A few weeks ago, we joined with Aflac Inc. (NYSE:AFL) to run a webinar on the possible effects of the Patient Protection and Affordable Care Act (PPACA) on the commercial health insurance community.
Webinar attendees submitted 44 questions about topics more substantive than “How do I find a recording of the webinar?” (The answer to that question: Please click here. Fill out a registration form and you will get access to the webinar archive.)
Last week, we also answered questions about topics such as, “Why does everyone seem to refer to PPACA in a different way?”
The underlying, unspoken question seemed to be, “What will happen to me?” and “What does all of this mean for dental and vision insurance?”
This week, we take on questions about matters such as employee counting and producer compensation.
Please note that that, in many cases, we’re basing these answers on our understanding of draft government regulations or batches of draft federal agency “guidance” that are not even officially finished, let alone imbued with any kind of binding authority.
Even if some regulation or ruling does have binding authority, lawmakers, regulators, interest groups and others are still using many different strategies to block or change PPACA, and just about every individual regulation or ruling related to PPACA. That means any answer we give here is subject to dramatic change.
The bottom line is: Think of these questions and answers as a tool for starting conversations about PPACA with your favorite legal, accounting and legislative affairs advisors, not as a substitute for competent professional advice.
1. Is the government imposing the PPACA tax penalty for employers that fail to offer a minimum level of health benefits based on the number of full-time equivalent (FTE) employees, or also on part-time employees?
2. Is the penalty for not offering coverage based on the number of true, full-time eligible employees, or the total of the full-time eligible employees plus the additional FTEs also?
The Internal Revenue Service (IRS) will actually be using at least two sets of employee counting rules for purposes of applying PPACA.
The IRS expects to use one set of rules to count how large the employer is, to figure out what the employer is big enough to have to worry about the “shared responsibility” standards– also known as the “play or pay provisions.”
The IRS expects to use a second set of employee counting rules to determine the size of the penalty that the employer must pay.
The IRS explained its approach to counting employees in a set of PPACA coverage requirements answers posted in December 2012.
The current IRS formula for counting employer-size FTEs includes part-time workers.
“To be subject to these employer shared responsibility provisions, an employer must have at least 50 full-time employees or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees,” the IRS says in one answer. “For example, 100 half-time employees equals 50 full-time employees.”
When an employer is calculating its coverage mandate penalty payment, it will have to pay a number equal to “the number of full-time employees the employer employed for the year (minus 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit.”
The IRS goes on to note that, “for purposes of this calculation, a full-time employee does not include a full-time equivalent.”
In other words: One set of rules indicates that an employer with few full-time employees and many part-timers could be subject to the PPACA employer coverage standards.
In real life, however, it looks as if only employers with a combination of 20 true full-time workers and enough part-time workers that the part-timers amount to 30 part-time equivalents will actually end up making penalty payments. An employer with 10 true full-time workers, 40 half-time workers and lousy health benefits would not have to pay the penalty, but an employer with 20 true full-timers, 60 half-time workers, and lousy health benefits would have to pay the penalty.
3. If the employee has a family that is covered by the plan, and the cost of the family coverage exceeds 9.5 percent of the employee’s W-2 wages, does the plan count as being affordable? If so: That seems to penalize the single employee.
The Sibson Consulting division of Segal has a great explanation of the IRS final rule on the “9.5 percent test.”
The IRS is being nice to everyone when it comes to letting them out of having to pay the PPACA “shared responsibility” penalty taxes, but stingy when it comes to letting workers qualify for the new PPACA health insurance purchase subsidy – the premium assistance tax credit – as a result of lack of access to affordable coverage.
As long as an employer offers bronze-level, employee-only coverage such that each employee’s share of the premiums is less than or equal to 9.5 percent of the employee’s W-2 wages from that employer, that employer has met the PPACA employer health coverage standards.
If John Doe, a single employee, finds that his share of the premiums for the employee-only coverage would exceed 9.5 percent of his entire household income, he can qualify for the premium assistance tax credit.
But: Does can escape from having to pay the new PPACA tax to be imposed on individuals without a minimum level of health coverage even if his share of the employee-only coverage exceeds just 8 percent of his household income. In other words: It’s a little easier for him to get out of paying the penalty than to get a tax credit.
If Jane Smith, a married employee, finds that her contribution for family coverage would exceed 8 percent of her family’s household income, she could escape from having to pay the new PPACA no-coverage tax.
But: Even if Smith’s share of the premiums for the family coverage exceeded 9.5 percent of her income, she could not get a premium assistance tax credit and use the money to pay for family coverage. The government is not planning to do anything new to help workers with families pay for the spouses’ and children’s benefits in situations in which the workers’ share of the cost of those benefits would be unaffordable.
Some are speculating that the IRS took this approach partly to hold down the cost of the premium assistance tax credit program, and partly to encourage employers to continue to subsidize the cost of the family members’ benefits, rather than cheerfully shipping the family members off to the exchanges. Employers will have the legal right to send the family members to the exchanges, but they will end up looking mean.