… continued from the October 2013 issue of Louisville Builder magazine
By Stacy Smith Rogers, Grace Communications, LLC
What are the Penalties if You are Required to Offer Health Insurance and Don’t?
Frost Brown Todd attorney Alison Stemler leads the Employee Benefits Law Team within the Tax, Benefits and Entrepreneurial Services Practice Group at Frost Brown Todd and has given numerous talks on the Affordable Care Act. She explained the penalties associated with not adhering to the law:
1. Penalty for Not Offering Coverage
“The penalties apply if you’re a business that employs at least 50 people full-time equivalent employees and you don’t offer major medical health care coverage to 95 percent of the employees who work 30 or more hours,” she explained. Stemler clarified that employees working under 30 hours per week are only counted to determine if you have 50 full-time equivalent employees; they are not counted in calculating penalties and employers need not offer coverage to those working less than 30 hours. “That means if you have 100 people who work over 30 hours a week and you don’t offer coverage to at least 95 of them, you are penalized.” Stemler explained that businesses can exclude five percent of their total number of full-time employees. “The penalty is $2,000 per year times the number of employees working over 30 hours a week. So if you have 100 eligible employees working 30 or more hours per week, you don’t want to mess up and only offer coverage to 90 of them, since you are required to cover 95 of them,” she added. If you only offer coverage to 90 of them, the annual penalty is $140,000 ($2,000 x (100-30).
Stemler also noted that people who own two or more businesses will need to total employees for both or all of those businesses when determining the whether they employ 50 or more full-time equivalents. If they do, the 30 “free” employees are shared pro-rata by the commonly owned businesses.
2. Penalty for Not Offering Affordable, Minimum Coverage
“The second penalty applies when you don’t offer coverage that’s affordable or it doesn’t offer minimum value,” Stemler said. Affordable equates to the employee’s share of the premium for the lowest-cost single only coverage being not more than 9.5 percent of an employee’s monthly income for single coverage. “One way you can be safe is to look at the single person federal poverty line and don’t charge any more than 9.5 percent of that,” she explained, referencing $90/month as a safe fee for the minimum single coverage fee. The law, as explained by Stemler, focuses on single coverage, not family coverage and the 9.5 percent rule applies to the cheapest option offered, not the most expensive in the tier of options a company offers. The penalty for going above that 9.5 percent is $3,000/per employee who goes to an exchange and purchases subsidized coverage person. But, she noted, this penalty can never be more than the $2,000 times all employees penalty that would apply if coverage was not offered at all.
Plans also need to meet minimum value requirements. “Minimum value is something that most policies meet. If you look at what’s offered through the exchange, that’s the bronze level equivalent.” Stemler emphasized that the federal government is going to be looking at these offerings each month. “They want to make sure of at least two things — that you offered it and it was affordable. It’s important that businesses revisit their programs and make sure they are offering it to 95 percent of employees and have an option in their program that’s not above $90/month for single coverage.”
Note: Anyone earning below 133 percent of the poverty level is not eligible for a subsidy on the exchange because they are eligible for Medicaid, at no cost. Therefore, there is no potential $3,000 penalty for those earning that little, but they do count for the $2,000 penalty if the coverage is not offered.
Are You Considering Shopping Through the Exchange?
Employers who want to offer health coverage to their employees are now eligible to to purchase it through the state’s exchange, “kynect.” For small businesses with fewer than 50 employees, kynect offers the Small Business Health Options Program (SHOP). Significant tax credits may be available through kynect for businesses with certain requirements. However, as business owners do research, they could find that some of those discounts are canceled out due to the rating associated with specific plans.
Visit kynect.gov to understand more about the state’s healthcare exchange program or call the call center at 1-855-459-6328 between 8 a.m. to 7 p.m. Monday through Friday (Saturday hours will begin Oct. 1 with open enrollment).