2015 is a significant year for health care reform because the large employer shared responsibility penalties under Internal Revenue Code Section 4980H take effect for most large employers. See our SW Benefits Update, “Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers,” for a detailed explanation of the large employer penalties.
Many people are under the mistaken impression that Health Care Reform might go away because of the recent changes in Congress. As explained below, that is not likely anytime in the near future. Accordingly, large employers may wish to move forward now with their large employer penalty compliance efforts.
Increasing the Full-Time Employee Threshold to 40 Hours
With the recent changes in Congress, a bill has been introduced that would raise the hours threshold for determining full-time employees, under Code Section 4980H, from 30 hours per week to 40 hours per week. However, it appears likely that if such legislation passes, it will be vetoed by President Obama. Accordingly, it is doubtful such legislation will become law, and employers may wish to be cautious assuming it will.
King v. Burwell
Another issue that is causing confusion is the King v. Burwell case. At issue in this case is whether residents of states that have federal Health Care Exchanges, rather than a state Health Care Exchange, are eligible to receive subsidies from the federal government to help pay for Health Care Exchange coverage. Oral arguments in the case are set for March 4th, and a decision is expected at the end of June.
There is a definite possibility that the Supreme Court will uphold the Internal Revenue Service position that residents in states with either a state or federal Health Care Exchange are entitled to receive the subsidies, in which case nothing changes. If, instead, the Supreme Court decides that residents of states that have federal Health Care Exchanges are not entitled to subsidies, such a ruling does not mean the large employer penalties, or any other parts of Health Care Reform, are going away. However, the latter ruling might be helpful for a large employer that only has employees who are residents of a state with a federal Health Care Exchange because an employer may not be subject to large employer penalties if none of its employees qualify for subsidies. Such a ruling would likely not help employers who operate in multiple states, some of which have state Health Care Exchanges. Furthermore, if the Supreme Court holds that individuals in states with federal Health Care Exchanges are not eligible for subsidies, it is possible that some of those states will adopt state Health Care Exchanges so their residents can continue to receive the subsidies.
There is continued talk of repeal efforts. Even though Republicans have a majority in both the House and the Senate, it does not appear that the House Republicans have the votes to override a veto by President Obama. Therefore, employers may wish to concentrate on compliance, rather than relying on repeal talks to forestall it.
• With Health Care Reform seemingly here to stay, and the large employer penalties taking effect January 1, 2015 for most large employers, employers need to:
• Offer appropriate coverage to at least 70% of their full-time employees and dependents. Doing so avoids the Code Section 4980H subsection (a) penalty.
• Make sure the offered coverage is “minimum value” and “affordable” for as many full-time employees as possible in order to minimize the Code Section 4980H subsection (b) penalty.
• Perform monthly coverage testing starting in January 2015 to show that they offered coverage to at least 70% of their full-time employees and dependents during each month of 2015. In 2016 and later years, large employers must pass a 95% coverage test each month. Coverage testing is done on a company-by-company basis for companies that are part of a controlled group or affiliated service group.
• Keep records showing that they made appropriate offers of coverage to full-time employees, which might include a copy of the open enrollment materials for 2015, along with a list showing the employees to whom that offer of coverage was made. As employers hire new employees in 2015, they additionally need to document that they made appropriate offers of coverage to new full-time employees.
• Gear up for Section 6055 and Section 6056 reporting. This will require W-2-type reporting of minimum essential coverage and offers of coverage for 2015, the reporting of which will occur in January 2016. See our SW Benefits Updates, “Section 6055 Reporting of Health Plan “Minimum Essential Coverage” for Small and Large Employers” and “Section 6056 Reporting of Health Coverage Information for Large Employers” for more information.
For further information about the Section 4980H penalties, please see our SW Benefits Update, “Health Care Reform’s Employer Shared Responsibility Penalties: A Checklist for Employers.”