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Employer Mandate Penalties 101

In light of the Supreme Court’s ruling on King v. Burwell, allowing Federal subsidies to continue for millions, American employers really need to quit playing the wait and see approach with the Affordable Care Act. It’s here to stay, and employees are going to start asking questions of their employers that they should be prepared to answer.

Employer Shared Responsibility payments are due to be paid in 2016 for a large portion of employers. Like the Individual Mandate penalties that caught individual tax filers by surprise this year, the employer equivalent of those mandates poorly advised tax filers. With the Congressional Budget Office projecting $9 Billion of penalties to be paid, you want to be sure you’re part of the compliant group.

There are two penalties that an employer may be liable to pay. The first penalty is for employers with more than 50 Full Time Employees (or Full Time Equivalents) that does not offer minimum essential coverage to at least 95% of it’s Full Time Employees beginning on January 1st, 2015. The second penalty is for employers who do meet the requirements to avoid the first penalty, but have an employee who goes to the Exchange and receives assistance paying their premiums.

There are a lot of details that need to be spelled out:

What is a Full Time Equivalent?

A Full Time Equivalent is an employee that has worked at least 30 hours per week on average, in the prior calendar year. For example, if an employer, in 2014, had 40 employees that worked 35 hours per week, and 20 employees that worked 15 hours per week, then they would have 50 Full Time Equivalents.

What is Minimum Essential Coverage (MEC)?

An MEC plan is one that is greater than or equal to 60% actuarial value and meets certain market reforms such as the prohibition on preexisting condition exclusions, prohibition of lifetime benefit maximums, and 100% coverage for preventive services with no cost sharing to the patient.

If I do offer a compliant plan, how do I keep my employees from going to the exchanges and receiving tax credits, triggering the second penalty?

Communication! Employers are required to notify their employees of their options on the Exchange each year. They are required to notify them that they are offered a compliant plan, and are therefore not eligible for assistance through the Exchanges. The model notice is here. Communicating this to employees may require more than just sending a Department of Labor Notice (which looks just official enough to frighten the person receiving it). Employee meetings and education on new reforms will help ease employee fear of all of the changes taking place.

What about employers with less than 50 Full Time Equivalents?

There is no requirement for employers with less than 50 Full Time Equivalents to offer health insurance to their employees and dependents. The administration understands that it is increasingly difficult for smaller employers to offer health insurance. There are options for small employers through the SHOP program, on the Exchanges, but their rates are high and the employer tax credits are difficult to calculate, and often are not there at the end of the year.

In conclusion, there are a lot of insurance brokers and advisors playing the “wait and see” approach. This approach harps on the areas of the law that may have been dismantled by a Republican government or the SCOTUS, and provokes employers to continue on their current path until the law stands or dissolves… On June 25th, 2015 we got the answer, and it’s time to make moves, moves that provide comfort, understanding and attractiveness to employees as well as compliance with the IRS and the Dept. of Labor.

Andrew Hetzler is the Chief Operating Officer of American Exchange. For a free consultation with a licensed agent call 1-888-995-1674 or email info@americanexchange.com. To contact Andrew directly, you can email him at andrew.hetzler@americanexchange.com.

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