The employer mandate and 'affordable' insurance
Two of the most widely debated provisions of the Affordable Care Act (ACA) are the individual mandate and the employer mandate, both of which are scheduled to take effect Jan. 1, 2014. At that time, all individuals will be required to have health insurance coverage and all employers with 50 or more full-time equivalent employees will have to offer health insurance to their full-time employees and their dependents under the age of 26. Those who choose not to follow the mandates will be required to pay a penalty.
As part of the employer mandate, a rental company with 50 or more full-time or full-time equivalent employees that offers qualifying coverage to full-time employees must offer coverage that is “affordable” and of “minimum value” in order to avoid the penalty.
“Affordable” has a very specific meaning in this context. In the ACA, “affordable” means that no full-time employee will have to pay more than 9.5 percent of their income as their share of the cost of their health insurance. For example, if a rental company pays an employee $20,000 per year, the employee cannot pay more than $1,900 in insurance premiums or their insurance is considered not affordable and the employer is subject to a penalty.
While dependent coverage is required under the ACA, the 9.5 percent rule does not apply to that coverage. If the employee making $20,000 buys a plan that costs him less than $1,900, but decides to insure his children as well at a total cost that exceeds $1,900, this is not a violation of the affordability provision and no penalty is incurred. In addition, spouses are not considered dependents; therefore the ACA does not require coverage of spouses.
In addition to being affordable, all insurance plans also must meet “minimum value” requirements as defined by the ACA. This means that the plan’s share of total allowed benefit cost must be more than 60 percent. Amounts of money contributed by an equipment rental store to employee health savings accounts (HSAs) for a current plan year would be taken into account in determining the plan’s share of costs for purposes of determining “minimum value.”
Individuals generally can receive a premium tax credit for coverage in the exchanges being established by ACA only if they are not eligible for affordable coverage under an employer-sponsored plan that provides minimum value. Effective Jan. 1, 2014, employers with 50 or more employees who have even one full-time employee receiving a premium tax credit through the exchange due to the lack of affordable minimum coverage will be subject to the full penalty, which is the lesser of $3,000 for each employee who has to pay more than 9.5 percent or $2,000 for each full-time employee over the 30-employee exemption.
For example, a large rental business with more than 50 full-time employees offers minimum essential coverage to full-time employees. One or more of those employees receives premium subsidies because the rental store’s policy premiums exceed 9.5 percent of their income or does not meet the 60 percent minimum value test. The penalty the rental business must pay is the lesser of $3,000 per subsidized full-time employee or $2,000 per full-time employee, minus 30 full-time employees.
Health insurance exchanges are expected to be open in 2014 to individuals and small businesses with up to 100 employees, although states may limit the small employer definition to no more than 50 employees until 2016. All individual and small group health insurance policies, regardless of where obtained, must provide an “essential health benefit” package. This will be the basis for coverage offered in the exchanges and surrounding small group insurance market. States are to select a “benchmark” plan from these four options by September 2013:
- The most-enrolled small group insurance plan offered in the state.
- Any of the largest three state employee health benefit plans.
- Any of the largest three national federal employee health benefit plan options.
- The largest insured commercial HMO offered in the state.
If a state fails to select a benchmark, the largest small group insurance plan offered in the state will be the default selection. After the state selection is made, the Department of Health and Human Services will evaluate state-selected benchmarks against the ACA’s 10 categories of required coverage before publishing enhanced benchmarks for comment.
The ACA specifies that all plans meeting essential health benefit requirements will include at least the following categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitation and habilitative services and devices; lab services; preventative and wellness services and chronic disease management; and pediatric services, including oral and vision care.
Citizens and legal residents with household incomes between 100 and 400 percent of the federal poverty level who purchase coverage through a health insurance exchange and do not have access to an “affordable” health plan of minimum value through their employer are eligible to receive a monthly advance tax credit to reduce the cost of their coverage.
“It is estimated that approximately 68 percent of the population is at or below 400 percent of the federal poverty level, making them eligible to take advantage of premium subsidies for coverage,” says Alysia Ryan, director of state and local government affairs for the American Rental Association (ARA).
“It is critical that you take time now to assess how many employees in your company might be eligible to receive a subsidy and know how this will affect your decision about the health care coverage you offer,” Ryan says.
Despite several complex provisions in the Affordable Care Act (ACA), many in the small business community were anxious to investigate the small business health options program (SHOP) exchanges, which were designed to provide small businesses with fewer than 100 employees a competitive marketplace in which to buy insurance for their employees.
However, due to operational challenges, this provision has been put on hold and small employers will initially be limited to a single plan. The idea was to offer more choices for businesses trying to comply with ACA. Originally set for implementation by Oct. 1, 2013, the date for SHOP exchanges has been pushed back to Jan. 1, 2015. In spite of this setback, small business tax credits may be available to offset the cost of insurance.