This is the last of four weekly Affordable Care Act
("ACA") Employer Mandate Alerts. Each Alert highlights a
planning consideration 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 this last Alert, we offer Q&As addressing the following
topics: "What Health Coverage Satisfies the Employer
Mandate?" and "What is the Penalty for Noncompliance and
How is it Collected?" 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.
Providing a Minimum Coverage Option to Meet the Employer Mandate
The Employer Mandate requires employers to offer health coverage
to full-time employees and their children that is both
"affordable" and provides "minimum value" or
risk a penalty. Affordability is determined for each full-time
employee based on the employee contribution for the lowest-cost
self-only coverage option that meets minimum value and is offered
to that employee. The employee contribution for other coverage
tiers, such as employee plus spouse or family, is not subject to
any affordability test. Further, the employee contribution for any
tier of more expensive coverage options (including the self-only
tier) need not meet the affordability test.
Minimum value, unlike affordability, is not determined for each
full-time employee, but rather is determined based on the plan as a
whole. To meet the minimum value requirement, the plan must pay at
least 60 percent of the actuarially projected total allowed costs
of covered services under the plan. The actuarial value of most
employer-sponsored health coverage is currently higher than this
threshold.
To meet both of these requirements and avoid a penalty, an
employer must offer to full-time employees at least one health
coverage option that has an actuarial value of 60 percent, for
which the employee contribution for self-only coverage meets the
affordability threshold. If one health coverage option meets these
requirements, other available health coverage options need not. In
other words, all other health coverage options could (using the
definitions above) be unaffordable or not provide minimum value, or
both. This creates a planning opportunity for an employer to
simultaneously offer coverage that protects it from an Employer
Mandate penalty while also offering coverage that is better aligned
with the needs of its workforce. For example, if the employer has a
low-paid workforce, it could simultaneously offer coverage that has
a lower minimum value, and thus a lower up-front cost. Likewise, if
the employer has a relatively high-paid workforce, it could
simultaneously offer coverage with a higher minimum value and
employee contributions greater than the affordability threshold
allows.
In considering these options, employers will also want to consider
whether the plan design meets applicable nondiscrimination testing
requirements.
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.