Health Care Reform Forces Employers to ‘Play or Pay’

 Authored by Laura Miller Andrew

 When the Patient Protection and Affordable Care Act was passed in 2010, many employers took a "wait and see" approach to compliance. Employers received a wake-up call June 28 when the Supreme Court upheld the major elements of PPACA. Time is almost up for employers, as the "Play or Pay" requirements become effective in 2014.

 Following are steps employers can take now to prepare:

- Determine if your company is required to "Play or Pay."  As of Jan. 1, 2014, PPACA requires "applicable large employers" to offer "minimal essential coverage" to 95 percent of their full-time employees and their dependents. An "applicable large employer" must have employed an average of at least 50 full-time employees during the preceding calendar year. 

Generally, a full-time employee is an employee who works an average of at least 30 hours a week. For this calculation, an employer must include both its full-time employees and a "full-time equivalent" for employees who work part-time.

-If required, will your company "Play or Pay?" Once an employer becomes subject to the "Play or Pay" mandate, it must either:

Play: Offer minimum essential coverage to 95 percent of its "full-time" employees and their dependents; or

Pay: Pay an excise tax if it does not offer minimum essential coverage and at least one employee enrolls in an exchange and receives a premium subsidy.

-The finer points. If an employer, subject to the "Play or Pay" rules, decides to "Play" by offering health coverage to 95 percent of its full-time employees and dependents, it is only subject to the penalty if one or more of its employees receives a government subsidy to help purchase health insurance from an exchange.

If the group health plan's share of the costs of benefits provided is 60 percent or greater (i.e., the coverage provides "minimum value"); and the premium paid for employee-only coverage does not exceed 9.5 percent of the employee's household income (i.e., the coverage is "affordable"), the employer will not be subject to the penalty, and the employee will not be eligible for a subsidy.

-Calculate the penalty in advance.  If the health coverage offered by the employer does not provide "minimum value" or is "unaffordable" and an employee receives a premium subsidy to help purchase health insurance, the employer will owe an annual penalty. The penalty will be equal to the lesser of the number of employees receiving a subsidy multiplied by $3,000, or the number of full-time employees (after subtracting the first 30 employees) multiplied by $2,000.

If an employer decides to offer no health coverage to 95 percent of its full-time employees, and at least one of its employees receives assistance for coverage through an exchange, the employer will be subject to a $2,000 annual fee for each full-time employee (calculated based on the number of full-time employees after subtracting the first 30.)

-Arrive at a strategy. Employers should consider taking the following steps now to implement their "Play or Pay" strategy in 2014:

•  Determine the number of full-time employees, including temporary, seasonal and contract employees.
•  Perform the "Play or Pay" calculation in order to determine a strategy for compliance. Strategies include reducing full-time employees to less than 30 hours; offering "base level" health coverage that meets the requirements of PPACA and has affordable premiums, and more comprehensive coverage at a higher premium level; reducing employee-only premiums for some or all full-time employees to ensure that the health plan coverage is affordable; or offer no coverage to full-time employees and pay the penalty.

Laura Miller Andrew is a partner in the Healthcare, and Executive Compensation and Employee Benefits Practices of Smith, Gambrell & Russell, LLP , with a special emphasis on health care. She has written on many aspects of health care reform and employee benefits.

This article first appeared in The Atlanta Journal-Constitution on May 12, 2013 and has been reprinted with permission.

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