Pay or Play? Reasons Why “Pay” is NOT the Easy Answer

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“Pay or Play” Employer Mandate and Penalties (brief summary)

Under the “Shared Responsibility of the Affordable Care Act (“ACA”), beginning January 1, 2015 employers with 100 or more full-time equivalent (“FTE”) working 30 hours or more per week (including the hours of the part-time workers added together to equal full-time equivalent workers) will be required to offer “affordable” health insurance coverage and must meet the minimum value, or they will face a penalty. Beginning January 1, 2016, employers with 50 or more FTE will be required to offer “affordable” health insurance coverage meeting the minimum value to their eligible employees, or they will be required to pay the penalty.

Large employers who do not offer coverage to their FTEs face a penalty of $2,000 time the total number of full-time employees, less the applicable exempt employees specified by law.

In addition, large employers who offer coverage to their full-time employees, but do not make the lowest cost plan “affordable” for the employee only premium or does not provide minimum value will face a penalty of $3,000 times the number of full-time employees receiving tax credits for exchange coverage (not to exceed $2,000 times the total number of full-time employees).  This is merely a brief summary of some of the employer’s penalties under the Shared Responsibility provision of the Affordable Care Act, and does not include all penalties and provisions.

 

Some Considerations for Employers

Some employers, who currently offer benefits, have considered eliminating the health care coverage altogether and instead paying the penalty on their full-time employees.  However, there are many reasons an employer should carefully consider all of their options before eliminating their group health care coverage.

Listed below are a few highlights for employers to consider in their final decision-making process.  If an employer should eliminate health care, the following would apply:

  1. Lost tax advantages for the Employer and Employee, as employee’s portion of the premiums will no longer be deducted through payroll with pre-taxed dollars with a Section 125 Premium Only Plan.
  2. Employer will pay the penalty for not offering coverage and the penalty is non-deductible, whereas employer-paid premiums are tax deductible as a business expense.
  3. Penalties will increase in subsequent years.
  4. Employer will still have the annual reporting requirements under Section 6056, regardless if they offer coverage or not.  There are additional penalties for non-compliance with the reporting requirements.
  5. Employer may face recruitment and retention challenges if they opt not to offer coverage.
  6. Other financial implications for Employers (i.e. how it may affect their Workers’ Compensation, payroll taxes, corporate bottom line, etc.).
  7. Individuals will have to purchase insurance on their own with AFTER tax dollars, or face an individual tax penalty.
  8. In most cases, employer group plans have a different and more comprehensive list of participating providers, than that of Individual plans.
  9. In most cases, employer group health plans provide a more comprehensive list of covered prescriptions.

 

As you can see, there are many things an employer needs to consider while evaluating the “Pay or Play” Employer Mandate.  The above-list are some considerations and not limited to such.

If you would like to further discuss the “Pay or Play” employer mandate, penalties, and how it affects your company, please contact MNJ Insurance Solutions at (714) 716-4303.

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

The PACE Act and What it Means to California Employers: October 2015

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President Obama has signed into law the Protecting Affordable Coverage for Employees (PACE) Act.  On September 28, 2015, the House of Representatives passed H.R. 1624 through voice vote and on October 1, the Senate passed the legislation through unanimous consent.

 

How Will PACE Act Affect the Affordable Care Act (ACA)?

Small group is currently defined as employers with 2-50 employees.  As of January 1, 2016 under the ACA, the definition of small group was set to expand 1-100 employees.  The PACE Act repeals the mandated small group expansion and it gives the individual states the flexibility to determine the small group market definition, rather than being forced to the national standard.

Several states, including California, have already enacted legislation that expands the small group market definition to 100 employees.  However, for those states that have not taken any action to date regarding the definition of small group, we are awaiting confirmation form the departments of insurance and legislators as to whether the states will accept the new federal standards or if they will take action of their own to expand the small group market definition of up to 100.

 

How Does PACE Affects the California Employer?

Unless further guidance is issued by California, we are moving forward with the small group expansion for employers with 1-100 employees with new business or renewals beginning January 1, 2016.  For employers who have 51-100 employees, there will be significant changes in their benefits, rating, and administrative process.  The most significant changes will be as follows:

  •  Rates in small group are age-banded, whereas large group premium rates are composite rates.  In age-banded rates, older employees pay a higher premium than younger employees.
  • ACA rates in small group are “member-level” rating (also known as “community rating”), whereas large group premium rates have a family rate for the plan, regardless of number of dependents.  With member-level rating in small group, larger families will pay a significantly higher premium as they are individual rated (some limits apply).
  • Small group plans are required to cover the 10 Essential Health Benefits, including pediatric dental and vision.
  • Small group plans are required to meet specified actuarial values +/- 2 percent (60%, 70%, 80%, or 90%, also referred to as the metal tiers), whereas large group plans can provide any actuarial value as long as they meet the minimum value of 60% requirement.

 

Action Items for Employers with 51-100 Employees:

  • Evaluate your plan  options in 2015.
  • Consider an Early Renewal option.
  • Market alternative carriers for 11/1 or 12/1/15 effective dates or extended renewal periods.
  • Compare current composite rates to age-banded, member-level rates in 2015 to see how the new rating will impact your company.
  • If you are an employer with 50 or more full-time equivalent and do not currently have coverage, evaluate your plan with a 2015 effective date versus age-banded rates in small group.

 

Please contact MNJ Insurance Solutions at (714) 716-4303 for more information.

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

Reporting Requirements for Applicable Large Employers: Section 6055 and 6056

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The Affordable Care Act added Section 6055 and 6056 which requires Applicable Large Employers (ALEs) to file returns with the IRS and provide statements to their full-time employees regarding the health insurance coverage offered by the employer.  For calendar year 2015, ALE must file the Section 6055 and 6056 returns on or before February 29 (March 31, if filed electronically) of 2016.  A statement to all full-time employees must be furnished by January 31 of each year following the calendar year.

  •  Section 6055 requires health insurers, certain employers, and others that provide Minimum Essential Coverage to individuals must report to the IRS information about the type and period of coverage, and must furnish the information in statements to covered individuals.
  • Section 6056 requires employers with 50+ FTE to report to the IRS information about the health coverage, if any, they offered to FT employees. Section 6056 also requires employers to furnish related statements to employees.

 

Who is an Applicable Large Employer?

  • An employer with 50 or more full-time equivalent (FTE) employees on average of business days during the preceding calendar year.

–Full-time employees: Employees working 30 or more hours per week.

–Part-time employees FTE calculation: Add all the hours worked per month by PT employees, but not more than 120 hours per employee, and divide by 120.

  • NOTE: Aggregation (control group) rules apply
  • NOTE: Reporting obligations are the responsibility of each ALE group, and you must disclose if you are part of a control group and identify the other group/members.

 

Penalties for non-compliance:

  • $100 for failure with IRS ($1.5M maximum)
  • $100 for failure to provide statement to employees ($1.5M maximum)
  • Example: Employer fails to report a FT employee and does not provide a statement to the employee: $200 penalty.
  • Penalty relief is available for 2015 if an employer can show good faith efforts to comply

 

These reporting requirements can be overwhelming for many employers.  We have solutions and resources for these services that we can provide you, as your Trusted Advisor and Broker of Record.  Please contact MNJ Insurance Solutions for more information at (714) 716-4303.

 

Other Resources:

Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055) – IRS website

Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056) – IRS website

 

This content is provided for informational purposes only.  While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy  and completeness.  The information provided should not be construed as legal or tax advice or as a recommendation of any kind.  External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.