage to substantially all of its full-time employees (“No MEC”) or if their offer of MEC is not affordable or does not provide minimum value (“Insufficient MEC”).
“Employees must also have an effective opportunity to decline coverage that is not affordable or does not provide minimum value,” said Lisa Bleed, contract attorney with Bass, Berry & Sims.
Coverage is deemed affordable if the employee’s required contribution for coverage does not exceed 9.5 percent of household income for the year. Coverage must be offered for the employee and all children up to age 26. Offering spousal coverage is not a requirement to avoid the penalty.
Employers should be careful about restructuring simply to avoid the penalties.
“A lot of attention has been given in the media to employers restructuring their workforce to avoid the penalty,” Thornton said. “The final regulations are going to have anti-abuse provisions, and we don’t know how broadly or narrowly those will be drafted.”