On June 28, 2012, in a 5-4 decision authored by Chief Justice John Roberts, the U.S. Supreme Court upheld the “individual mandate” provisions contained in the Affordable Care Act, known to some as “Obamacare.” The Court also determined, in a 7-2 decision, that the states can opt out of the Medicaid expansion provisions of the Act. The Court did not review any other provisions contained in the act.
There are two mandates of concern businesses that are not health care providers or health care insurers: (1) the employer mandate and (2) the individual mandate. The employer mandates requires a business to provide its employees (and their dependents) with health care coverage if the business is a large employer. A large employer employs at least 50 full-time employees during a calendar year. If a large employer fails to provide health care coverage starting January 1, 2014, the business will likely have to pay a “penalty” or tax based upon the number of its full-time employees to whom it does not provide coverage.
A full-time employee under the Act is anyone who works 30 or more hours per week. A part-time employee is anyone who works less than 30 hours per week. An employer will not be required to pay a penalty for failing to provide health care coverage for part-time employees. However, part-time employees are included for purposes of determining whether an employer has the required 50 full-time employees.
Part-time employees are converted into full-time employee equivalents by dividing the total number of hours worked by part-time employees in a month by 120. The result is the number of full-time equivalents to be included in determining whether the business is a large employer.
For example, assume that Company has 40 full-time employees (30+ hours per week) and 15 part-time employees who work 20 hours per week (or 80 hours per month). The conversion to full-time equivalents would be calculated as follows:
- 15 part-time employees x 80 hours = 1200 total part-time hours during the month
- 1200 hours / 120 (full-time equivalent factor) = 16 full-time equivalents
Company would be subject to the Act since it has 40 full-time employees and 10 full-time equivalent employees.
Seasonal employees are not included in determining whether a business is a large employer, if employed for less than 120 days. The definition of seasonal employees is the same as that found in the U.S. Department of Labor regulations. If the business is a large employer, it is subject to penalties for seasonal employees for the months in which they are employed full time.
Even if a business is a large employer and fails to provide health care coverage, it will not have to pay a penalty unless at least one of its full-time employees obtains health care coverage through an exchange and receives a premium credit. Premium credits will be available in 2014 for individuals who are not offered employer-sponsored health coverage and who are not eligible for Medicaid or other health programs. These individuals will generally have an income between 138 percent and 400 percent of the federal poverty level. Employers should keep in mind the individual mandate when determining whether it is likely that one employee will obtain such a credit.
The monthly “penalty” or tax for failure to provide full-time employees with health care coverage is calculated by multiplying the total number of full-time employees without coverage, minus 30, by one-twelfth of $2,000. In layman’s terms, the “penalty” or tax will be $166.34 per month per employee in excess of 30.
If a large employer offers health care coverage, it will still be subject to a penalty if the health coverage does not meet certain minimum requirements. Furthermore, if the employee’s required contribution toward the plan premium for self-only coverage exceeds 9.5 percent of the employee’s household income, or the plan pays for less than 60 percent of the employee’s average covered health care expenses the employer will still be subject to a “penalty” or tax.
The individual mandate applies to individuals, not their employers. The individual mandate does not apply to prisoners and undocumented aliens. Those who receive the required coverage from their employer or an assistance program such as Medicaid as also exempt from the individual mandate.
Unless exempt, individuals must provide minimum health coverage for themselves and their dependents beginning January 1, 2014. If an individual fails to acquire such minimum coverage, the individual must pay a “penalty” or tax equal to 2.5 percent of the individual’s household income, subject to a minimum of $695 and a maximum of the average yearly premium for an insurance policy that covers 60 percent of the cost of 10 specified services, including prescription and hospitalization.
Under the Medicaid expansion provisions of the Act, adults without dependents with household income below 133 percent of the federal poverty standard are eligible for Medicaid coverage. Prior to the expansion, adults without disabilities were generally not eligible for Medicaid. The current Medicaid program offers assistance to pregnant women, children, needy families, the blind, the elderly and the disabled.
Printed in Four Rivers Business Journal (Paducah Sun), July 26, 2012.