Introduction to Health Care Reform
2012 marked the single largest, federally mandated change to Payroll and HR professionals in decades. The Patient Protection and Affordable Care Act (PPACA), introduces many new laws, reporting requirements, and safe harbor provisions. Some of these new requirements should be addressed immediately whereas others will affect future procedures. Here is a small introduction to the new health care reform and how it might affect your company:
First, lets go over shared responsibility or, what has been deemed, "Play-or-Pay". These provisions are set to be taken into effect by January 1st 2014. According the the IRS (2012), employers who employ a minimum of 50 full-time employees and/or full-time equivalents, will be required to offer an affordable health plan providing minimum level coverage to 95% of all full-time employees or they will be subject to a penalty.
Please do not be misled, this is a loaded statement with very specific definitions for each portion. We will get into specifics of each part of this statement in differing help documents.
Okay, so right off the bat we understand that there are those of you who are asking yourselves "how much is it going to cost me if I don't abide by this new health care reform". So, lets take a quick look at the penalties for non-compliance:
- If coverage is not offered to a minimum of 95% of all full-time employees there is a penalty of $2000 per year per full-time employee (after the initial 30) as long as at least one employee receives a premium tax credit. Please note, is only applicable to full-time employees and not full-time equivalents.
- Lets look at an example of this: lets say that Corporation A employs 80 people, of which 50 are full time. If one employee receives a premium tax credit for exchange coverage, and the corporation does not offer health insurance, they would owe $40,000. How you calculate this figure: 50 full-time employees - 30 employee exemptions = 20 employees * $2,000 fee per employee = $40,000.
- If an employer offers coverage to at least 95% of full-time employees but is deemed to be unaffordable or does not provide minimum level coverage, the fine is $250 per month per full-time employee that receives funding for exchange coverage. Although, if the employer does offer an affordable plan with minimum level coverage, there is no penalty to the employer.
- Finally, please note that the penalty owed can never be greater than the penalty would be if there was no coverage was offered.
Since these are new laws, some of which are quite complex, there have been several safe harbor provisions to help businesses be compliant with these new laws. In layman's terms, if an employer is showing an attempt to comply with the new provisions, the safe harbor eliminates an employer's liability under the law.
Please view our other help documents containing how to calculate the number of full-time/full-time equivalent employees, what defines minimum level coverage and affordability, and a time line of when certain laws will go into effect.
Other Health Care Reform Documents:
- Health Care Reform: I have many businesses, how is the Health Care Reform different for me?
- Health Care Reform: What is considered a large employer?
- Health Care Reform: Who qualifies for benefits?
- Health Care Reform: What is considered a minimum value health plan?
- Health Care Reform: What is considered an affordable health plan?
- Health Care Reform: How does the Health Care Reform effect seasonal employers?
- Health Care Reform: When are new hires eligible for benefits?
- Health Care Reform: Closing the loop holes of Health Care Reform