CBA_April 13Report - page 8

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April 2013 CBA REPORT
feature article
A
A
ccording to an annual report
published by the U.S. Census Bu-
reau, the majority of Americans
currently pay for health care through
employment-based health insurance
coverage.
1
Employment-based coverage
enjoys certain benefits that private insur-
ance does not. For example, employees
can use tax-free
dollars to pay for
employment-based
coverage, but not for
private insurance.
The Patient Protection
and Affordable Care Act
(“Obamacare”) could have
completely changed this payment system
by eliminating employment-based cover-
age or changing its tax-favored status.
Instead, Obamacare encourages em-
ployers to continue to offer coverage by
penalizing them for failing to do so.
Beginning in 2014, all applicable large
employers (generally employers with 50
or more full-time equivalent employees)
must offer their full-time employees and
their children group health plan coverage
or risk being subject to a penalty.
The penalty will apply if the employer
fails to offer health coverage to at least
one of its full-time employees (and that
employee’s children)
and
at least one
of the employer’s full-time employees
purchases health insurance through a
public exchange
and
at least one of the
employer’s full-time employees receives
a premium tax credit to help pay for the
health insurance obtained through the
exchange.
In other words, the employer’s liabili-
ty for the penalty is dependent both upon
the employer’s decision to offer coverage
to its full-time employees and its employ-
ees’ ability to qualify for a premium tax
credit. Next month’s article will go into
more detail about how employees may
qualify for a premium tax credit.
In order to appropriately avoid or
budget for the Obamacare penalty, an
employer must first identify its full-time
employees. Obamacare contains a spe-
cific definition of “full-time employee,”
which gives no deference to an employ-
er’s current employment classifications
and includes all employees who work on
average at least 30 hours per week.
Many employers currently offer
health care coverage to employees who
are regularly scheduled to work a certain
number of hours per week. Using the
“regularly scheduled” concept makes
administrative sense because it allows
employers to determine the employees
are eligible for coverage, without regard
to whether an employee’s hours change
due to picking up extra shifts or taking a
leave of absence.
Unfortunately, using the “regularly
scheduled” concept could trigger the
Obamacare penalty.
For example, assume that an ap-
plicable large employer offers health
coverage only to those employees who
are regularly scheduled to work at least
30 hours per week. Assume further that
one employee who is regularly scheduled
to work 25 hours per week works a sig-
nificant amount of overtime and ends up
working an average
of 31 hours per week.
That employee was not
offered coverage, but he
is considered full-time
under Obamacare. If
that employee purchases
a health insurance policy
through an exchange and qualifies for
the premium tax credit, his employer
would be liable for the penalty.
The Treasury Department and IRS
have been issuing guidance to help
employers understand the situations in
which a penalty may apply. Employers
should be working with their advisors
now to understand how to identify their
full-time employees. They should also be
considering whether and how the health
plan’s eligibility requirements may need
to be changed if the employer wants to
avoid the possibility of paying a penalty.
Wilcoxon is a partner inThompson Hine LLP’s
employee benefits and executive compensation group
and advises employers on the legal requirements
applicable to group health plans.
1 Income, Poverty, and Health Insurance Coverage in
the United States: 2011,” U.S. Census Bureau. Issued
September 2012, available at
prod/2012pubs/p60-243.pdf.
By Kimberly Wilcoxon
Obamacare to Employers:
Provide Health Coverage
or Face a Penalty
Ed. Note: This is the second in a series of articles that will be published in the CBA Report over the next
several months related to the 2014 implementation of the Patient Protection and Affordable Care Act. This
information was submitted for publication on March 1, 2013. It does not reflect guidance issued on or after
this date.
Using the “regularly scheduled” concept
makes administrative sense but could
trigger the Obamacare penalty.
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