Affordable Care Act - the Virginia Municipal League

PenaltiesLarge employers can face penaltiesfor either (i) not offering minimumessential coverage to full-timeemployees and their dependents, or(ii) offering coverage that is unaffordableor does not provide minimumvalue. There are a lot of importantterms in that statement. First, withfew exceptions, any standard healthinsurance plan available will qualify as“minimum essential coverage” underthe act (dental or vision-only planswill not, for example). “Dependents”means children up to age 26, but notspouses. “Minimum value” meansthat the plan must have the samevalue as a bronze level plan soldthrough the new health insuranceexchange in Virginia; so unless youself-insure, this is something you cansimply confirm with your insurancebroker. Exchanges are state-based onlinemarketplaces in which individualscan seek subsidized health insurancecoverage. Beginning Oct. 1, individualsin every state will be able to shopfor health insurance and compareplans through the marketplace.The “affordable” part is the termemployers need to worry about.Under the act, a plan is consideredaffordable if the employee’s share ofthe premium, for the employee only,does not exceed 9.5 percent of hishousehold income. For employerswho don’t know what their employee’shousehold income is (most, I suspect),the act allows employers to use theincome from that employee’s W-2for the calculation. Note that the actrequires employers to offer coverageto dependents, but that coverage doesnot have to be affordable.The penalties that will be assessedagainst any large employer for notoffering adequate, affordable coveragefall under two categories. First is thepenalty for not offering coverage atall. Under this scenario, if any fulltimeemployee seeks coverage throughthe exchange and that employee alsoreceives a subsidy for such coverage,the employer will be fined $2,000per year for each full-time employee,disregarding the first 30 full-timeemployees (assessed monthly). Notethat one full-time employee receivinga subsidy through the exchange willresult in a penalty for each full-timeemployee (after the first 30).If a locality offers coverage, butthe coverage is not affordable, that localitymay be fined only for employeeswho actually receive subsidies throughthe exchange, at the rate of $3,000per year, assessed monthly. Thepenalty under this scenario is cappedat the amount the locality could befined for not offering any coverage atall. These amounts will increase withinflation.Full-timeemployeesIn order to avoid penalties, an employermust offer coverage to all fulltimeemployees and their dependents(technically, 95 percent of all full-timeemployees is enough, but it might behelpful to leave a margin of error).A full-time employee is one who, atthe time of hire, is expected to work30 or more hours per week. Manyemployers, including many localities,will have employees whose hours arenot easily predicted. For example,employees who fill-in for others whilethey are on leave, or employees workingmore than one part-time job, maywork unpredictable hours.The act creates a system foremployers to determine whichemployees will be deemed full-time.In the simplest terms, this systeminvolves measuring the hours workedby variable-hour employees for a setperiod of time, determining if theymet the 30-hour per week threshold,and if so, offering them coverage for alimited period of time. While the detailsmake this calculation somewhatcomplicated, they are worth learningand understanding. Employers needto realize that when an employeeapplies for a subsidy through the exchange,the exchange will look to theemployer to verify questions of coverageand hours worked. Verifying anemployee’s hours worked will be theonly way to avoid paying undue penalties.Tracking part-time employees’hours is extremely important.The act is new and complicated,and many areas of uncertainty remain.While it may seem overwhelming,it is important for localities tokeep up with this information. Thebottom line: The only way to makesound budget decisions about healthcare is to understand the AffordableCare Act’s requirements.About the authorJessica Rogers is a local government attorneywith the Richmond law firm of SandsAnderson. Her practice focuses on educationand employment law. Contact her at jrogers@sandsanderson.com or 804-783-7260.10 Virginia Town & City | april 2013