Looking ahead to the next six months, employers can take comfort knowing they have already completed the bulk of changes and requirements under the Affordable Care Act, according to John Barlament, partner at Quarles & Brady LLP.
The Milwaukee-based law firm developed a checklist of the dozens of ACA employer requirements, and “most of them have been completed at this point, which is good for employers,” Barlament said. “They’ve gotten most of the requirements out of the way.”
However, two significant requirements still loom ahead of employers – requirements that many employers have been struggling with, he said.
One entails the Employer Shared Responsibility Provisions, more commonly known as the “Pay or Play Rule.” Under that rule, employers with at least 50 full-time or full-time equivalent employees must determine if they are offering sufficient coverage to those employees.
“If you don’t, you risk a tax penalty,” Barlament said.
The conditions of that penalty depend on whether an employer offers minimum essential coverage to all full-time employees and their dependents. Minimum essential coverage ensures that a plan can adequately address employees’ health needs and is affordable.
Large employers who do not offer minimum essential coverage are obligated to pay an annual tax of $2,000 for each full-time employee, “if at least one full-time employee obtains federally-subsidized coverage” through a health care exchange, according to Quarles & Brady. That penalty is known as the “No Offer Penalty.”
The penalty varies for employers who do offer minimum essential coverage but who have at least one full-time employee receiving federally-subsidized coverage through an exchange. In this case, the penalty is called the “Unaffordable Coverage Penalty.”
The “Pay or Play Rule” is expected to take effect on Jan. 1, 2015, according to Barlament. So employers need to prepare themselves and their companies this year in order to avoid the burden of penalties, he said.
A second requirement still ahead of employers involves a new reporting rule that will be applicable beginning January 2016, Barlament said.
The rule will require employers to tell the Internal Revenue Service which of their employees were covered by the health plan they offered during 2015.
“As of January 1, 2015, an employer has to be keeping track of which employees are offered coverage, and if they’re not offered coverage, why they’re not offered coverage,” Barlament said.
The IRS will use individual company results from the reporting rule for verification purposes on two fronts.
When individuals turn to health insurance exchanges to purchase coverage, they must state whether their employer offered them coverage. Individuals whose employers have offered substantial coverage generally are ineligible to receive subsidies through the exchanges.
The IRS needs a way to verify the specific plans companies offer and will take forms completed by both employers and employees to verify the validity of both parties, Barlament said.
The IRS will also use the new reporting rule to verify that employers are following the “Pay or Play Rule.”
Employers who haven’t been following the rule will face a penalty.
Barlament warns that compliance with the new reporting rule can be complex as employers might not hold all the data they need. Some of that data might instead be held by third-party vendors, such as third-party administrators and insurance carriers.
“Therefore, the employer needs to start coordinating with those other entities in 2014 to verify that it can gather the data it needs starting January 1, 2015,” Barlament said.
Gerald Frye, president of Pewaukee-based The Benefit Services Group Inc., also encourages employers to assess their health care plans and finances in consideration of the Cadillac Tax, a penalty that will impact employers with high cost health care plans. The penalty is set to take effect in 2018.
Under the Cadillac Tax, employers offering plans that cost more than $10,200 per employee or $27,500 per family will face a 40 percent excise tax.
Frye recommends employers assess where their model of health care coverage stands now and extrapolate their model to project the success of their plan in 2018 as the Cadillac Tax is implemented.
“If you’re not looking well against that, you need to develop strategies and implement things that are going to in fact change that trajectory,” Frye said, citing the use of narrow health networks, such as Integrated Health Network of Wisconsin and the Aurora Accountable Care Network, as a potential solution.
