Although the employer mandate has been delayed until January 1, 2015, it is not too soon for large employers to begin thinking about their responsibilities under the Affordable Care Act (the "ACA"). Notification requirements have already gone into effect and starting in 2015 applicable large employers, defined by the ACA as those employing 50 or more full time equivalent employees, must offer minimum essential coverage that is affordable and meets minimum value requirements. If the employer fails to offer this qualifying coverage and any one of its full time employees, defined by the ACA as working 30 or more hours per week or 130 hours per month, receives subsidized insurance through the exchange or marketplace, the employer may be liable for significant penalties.
The U.S. Department of the Treasury recommended in its July 2, 2013 announcement of the mandate delay that employers should treat 2014 as a transition period during which they should familiarize themselves with reporting requirements and maintain or expand health coverage for their employees. Although most employers would like to be able to expand their current health insurance offering, it is not always possible given economic realities. Employers have very difficult choices to make in the upcoming year and a critical cost-benefit approach will be vital, being mindful of the associated regulatory risks. Many employers will find themselves deciding between three options.
Option 1: Maintaining minimum essential coverage for all full-time employees
Many large employers will choose to continue to offer plans to all of their employees, making small adjustments in areas that are not grandfathered. Other employers may choose to develop a two tier system in which two types of plans are offered: a basic health plan that meets the affordability and minimum value requirements, and a higher premium plan that will offer greater benefits and low deductibles. So long as this higher premium plan is offered to all employees, the employer will have complied with both the employer mandate and the applicable nondiscrimination rules.
Option 2: Maintaining minimum essential coverage for essential employees
Many other employers are currently analyzing their workforce to identify essential employees and begin to transition less essential employees to part-time status. This reduces the employer's overall number of full time employees with the hope of also reducing their liability but this approach is not without risk, especially with respect to claims that an employer's benefit plans discriminate in favor of or against certain individuals. Still other employers are utilizing staffing agencies to a greater extent and even changing their corporate structure to reduce their liability under the employer mandate. These approaches are also not without risk, and the Internal Revenue Service has stated that it is working on a general anti-abuse rule.
Option 3: Dropping coverage altogether
Finally, many employers, after weighing the pros and cons, are deciding to discontinue offering employer-sponsored health insurance altogether, accepting the employer penalties as a cost of doing business. In many cases, this approach can have a large economic cost, and virtually all employers will be seen as insensitive to employee needs. However, many employers feel that the burden being placed on them to provide subsidies for employee health insurance is simply becoming too great.
The federal government does not offer a "one size fits all" solution for employers that are facing these difficult decisions. A thoughtful, comprehensive review of benefit plan structures and options, together with an economic analysis of the potential penalties and workforce turnover resulting from those options, should be considered as we approach January 1, 2015.
This information should not be interpreted as legal advice with respect to specific situations.