Pub. 1 2013 Issue 4

28 San Diego Dealer P robably the most important mandate for employers is the “play or pay” mandate, also known as the employer-shared responsibility, which will require large employers (those with the equivalent of 50 or more full-time employees) to provide adequate and subsidized group health plan coverage to all full-time employees beginning in 2014. If an employer fails to satisfy this requirement, it will be subject to a penalty. This could have a significant economic impact on many employers. Accordingly, it is very important for employers to now start modeling how this mandate will impact their bottom line in 2014. Who Is A Large Employer? The play-or-pay provision only applies to employers with the equivalent of 50 or more full-time employees in the prior calendar year. An employer is determined on a control-group basis. There are two ways an entity can be part of a control group. The first is when the parent owns 80% of the stock of a subsidiary (or in the case of nonprofits, one organization controls 80% of the board of the other organization). The second is when the same 5 or fewer individuals, trusts or estates own together at least 80% of two or more organizations and the total duplicative ownership is at least 50%. The attribution rules apply to determine ownership. An employee is“full-time”if he or she, on average, works at least 30 hours a week (or 130 hours per month). To determine if you are a large employer, first count the number of employees who work at least 30 hours per week (130 hours per month). To that number, add the number of full-time equivalent employees, which is determined by adding together the number of hours of the non-full-time employees (up to a maximum of 120 hours per month per employee) and dividing by 120. This calculation should be done for each month of the prior year and then the months’ totals should be divided by 12 to determine an average. If the resulting average is 50 or more, the employer is subject to the play or pay provisions. There are, by the way, rules for subtracting seasonal employees if the total number of employees exceeds 50 for only 120 days or less. Requirements “To Play” If the employer-shared responsibility provision of ACA applies, the employer must either offer “minimum essential coverage” which provides “minimum value” at an “affordable price” to substantially all of its full-time employees (not full-time equivalents) or risk paying an excise tax. For a plan to provide minimum value, it must pay 60% of the claims incurred by participants (including co-pays, deductibles, co-insurance, etc.). The IRS and Department of Health and Human Services offer an online minimum value calculator for you to determine if your plan provides minimum value. To be“affordable,”the participant must not be forced to pay more than 9.5% of the employee’s household income for the calendar year. Since most employers do not have access to their employees’ family financial information, the IRS created affordability safe harbors in its January 2013 proposed regulations. An employer will be in compliance if it complies with one of these three safe harbors: 1) the annual employee cost of the employee-only tier of the cheapest medical option (providing minimum value) does not exceed 9.5%of the employee’s FormW-2, Box 1; 2) themonthly employee cost of the employee-only tier of the cheapest medical option (providing minimumvalue) does not exceed 9.5%of 130 times the employee’s hourly rate of pay; or 3) the monthly employee cost of the employee-only tier of the cheapest medical option (providing minimum value) does not exceed 9.5% of the state-specific, federally-established single individual federal poverty level divided by 12. What You Pay If You Don’t Play If the employer does not offer qualified coverage to at least 95% of full-time employees, the IRS may levy an excise tax. If the employer does not offer qualified coverage to at least 95% of full-time employees and at least one full-time employee qualifies for federal premium assistance for his or her coverage under the Exchange, it will owe the IRS a non- deductible annual payment equal to $2,000 times the number of its full-time employees minus 30. HealthCareReform: By Chris Hoffman