Thanks to a special transition rule, employers with 50 to 99 full-time employees (including full-time equivalents) are generally shielded from the Affordable Care Act’s “play-or-pay” penalties until January 1, 2016. Moreover, in a wrinkle that is easily overlooked, any such “mid-sized” employer that already sponsors a health plan operating on a non-calendar-year basis has even more time to comply with these rules.
Health Care Reform
The Supreme Court announced today that it has upheld Affordable Care Act (“ACA”) subsidies for insurance purchased on federally-facilitated exchanges. By a 6 to 3 vote, the Court concluded that the statute allows for subsidies on any exchange created under the ACA. The decision in King v. Burwell may come as a disappointment to some who hoped that the subsidies would be struck down and that the entire ACA would unravel in the aftermath.
In a series of notices and FAQs, the IRS has clearly enunciated its view that an employer’s reimbursement of an employee’s premiums for individual health insurance violates certain provisions of the Affordable Care Act (“ACA”). While reiterating this key point, Notice 2015-17 does grant a limited period of relief for smaller employers. Nonetheless, even those employers should be working toward a June 30 deadline to comply with these ACA constraints.
When it comes to health coverage, many employers draw a distinction between full-time and part-time employees. To be eligible to enroll in the employer’s health plan, an employee must work a minimum number of hours per pay period. But many of those same employers then allow even part-time employees to contribute to a health flexible spending account (“health FSA”). After all, doing so costs the employer nothing (and even saves a modest amount in employment taxes), and why not at least give those employees an opportunity to pay some of their medical expenses on a pre-tax basis? Unfortunately, this paternalistic approach may now subject an employer to substantial daily penalties under the Affordable Care Act (“ACA”).
In the years since the 2010 enactment of the Affordable Care Act (“ACA”), the agencies charged with enforcing the ACA have worried that certain responses to the law’s requirements could negatively affect the overall health insurance system. For instance, because the ACA requires insurers to issue individual health insurance coverage without regard to health status, sponsors of self-funded employer plans may be tempted to shift their high-risk employees into the individual market. But by leaving only healthier employees in the self-funded plans, this approach could result in “adverse selection” – leading to an erosion of the individual insurance market.
Although 9.5% has been a key threshold in determining the “affordability” of employer health coverage, the IRS has just announced (in Revenue Procedure 2014-37) that this threshold will be adjusted to 9.56% for 2015. This adjustment reflects the fact that health insurance premiums have risen more rapidly than incomes. Similar adjustments have also been announced for related percentage thresholds.