Health Care Reform, in the form of the Patient Protection and Affordable Care Act, has now survived review by the Supreme Court. With the constitutionality of the individual mandate settled, now what?
The state of Health Care Reform is now a political issue, and no longer a legal issue. For employers who have taken a “wait and see” approach toward Health Care Reform, it is time to start planning for compliance.
Beginning in 2014, virtually all Americans will be required to either obtain health insurance coverage or pay a tax. Under the law, along with this individual mandate—the centerpiece of Health Care Reform—comes a host of new requirements for employers, states and group health plans that will go into effect Jan. 1, 2014.
This discussion is intended to provide an overview of the most important requirements for employers in industries that typically provide employee benefits only to management or select employees, such as employers in the hospitality industry.
When Does the Law Go into Effect?
Play or Pay – Jan. 1, 2014
Health Care Reform will require all employers with 50 or more “full-time” employees in a month to either offer their employees “affordable health plan” coverage or be subject to an annual tax. Business entities that are related by ownership to other entities (referred to as “controlled groups” or under common-ownership through a “brother-sister” arrangement) will be treated as one employer for purposes of determining if they must comply. The Play or Pay mandate is effective Jan. 1, 2014.
See below for a discussion of Play or Pay.
Other Group Health Plan Requirements – Many Already in Effect
Many other requirements of Health Care Reform on group health plans have become effective over the years since the legislation’s passage in 2010. These requirements relate to everything from requiring employer-sponsored group health plans to cover an employee’s dependent children up to the age of 26 to requiring new annual disclosures to employees. Click here for an overview of the requirements of health care reform on employer-sponsored group health plans and their effective dates.
What Can We Expect Between Now and Jan. 1, 2014? Guidance & Political Efforts to Repeal the Law
Health Care Reform contains a number of mandates that will require more guidance from the Department of Health and Human Services and the Department of Labor before employers can comply. Among other issues, employers should be looking for more guidance on how to determine who is a full-time or part-time employee, what constitutes an “affordable health plan,” and how to calculate required taxes under the Play or Pay rules.
Republican Attempts to Repeal
Republicans have vowed to repeal Health Care Reform, or at a minimum, dismantle it through regulation. It seems unlikely, however, that the most significant changes to the health care system made by Health Care Reform will be successfully unwound. Health Care Reform has already begun to re-shape the basic design of employer-sponsored group health plans because many requirements of the law have already gone into effect.
Employers who have adopted a “wait and see” approach, hoping that the Supreme Court would find the law unconstitutional, should not now hang their hopes for repeal on Congress. Although Health Care Reform is likely to be a work-in-progress for years to come, in the short run, there are significant requirements of employers that will require a serious planning over the next eighteen (18) months.
What is "Play or Pay"?
“Play or Pay” refers to the requirement in Health Care Reform that effective Jan. 1, 2014, employers with 50 or more “full-time” employees in a month either provide health plan coverage to their employees or pay an annual tax. Note, employers that are jointly owned, related to other business entities through common-control (often referred to as controlled-groups), or related under the “brother-sister” rules in the Internal Revenue Code will generally be treated as one employer for purposes of determining if an employer employs 50 or more full-time employees.
Who Is a Full-Time Employee?
Employers are required to calculate the number of their full-time employees on a monthly basis. Under Health Care Reform, any employee who works an average of 30 hours a week is a “full time” employee.
Part-time employee hours are included in calculating how many “full-time” employees an employer employs. The aggregate number of hours of service of employees who are not employed 30 hours a week by an employer in a month must be added together and divided by 120. The product of that calculation is added to the total number of full-time employees for purposes of determining whether an employer employs 50 or more “full-time” employees, and is therefore required to “Play or Pay.”
Only individuals who are citizens or nationals of the U.S., or aliens who are lawfully present in the U.S., are counted as employees.
The statute directs the Secretary of the Department of Health and Human Services, in consultation with the Secretary of Labor, to issue guidance as necessary to determine an employee’s hours of service, including rules for employees who are not compensated on an hourly basis.
What Does It Mean to “Play”? Provide “Affordable” Coverage?
Employers that decide to provide an employer-sponsored group health plan, rather than pay a tax for not covering employees, must adopt a health plan that is “affordable.” Coverage provided under a group health plan is considered affordable if either (1) the employee’s share of the cost of the coverage does not exceed 9.5% of the employee’s household income, or (2) the plan’s share of the actuarial value of covered benefits (i.e., the amount that the plan would pay toward the actuarially projected cost of covered services) is less than 60 percent of the cost of coverage.
If the employer-sponsored plan fails to meet either of these requirements with respect to an employee, the employee may decline the coverage and enroll in a qualified health plan through a state exchange.
If any full-time employee declines to participate in the employer group health plan because it is not “affordable,” and in turn enrolls in a qualified health plan through a state exchange, the employer is subject to a tax. The tax is paid by the employer annually and calculated based on the number of full-time employees that enroll in an exchange plan. Currently, the tax is equal to $3,000 annually ($250 per month), times the number of full-time employees who are enrolled in the state exchange-offered qualified health plan.
Part-time employees, which are employees who work fewer than 30 hours a week, who are eligible to enroll in the employer’s plan and who opt instead to enroll in an exchange plan, will not be counted for purposes of calculating the $3,000 annual tax.
The total tax on an employer for a month is capped at the amount the employer would otherwise be taxed if did not offer a health insurance plan.
For employers with many low-paid or part-time positions, the affordability test could be particularly hard to meet. Part-time employees are likely to have lower incomes, on average, than regular full-time or management employees. To the extent part-time or lower paid employees represent a large proportion of an employer’s workforce over a year, the affordability test could significantly impact plan design.
But there are other issues as well. It is unclear how an employer can determine whether its group health plan will meet the affordability standard when a large portion of its workforce is transitory or part-time. Will there be guidelines that allow an employer to rely on industry standards or industry statistics to set the standard for affordable benefits?
What Does It Mean to “Pay” and Not Play?If an employer opts not to offer an employer-sponsored group health plan, that employer will be subject to an annual tax. Currently, without further guidance, the annual tax is equal to $2,000 ($166.67 per month) for each full-time employee. Employers will not be required to pay the tax for the first 30 full-time employees.
Who Must Be Covered Under an Employer’s Group Health Plan?
- Automatic enrollment. Separate from the Play or Pay rules, employers who have 200 or more full-time employees will be required to enroll all such employees in their employer-sponsored health plan automatically. The effective date of this change has not yet been set.
- Dependent coverage. Under Health Care Reform, there is no requirement that employer-sponsored group health plans cover dependents. However, if a group health plan does cover dependents, it must now cover adult dependents up to the age of 26. This mandate applies regardless of whether the child resides with the employee, is married, or is employed. Until 2014, an employer can decline to provide coverage to an employee’s adult child if that child is eligible for coverage under his or her own employer’s plan.
- Waiting periods – limited to 90 days. Effective for plan years beginning on or after Jan. 1, 2014, employer-sponsored group health plans may not apply waiting periods in excess of 90 days.
Will State Law Provide Relief for Employers?
Health Care Reform is federal law and its requirements will generally preempt state law. Health Care Reform cannot be unraveled by state legislation. However, states do have a role in Health Care Reform: they are required to set up state-based health insurance exchanges—which are intended to benew competitive marketplaces in which individuals and small businesses can choose among an array of affordable, comprehensive health insurance plans. State exchanges will be governed in part by state insurance law. To date, 41 states have introduced legislation governing state exchanges, but only 10 states and the District of Columbia have passed legislation establishing their insurance exchanges, according to the Center on Budget and Policy Priorities.
States that do not establish an exchange that meets the requirements of the Department of Health and Human Services may find the federal government stepping in to establish and operate the exchanges. Republican-led states that stalled commencing work on establishing state exchanges, such as Florida, Wisconsin, and Texas, are facing a very tight deadline of Jan. 1, 2013, when states must demonstrate to the Department of Health and Human Services that the exchanges will be in operation by Jan. 1, 2014.
There remain a lot of questions about how Health Care Reform will be implemented. Hopefully upcoming guidance will help answer questions for hospitality employers in the following areas:
- How to structure labor practices to minimize the cost of the new mandates;
- How to determine which employees must be covered by the employer-sponsored group health plan;
- Guidance on what policies and practices can govern when a migrant seasonal employee’s termination of employment triggers loss of coverage under the employer-sponsored group health plan;
- How to determine what documentation to require to confirm that an employee is a legal resident of the U.S.;
- Guidance on modifying payroll systems to report the value of healthcare coverage for seasonal/part-time employees who are employed during multiple noncontiguous periods of one year; and
- How to establish administrative practices for enrolling seasonal employees into health plans and coordinating waiting periods.
In the meantime, employers should begin thinking about how they will comply with the Health Care Reform requirements. As guidance is issued, DWT will continue to apprise you of the coming developments.