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  • An Overview of the Employer Mandate under the Patient Protection and Affordable Care Act

    The Patient Protection and Affordable Care Act (“PPACA” or the “Act”) includes an “employer mandate,” which requires that all employers with more than fifty full-time employees must offer health insurance or face a penalty. Starting in 2015, these employers must offer health insurance that is “affordable” (meaning the employee contributions are less than 9.5% of their household income) and the plan must be one of “minimum value,” meaning that the plan covers 60% of the cost of covered health services. The plan must cover “dependents” of the employee, that is, all children age 26 and under. Spouses are not considered “dependents” under the PPACA and thus an employer is not obligated to provide insurance to employee’s spouse.

    If an employer of more than fifty full-time individuals does not offer health insurance that meets these requirements, and at least one employee purchases health insurance through an Exchange (a state or federally run marketplace for purchasing insurance), the employer will be subject to a tax penalty in the amount of $2,000 for the total number of employees minus 30. By way of example, if an employer had fifty full time employees but did not offer health insurance, this employer would pay a tax penalty of $40,000 (50 – 30 = 20; 20 x $2,000 = $40,000).

    If an employer offers insurance but it does not meet the “affordable” or “minimum value” requirements of the PPACA, the employer will also face a penalty. The amount of this penalty is $3,000 for each employee receiving a subsidy for purchasing health insurance from an Exchange, but cannot exceed $2,000 times the total number of employees minus thirty. Essentially, this limits the penalty for employers offering insurance that does not meet the standards of the PPACA to an amount equal or lesser than that employer would pay if it did offer insurance at all.

    Determining whether an employer has fifty or more employees is may not be as simple as it seems. The Act defines a full time employee as one working thirty or more hours a week. Seasonal employees are not included in that number. However, part-time employees are considered when determining whether a business will be subject to the employer mandate. The Act requires that the employer divide the total number of hours being worked in a month by part time employees by 120, and then add that number to the total number of employees working thirty or more hours a week. If this number exceeds fifty, the employer will be subject to the penalty if it does not offer health insurance to its full time employees.

    For example, if a company has forty full time employees and twenty part time employees who each work 20 hours a week (80 hours a month), the company would determine if it was subject to the mandate with the following calculations: 20 x 80 = 1600, 1600/120 = 13.33, 40 + 13.33 = 53.33. This company would thus be subject to the mandate if it chose not to offer insurance meeting the requirements discussed above to its forty full-time employees.

    Sections 1511 through 1515 of the PPACA establish the employer mandate and the rules governing it.

    The employer mandate has been subject to widespread scrutiny and, as it is implemented, will likely be the topic of various lawsuits and challenges, some of which could impact the entire health care system.

    If your institution has questions or concerns about this topic and you would like further information, please email James G. Ryan at jryan@cullenanddykman.com or call him at (516) 357 – 3750. This article was written with Ariel Ronneburger, an associate at the firm.