Obamacare Starts Now

Employers must provide summary of benefits—or face thousands in fines

Although the requirement for midsized employers to offer insurance to employees under the Affordable Care Act (ACA) doesn’t kick in until 2014, employers who currently offer insurance have some paperwork to do.

Employers must provide a summary of their plan benefits to employees on the first day of coverage or the date of open enrollment for 2013, says Charles Stevens, an attorney and partner with Michael Best & Friedrich LLP. The summary is an eight-page document that details the coverage offered. Failure to provide a summary can result in a $1,000 fine for each employee covered by the plan, Stevens says.

All plans, insured and self-funded, must comply. If the summary of benefits is not done correctly, the employer risks benefit claims and penalties. In addition, if an employer wants to make a midyear change in benefits, there is now a 60-day advance notice requirement.

Department of Health and Human Services (HHS) officials say they will impose the penalty only for "willful failure" to provide a benefit summary. But these officials get to define willful failure," Stevens says. "Clearly, the imposition of penalties is at the discretion—hopefully, not the whim—of HHS officials."

Certain "grandfathered" plans that were in existence prior to March 23, 2010, when ACA was enacted by Congress, are exempt from some but not all rules. Non-grandfathered plans will be subject to more stringent rules, especially starting in 2014.

A grandfathered plan will lose that status if it has had substantial changes since the law was enacted. "If you have any doubt that your policies have remained grand-fathered, talk to your broker or your lawyer," Stevens says.

For midsized employers, those with 50 or more employees, the tough decisions will come later next year. By 2014, these employers will have to offer "minimum essential coverage" or pay penalties. But it’s even more complicated.

First, there’s the calculation of what constitutes 50 employees. ACA defines a full-time employee as a person who normally works 30-plus hours per week. Part-time employees are also included in the calculation. The hours per month of all part-time employees are totaled, and that number is divided by 120 hours to come up with a full-time equivalent.

Example: An employer has 10 part-time employees who work a total 840 hours per month. Divided by 120, that equals seven full-time equivalent (FTE) employees. These seven FTEs must be added to the number of other employees who work at least 30 hours per week to see if the 50-employee threshold is reached. Seasonal workers are excluded from the calculation, but leased employees are included.

There are also aggregation rules for businesses under common control. HHS will not allow companies to split into smaller entities to avoid the 50-employee threshold, Stevens says.

If a company offers no coverage, if it pays less than 60% of the cost of the coverage or if it does not follow other rules, it is subject to a $2,000 per employee per year penalty. However, the penalty is not applied to the first 30 employees or to part-time employees. So if a farm has 60 full-time employees, it would pay the $2,000 penalty on 30 employees, or $60,000 per year ($5,000 per month). In most cases, this is less than the cost of insurance, so paying the penalty is likely to be cheaper than providing insurance.

But it gets even more complicated, Stevens says. If an employee qualifies for government-subsidized insurance through an insurance exchange (because his household income is
under 400% of the federal poverty level and his employer requires him to pay more than 9.5% of his household income for coverage), the employer could be subject to a $3,000 penalty per employee.

It’s little wonder ACA is so controversial. "A lot will be determined by the election in November," Stevens says.

"Even if President Obama is re-elected, you could see some delay in the ‘pay or play’ rules and in the creation of state and federal insurance exchanges. Some of this stuff just won’t work," he says.

If Mitt Romney is elected but the Democrats retain control of the Senate, ACA would remain the law of the land. But House Republicans could put financial restrictions on the agencies administering the law—HHS, the Department of Labor and the Internal Revenue Service—which could delay rule writing and enforcement.

"If we don’t get consensus in Congress, it will be a bumpy ride," Stevens predicts.