A Snap Shot of Employer Responsibilities Under the Affordable Care Act

By: Anne G. Brown

Anne G. Brown practices Employment and Personal Injury law with Sjoberg & Tebelius, P.A. in Woodbury, Minnesota.

Anne G. BrownAnne G. Brown

The mandates of the Patient Protection and Affordable Care Act of 2010 (the "ACA" or the "Act") [1] have been taking gradual effect since 2010. The ACA is a lengthy statute, with extensive guidance, regulations, and FAQs issued. The space allotted for this article cannot do justice to the entirety of the Act; rather, it is meant to highlight a few aspects to provide a basic understanding of employer responsibilities.

1. Forms.

In order to effectuate the terms of the Act, the IRS is creating forms for compiling the necessary employer/employee information to determine what mandates will apply to each employer and whether fees must be assessed for any breach. (IRS draft forms 1094-B; 1094-C; 1095-B; 1095-C) Employers must work with their payroll managers and plan administrators to assure that the requisite information is being tracked (e.g, number of hours worked by each employee). The first filing deadlines will be in early 2016.

2. Mandates.

Failure to comply with ACA mandates can result in significant penalties (see below and sidebar). The first mandates became effective in March 2010, providing that employer-sponsored group health plans and insurance policies must cover children through age twenty-six. This year, the ACA's Individual Mandate came into effect, as well as mandates that no waiting period shall exceed 90 days, and that employers must provide non-English language statements, to name a few.

As of January 1, 2014, large employers (50+ employees) must offer each full-time equivalent employee ("FTE") the ability to enroll in Minimum Essential Coverage through an eligible employer-sponsored plan. The ACA defines "full time" as thirty (30) or more hours worked per week, as calculated on a monthly basis.

Minimum Essential Coverage ("MEC") means: (1) government-sponsored programs, such as Medicare part A, Medicaid, CHIP, TRICAR, veterans' programs, Peace Corps health plans, and the Nonappropriated Fund Health Benefits Program of the Department of Defense; (2) employer-sponsored plans; (3) plans in the individual market; (4) grandfathered health plans; and (5) other coverage such as a State health benefits risk pool. 26 U.S.C. § 5000A(f).

3. Fees and Penalties.

Lack of compliance is costly. The Act includes several types of fees: for example, the Employer Shared Responsibility Fee, Transitional Reinsurance Fee, Patient Centered Outcomes Research Fee, the Cadillac Tax, and the Medicare Tax. Employers may want to consider budgeting an amount for fees because at least some will be tricky to avoid.

The Employer Shared Responsibility Fee was originally set to begin in 2014, but is now set to begin in 2015 for employers with 100+ FTEs, and in 2016 for employers with 50 to 99 FTEs. Employers with less than 50 FTEs are exempt.

In 2015, employers with 100+ FTEs will pay a penalty if they (1) fail to offer MEC to at least 70% of their FTEs, or (2) offer coverage but the coverage offered is not Minimum Value [2] and affordable.

For lack of compliance in 2015 under the first scenario, the annual fee would be $2000 x (number of FTEs - 80); under the second scenario it would be assessed as the lesser of $2000 x (number of FTEs - 80) or $3000 x each FTE who receives a tax credit to purchase coverage on the insurance exchange.

Fees will be assessed on a month-by-month basis, either by counting the actual hours worked by each employee in a month, or by counting the hours worked during a "look back" period; therefore, the $2000 or $3000 would be divided by 12 to calculate the monthly fee.

As of 2016, the penalties will be based on a different formula. Employers with 50+ employees must offer MEC to 95% of their FTEs, or the annual fee will be $2000 x (number of FTEs - 30); under the second scenario, it would be assessed as the lesser of $2000 x (number of FTEs - 30) or $3000 x each FTE who receives a tax credit to purchase coverage on the insurance exchange.

In conclusion, compliance with the Act and the avoidance of penalties will require diligent and detailed record keeping. If an employee who was not previously eligible has a sudden increase in hours, the employer must be on top of that change so it can be sure to offer coverage. That being said, the IRS has imposed a "good faith effort" standard for imposing 2015 reporting penalties for incorrect or incomplete filings. In short, growing pains are to be expected. Preparation is the key.

We would be remiss if we did not at least mention Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2741 (June 30, 2014) in relation to this article on the Patient Protection and Affordable Care Act.

In this widely discussed case, Respondent, a closely-held corporation and its individual owners, objected on religious grounds to an ACA regulation that required Hobby Lobby to provide insurance coverage for its employees that included twenty (20) FDA-approved contraceptives and sterilization procedures. Of the twenty contraceptives and sterilizations procedures covered in the regulation, Respondents objected to four (4) of them because they did not merely prevent pregnancy but were specifically classified as abortifacient and ended the life of an embryo.

Also at issue was the Religious Freedom Restoration Act ("RFRA"), which was signed into law by President Clinton in 1993.

The Court, in a 5-4 decision, held that Hobby Lobby was a "person" with religious freedoms and that the ACA regulation at issue made the practice of its religious beliefs more expensive (i.e., imposed penalties for noncompliance), thereby imposing a burden on the exercise of religion in violation of the RFRA. Id. at 2775-77. As a result, Hobby Lobby was determined to be exempt from the ACA regulation.

Justice Ginsburg offered a vehement dissent calling the decision one of "startling breadth" and fearing that the court had "ventured into a minefield." Her dissent was joined by Justice Sotomayor and in part by Justices Breyer and Kagan.

To read the pleadings and additional coverage on the decision, visit the SCOTUSblog at www.scotusblog.com/case-files/cases/sebelius-v-hobby-lobby-stores-inc/

[1] The Act can be found at Pub. L. 111-148, 124 Stat. 119, codified as amended at various sections of the Internal Revenue Code and in 42 U.S.C.

[2] Minimum Value (MV) is not the same thing as Minimum Essential Coverage (MEC). MEC refers to the coverage an individual must have to comply with the individual mandate and avoid the individual penalty. MV is 60% Actuarial Value and is met when a plan pays on average at least 60% of the actuarial value of allowed benefits under the plan. Even if the coverage offered by the employer fails to meet MV, it may still meet MEC.