Employer Mandate

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What is the employer mandate?

As part of the health care reform law, beginning in 2015, certain employers with 50 or more “full-time equivalent” employees (FTEs) who do not provide affordable health care coverage may be assessed a penalty if at least one full-time employee qualifies for a premium tax credit and uses it to purchase coverage in the health insurance exchange. Additionally, the law requires employers to provide prescribed health coverage while, at the same time, penalizing some employers who may fail to offer what is defined by the law as “affordable” coverage. 

The employer mandate provides two deterrents for business growth. First, the employer mandate discourages small businesses from hiring additional employees because only businesses with 50 or more FTEs may be penalized for not offering the prescribed coverage. Second, the employer mandate penalty, once triggered, is calculated based on the number of full-time employees.

Further, for the first time, this new law defines a full-time employee as someone who works 30 hours per week, averaged over the course of a month, rather than the traditional definition of 40 hours per week.

Employers want to offer health insurance to their employees and want to continue to grow and create jobs. However, the employer mandate threatens to penalize businesses for failing to offer affordable coverage, when—more than ever—people need jobs and employers need help growing and should be encouraged to hire more employees. This law does the opposite at a dangerous time.

How does the employer mandate work?

WHO…has to offer coverage?
Answer: Applicable large employers.

What does this mean?

Only employers with 50 or more “full-time equivalent” employees may be fined for failing to provide coverage to their full-time employees (and their dependants).   In determining whether you have 50 or more full-time equivalent employees, you must include the hours worked by your part-time employees.

WHAT… is required to avoid the penalty?
Answer: Affordable coverage that provides minimum value.

What does this mean?

The rules are still being finalized, but for coverage to be affordable, the statute requires that for low-income employees—defined as those between 100-400% of federal poverty level—the employee’s portion of the premium for individual coverage cannot exceed 9.5% of his/her household income. Secondly, to meet the minimum value requirement, the plan must pay, on average, at least 60% of the costs of covered services.

TO WHOM…must it be offered?
Answer: Full-time employees (and their dependants.)

What does this mean?

A full-time employee, to whom you must offer coverage, is defined as working 30 hours or more a week, averaged over the course of a month. It is not clear what type of coverage, if any, must be offered to the dependants of full-time employees at this time.

OR ELSE…what will happen?
Answer: You may have to pay a penalty, which will vary based on whether you offer coverage or not.

What does this mean?

The penalty associated with the employer mandate is often called a “free-rider” penalty because it is triggered when an employer’s low-income employee “free-rides” on the federal government to obtain health care coverage. Under the law, low-income employees that do not have access to affordable employer employer-sponsored coverage that provides the minimum value are eligible for financial assistance from the federal government, in the form of a premium tax credit, to purchase coverage in the newly created exchange.  This financial assistance will be available to low-income employees with income between 100%-400% of the federal poverty level (FPL), depending on family status.  (For example, a  household income of $92,200 for a family of four in 2012 = 400% FPL).  The penalty amount assessed to the employer will vary based on whether the employer fails to offer any health care coverage at all to full-time employees or offers coverage that is not affordable and/or does not provide the minimum value required.