Some Employers Will Have a Cheat Sheet for 2015 ACA Decisions

Some Employers Will Have a Cheat Sheet for 2015 ACA Decisions

One challenging issue employers faced when making ACA decisions before the delay to the Play or Pay Mandate was there was no data on which to base strategic decisions.  Employers did not know how many employees would apply for a premium tax credit which is the trigger mechanism for all penalties associated with the Play or Pay Mandate.  Consequently, employers were being forced to make the critical decision as to whether to Play or Pay based on, at best, imprecise estimates.  Fortunately for employers, the government delayed the Play or Pay Mandate until 2015 which should give certain employers key data to make a more sophisticated Play or Pay decision.

An individual applying for a premium tax credit must provide certain employer information to the Exchange.  Among other information, an individual must provide the name and address of his/her employer, whether his/her employer provides minimum essential coverage, and the lowest cost option offered by his/her employer based on his/her contribution.

The information the Exchange collects from an individual will provide the Exchange with all the necessary information to contact the employer with a required notice that its employee is receiving a premium tax credit.  The notice is one of the safeguards the government has in place to prevent an individual from lying to receive a premium tax credit.  This notice to the employer is required for each individual who is receiving a premium tax credit.  The requirement to notify the employer is not conditioned on the employer being penalized under the Play or Pay Mandate, so employers should receive this notice in 2014.

An employer offering compliant Play or Pay Mandate coverage to its workforce in 2014 should not receive any notice from the Exchanges.  However, if an employer did not offer coverage to its workforce, offered coverage that did not provide minimum value, or offered coverage that was not affordable, the employer should receive a notice for each employee who is receiving a premium tax credit in 2014.  Employers receiving the notices will have a valuable piece of information to make their Play or Pay decision in 2015.

An example will help illustrate why the information is valuable.  Suppose RNB Manufacturing has 100 employees.  Each employee makes around $30,000 per year.  Some make a little more and some make a little less, but each employee could potentially be eligible for a premium tax credit in 2014 if the other conditions are satisfied.  RNB has not offered insurance to its employees in the past and it decided not to offer insurance in 2014.  RNB has not decided whether it will Play or Pay in 2015.  In April of 2014 RNB receives a notice from the Exchange in the State in which it operates with a list of 30 employees who received a premium tax credit in the first three months of 2014.

The notice provides RNB valuable information that it could use to make an informed Play or Pay decision in 2015.  If RNB continues to offer no insurance, it would owe a penalty of $140,000 ($2,000 x (100 – 30) = $140,000) for the 2015 calendar year.  However, with the information that only 30 employees received a premium tax credit in the first three months of 2014, RNB may be better offering some form of skinny plan to its employees and accepting the $3,000 penalty per employee that receives a premium tax credit in 2015.  If RNB elects a skinny plan strategy for 2015 and only 30 employees receive a premium tax credit, RNB would be responsible for a $90,000 ($3,000 x 30 = $90,000) penalty for the 2015 calendar year.  If RNB’s share of the cost of the skinny plan is less than $50,000 ($140,000 – $90,000 = $50,000), RNB would be in a better financial position by offering a skinny plan in 2015 instead of not offering coverage.

Employers may be skeptical that only 30 percent of their employees will receive a premium tax credit, but there are myriad reasons employees may not apply for or be eligible for a premium tax credit.  Employers using the notices that are required by law must keep in mind that the individual penalty for not maintaining health insurance increases in 2015.  This along with a few other factors could skew the number of employees who receive a premium tax credit in 2015 compared to 2014.

There are a plethora of options for employers facing the Play or Pay decision in 2015. Certain strategies taken in light of the notices provided by the Exchange could create FLSA §18C issues, so an attorney should be consulted to consider your particular situation.  It cannot be stressed enough, the sooner an employer starts exploring the different options available to them, the easier it will be to create a cost-effective ACA solution that works for both the employer and the employees.

Legal Consent – The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation.  Copyright © 2014 by Health Care Attorneys P.C. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.