The Patient Protection and Affordable Care Act, (“Act”) was adopted by the U.S. Congress in March 2010 and remains scheduled to be fully in effect, on Jan. 1, 2014. In general, the Act requires employers with more than 50 (full time or full time equivalent) employees to provide health insurance coverage for their full-time employees, or pay a penalty.
On Dec. 28, 2012, the IRS issued proposed “final regulations” pertaining to the “shared responsibility” provisions of the Act. The proposed regulations offer guidance as to how employment practices in the current year (2013) may be relied upon to determine compliance with the Act once it takes effect (in 2014).
Are You Covered? Determining compliance with the Act may require a rather complex multi-part test or analysis.
The first step is to determine whether an employer is an “Applicable Large Employer” (“Employer”) that is subject to or covered by the Act.
An Employer is one that employs, on average, 50 or more full time and “full time equivalent” (which includes some part time employees) per month in the prior year (i.e. 2013).
A full time (“FT”) employee is an employee that works, on average, at least 30 hours per week. Full time equivalent (“FTE”) employees are determined by adding together all of the hours of any part-time employees in a month (with a maximum of 120 hours per employee) and dividing the total by 120.
The hours worked by “seasonal employees,” as defined by the Act, are also to be included in the monthly FT and FTE calculations. If the resulting average number of employees is 50 or larger, then the employer is an Employer subject to the Act for the upcoming year (i.e. 2014).
In other words, the employer must provide health insurance coverage to its full time employees in the following year (or face penalties).
Are You Exempt from Coverage? The Act offers an exemption from coverage for employers that utilize “seasonal workers,” as defined by the Act. If a qualified Employer exceeds 50 or more monthly FT and FTEs during a 120 day period (i.e. 4 months) or less, then any employee that performed seasonal labor for no more than those 120 days is not counted toward the employer’s total number of employees in those months.
However, if the employer has any seasonal employees on the payroll after 120 days, and in that month also has more than 50 employees (including the seasonal employees), the seasonal worker exemption does not apply, and the employer would continue to be covered by and subject to the Act. For example, if an agricultural employer employs 40 FT regular employees from January through December, and 40 FT seasonal employees in June, and then 40 FT seasonal employees in September through December, the calculation is as follows:
40 FT employees x 7 months (Jan. – May, Jul.-Aug) = 280
80 FT employees (incl. FT and seasonal) x 5 months (June, Sept. – Dec.) = 400
(280+400 = 680)/12 = 56.6 (rounded to 56) employees
In this example, the agricultural employer averaged more than 56 employees per month during the year, and exceeded 50 employees for a five month period, including June, and September through December (which is more than 120 days), when the employer employed seasonal employees. Therefore, the agricultural employer cannot claim exemption from the Act for seasonal employees, and would instead be treated as an Employer for purposes of application of the Act.
Local agricultural employers that may come close to meeting the exception may want to carefully monitor their employment of seasonal workers in 2013 to position the employer for an exemption from coverage in 2014.
What Are You Required to Do if Covered? Employers are required to notify their employees of the existence of a state-subsidized insurance Exchange, for which employees may be eligible to receive insurance coverage. This notice requirement may pose a problem if employers try to use 2013 data to determine compliance as of 2014.
One possible solution is for any employer that reasonably believes it could be covered by the Act to provide the required notice to its employees, even if it ultimately is not covered by the Act.
What Health Coverage is Required? An Employer is only required to provide minimum essential health insurance coverage, as defined in the Act, for the employer’s full time employees (or face penalties). The proposed regulations confirm that an additional or further analysis is required to determine what employees, if any, are “full time” employees for purposes of providing coverage and/or facing penalties. It is conceivable that an employer may be a qualified Employer based upon the FTE calculation, but does not have any full time employees qualified to receive benefits.
An employee is considered “full time” if the employee works, on average, 30 hours per week. So, if an employer knows that the employee will work full time in 2014, then the employee must receive insurance coverage for that year.
However, if an employer is not certain whether an employee will work full time in 2014, then the employer may “look back” at the hours worked by that employee over a certain measurement period in the prior year (i.e. 2013). The measurement period must be no less than three months and no longer than 12 months.
If the employee did not work full time in the 2013 measurement period, then the employer is not required to provide the employee with benefits in 2014, even if the employee ultimately ends up working full time in 2014.
What is the Penalty? If an Employer does not offer the required coverage to substantially all of its full-time employees, and a full-time employee obtains subsidized coverage through an Exchange, then the Employer must pay a penalty equal to $166.67 ($166.67 = 1/12 x $2,000) multiplied by the number of its full-time employees in excess of 30 (per month).
If an Employer offers the required coverage to substantially all of its full-time employees and their dependents, but a full-time employee nevertheless obtains subsidized Exchange coverage (i.e., because the Employer’s coverage fails to meet the minimum value or affordability test), the Employer must pay a penalty equal to the lesser of the penalty determined in the preceding sentence or $250 multiplied by the number of full-time employees who are certified as having subsidized Exchange coverage for the month.
Since no penalty is triggered unless at least one full-time employee obtains subsidized Exchange coverage, it is important to know whether a full-time employee can obtain subsidized Exchange coverage.
An employee can obtain subsidized Exchange coverage only if the employee’s household income is between 100 percent and 400 percent of the federal poverty line, the employee enrolls in Exchange coverage and is not eligible for Medicaid (or other government coverage), and either no employer coverage is offered or the employer coverage offered fails to meet either a minimum value test (i.e. covers less than 60 percent of medical costs) or an affordability test (i.e. employee premium contribution exceeds 9.5 percent of W-2 earnings).
The regulations are evolving, complex, and sometimes confusing. We recommend all potentially covered Employers make a good faith effort to understand and comply with the Act, especially with the upcoming notice requirements.
Julie Norton is a member at the Wenatchee law firm Ogden Murphy Wallace, where her practice emphasizes employment law, general civil litigation, business and municipal law, and real estate transactions. She graduated cum laude from the Seattle University School of Law.