On June 28, 2012, the United States Supreme Court issued its long-awaited opinion concerning the constitutionality of the Patient Protection and Affordable Care Act (the “Affordable Care Act” or the “Act”) in National Federation of Independent Business, et al. v. Sebelius, No. 11-393 (U.S. Jun. 28, 2012). The Court upheld the individual mandate requiring most Americans to maintain minimum health insurance coverage, the most controversial piece of this legislation.
Pursuant to the Act, beginning in 2014, an individual who fails to purchase insurance in accordance with the mandate must make a “shared responsibility payment” to the Federal Government at the time his/her taxes are paid, coined as a “penalty” in the Act itself. The Court found that this “penalty” was really a “tax” for constitutionality considerations, and the Court upheld the constitutionality of the individual mandate on the basis of Congress’s constitutional power to lay and collect taxes.
The majority’s decision focused predominantly on the individual mandate and did not discuss the provisions related to employers. However, the Court’s silence in affirming those provisions removes any uncertainty about a qualifying employer’s need to comply with the Act. Below is an outline of the key provisions of the Affordable Care Act as it pertains to employers. Employers must be aware of the implications of the Act in order to avoid any penalties for failure to comply with its provisions.
- Beginning in January 2014, “applicable large employers” must offer their full-time employees (and their dependents) health coverage that meets the minimum essential coverage requirements under the Act; failure to do so can lead to pay-or-play penalties, assessed for each employee to whom sufficient coverage is not offered. The Act imposes an annual penalty between $2,000 and $3,000 per employee, depending on various criteria.
- The Act’s penalty provisions apply only to an “applicable large employer,” defined as an employer that employed, on average, 50 full-time (working more than 30 hours per week) employees on more than 120 calendar days during the prior year. There is an exemption for seasonal workers and retail workers employed exclusively during the holiday season.
- Unlike the individual mandate, the penalties assessed against employers can be payable on an annual, monthly, or other periodic basis prescribed by the Secretary of Labor.
- Employers with more than 200 full-time employees must automatically enroll new full-time employees for health benefits upon the commencement of employment.
- Employers are required to report the value of health benefits on employees’ W-2 forms reflecting the aggregate cost of all reportable benefits that an employee received under all the group health plans in which he or she participated during all or part of the 2012 plan year. Employers must also provide employees a uniform summary of benefits and coverage.1
- Employee handbooks and current health plan documents must be revised by the end of 2012 to reflect the Act’s newly imposed cap of $2,500 on employee contributions to flexible spending accounts.
- Employers with fewer than 50 employees are not required to offer coverage, but are eligible for certain financial assistance in the form of tax credits if they do offer coverage to their employees. To be eligible, a small business employer must cover at least 50% of the cost of single health care coverage for each employee and have fewer than 25 full time employees earning wages of less than $50,000 per year each.
- Employers that apply for health insurance in the individual or group market in a State must be accepted by the insurer under the “guaranteed issue” provision.
- Employers must also prepare for an increase to the FICA portion of the payroll tax, which increases in 2013 by 0.9 percent to 2.35 percent of annual wage or self-employed income in excess of $200,000 for individuals.
In light of the Court’s ruling, employers should review their practices and policies and consult with counsel to ensure compliance with the Act.
1Employers should also note that under the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”), as of January 1, 2012, any employer that either pays a settlement or judgment to an employee-tort claimant or pays a deductible toward the defense of a claim must electronically report the claimant’s status as a Medicare beneficiary and must also notify Medicare when there is coverage primary to Medicare.