This is the second of four weekly Affordable Care Act
("ACA") Employer Mandate Alerts. Each
Alert highlights a planning consideration (or two) related
to the Affordable Care Act's requirement to provide coverage to
full-time employees (and their dependents) or pay a penalty (the
"Employer Mandate"). In addition, each Alert links to a
summary, in a question & answer format, discussing the scope
and implications to employers of the legal rules governing the
Employer Mandate.
In connection with this second Alert, we have added
Q&As addressing the following topics: "Which Employers are
Subject to the Employer Mandate?" and "Who Must Be
Offered Coverage?" The Q&As can be found by clicking on
the link below. A separate link is provided for the overarching
Affordable Care Act summary Jones Day published in August
2012.
Planning Consideration: Spousal Coverage
To comply with the Employer Mandate and avoid a penalty, a large
employer must offer coverage to full-time employees and their
dependents. "Dependent" is defined as a child of an
employee who is under age 26, meaning an employee's natural,
step, adopted, or foster child. Spouses, however, are not included
in the definition of "dependent." Due to the increasing
cost of coverage, some employers are revising eligibility rules to
limit spousal coverage to those spouses who are not eligible for
coverage through their own employer. Because employees are likely
to prefer having all family members enrolled in the same coverage
when possible, if many employers in a geographic area have this
restriction on spousal coverage, the employers who do not may find
more spouses enrolling, and more dependents as well. Employers
should consider whether changes to their own eligibility rules are
warranted.
Planning Consideration: Controlled Groups of Related
Employers
Employers that are part of a controlled group have a planning
opportunity because the Employer Mandate penalty applies separately
to each related employer in the controlled group. To illustrate,
there are three companies in a controlled group that together have
more than 50 full time employees and full-time equivalents, so all
three companies are subject to the Employer Mandate. Two of the
companies offer coverage to their employees and the third does not.
The Employer Mandate penalty applies only to the third company and
is computed only with respect to the third company's employees.
Because the penalty applies separately to each related employer, a
controlled group can substantially reduce the aggregate amount of
the "no coverage" penalty, in particular if it is able to
assign employees who are offered coverage to different subsidiaries
from those who are not offered coverage. In considering this
option, however, it is important for employers to be aware that
there are nondiscrimination rules (and penalties) related to
providing health coverage, which apply on a controlled group basis.
The nondiscrimination rules for self-insured plans are already in
force through long-standing regulations. The rules for fully
insured plans have not yet been issued. Additional
nondiscrimination rules apply if employee contributions are paid
through a cafeteria plan. Therefore, employers will want to
evaluate implications under the nondiscrimination provisions before
engaging in any restructuring designed to limit Employer Mandate
penalties.
We hope you enjoy these Affordable Care Act Employer Mandate
Alerts, and the practical observations contained within them,
and find them useful to your health benefits planning.
Q&As on Deciding Whether to Play or Pay Under the Affordable Care Act
The Affordable Care Act at 2-1/2—What Employers Should Expect Now
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.