Demystifying the Affordable Care Act

Daily Herald 4/15/2013:

Six months from now, Illinoisans will get the first glimpse of what their coverage options will be in 2014 when the new health insurance exchange opens its doors on Oct. 1; however, for Illinois’ employers, the Affordable Care Act is not just about redefining our health coverage options in the very near future.

The ACA is an extraordinarily complex law that for many employers is nearly impossible to fully digest, but understanding the potential impact the law has on the structure of the workforce and employer-sponsored coverage is essential to ensuring employers and their employees and families are not caught flat-footed in 2014.

So when employers ask where to begin, it begins now with counting heads because under the ACA, employer size matters and it matters this year.

The federal law exempts employers with fewer than 50 employees from the “pay or play” provisions by which employers with 50 or more employees must abide. Determining employer size and application of “pay or play,” however, relies not only on the law’s definition of a full-time employee as any employee who averages at least 130 hours per month, but also the number of employees who average less than 130 hours a month, otherwise known as full-time equivalent employees (FTEs). An employer’s FTEs equal the number of non-full-time employees multiplied by their total average hours worked in a month divided by 120.

Employers that have determined their size exposes them to “pay or play,” otherwise referred to as applicable large employers, the next step is to evaluate health benefit offerings, if any. Here are some key considerations for the benefit evaluation phase:

* Coverage must be offered to all full-time employees and their dependents. While FTEs only impact employer size determination and whether or not the employer is subject to “pay or play,” full-time employees (averaging at least 130 hours a month) and their dependents (excluding spouses) must at least have the opportunity to enroll in employer-sponsored health coverage. The full-time employee may waive that coverage, at which point the employer has fulfilled their obligations under the law, but failure to offer could result in a penalty.

* Coverage must be affordable. Employer-sponsored coverage that is offered to full-time employees and their dependents cannot require the employee’s share of the premium to exceed 9.5 percent of their W-2 wages, rate of pay, or the federal poverty level for a single household ($11,490 in 2014) and must cover at least 60 percent of the plan’s medical costs. Affordability is also measured along the employee-only plan and not what an employee pays for dependent or family coverage.

* Employee eligibility for subsidized coverage on the exchange triggers the penalty. Failure to offer affordable coverage does not automatically result in a penalty assessment, but it does open up the possibility of full-time employees seeking out coverage options on the new health insurance exchange that may qualify them for premium assistance. Premium assistance is available to those individuals and families at or below 400 percent of the federal poverty level ($94,200 for a family of four in 2014) and who do not otherwise have access to affordable employer-sponsored coverage.

* Employee eligibility for Medicaid coverage does not trigger a penalty. Employees who qualify for Medicaid coverage will not expose the employer to a penalty, even if the employer fails to offer affordable coverage; an important consideration for employers trying to wrap their head around their possible penalty exposure in 2014.

States like Illinois that have not yet given the official green light to expand Medicaid eligibility along the terms originally envisioned by the ACA may put employers at greater risk for absorbing higher penalty costs in 2014 as employees who would otherwise be eligible for Medicaid seek out subsidized coverage on the exchange.

For employers that miss the mark on affordability, the penalty assessed equals $2,000 per employee per year, if at least one full-time employee accepts premium assistance to purchase coverage on the health insurance exchange. For employers that choose not to “play,” the penalty assessed equals $3,000 per full-time employee (minus the first 30) per year, again, if at least one full-time employee accepts premium assistance to purchase coverage on the health insurance exchange.

* Laura Minzer is associate vice president, government affairs executive director, Healthcare Council Illinois Chamber of Commerce. lminzer@ilchamber.org

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