Developing guidance could free employers from ACA mandate

A future path for employers to avoid ACA employer mandate penalties was outlined in a recent IRS notice. Read this blog post from Employee Benefits News to learn more.

A recent IRS notice provides a future path for employers to avoid ACA employer mandate penalties by reimbursing employees for a portion of the cost of individual insurance coverage through an employer-sponsored health reimbursement arrangement.

While the notice is not binding and at this stage is essentially a discussion of relevant issues, it does represent a significant departure from the IRS’s current position that an employer can only avoid ACA employer mandate penalties by offering a major medical plan.

Here is everything employers need to know.

Background: As described in more detail in a previous update, the ACA currently prohibits (except in limited circumstances) an employer from maintaining an HRA that reimburses the cost of premiums for individual health insurance policies purchased by employees in the individual market.

Proposed regulations issued by the IRS and other governmental agencies would eliminate this prohibition, allowing an HRA to reimburse the cost of premiums for individual health insurance policies (individual coverage HRA) provided that the employer satisfies certain conditions.

The preamble of the proposed regulations noted that the IRS would issue future guidance describing special rules that would permit employers who sponsor individual coverage HRAs to be in full compliance with the ACA’s employer mandate. As follow up, the IRS recently issued Notice 2018-88, which is intended to begin the process of developing guidance on this issue.

On a high level, the ACA’s employer mandate imposes two requirements in order to avoid potential tax penalties: offer health coverage to at least 95% of full-time employees (and dependents); and offer “affordable” health coverage that provides “minimum value” to each full-time employee (the terms are defined by the ACA and are discussed further in these previous updates).

Offering health coverage to at least 95% of full-time employees: Both the proposed regulations and notice provide that an individual coverage HRA plan constitutes an employer-sponsored health plan for employer mandate purposes. As a result, the proposed regulations and notice provide that an employer can satisfy the 95% offer-of-coverage test by making its full-time employees (and dependents) eligible for the individual coverage HRA plan.

Affordability: The notice indicates that an employer can satisfy the affordability requirement if the employer contributes a sufficient amount of funds into each full-time employee’s individual coverage HRA account. Generally, the employer would have to contribute an amount into each individual coverage HRA account such that any remaining premium costs (for self-only coverage) that would have to be paid by the employee (after exhausting HRA funds) would not exceed 9.86% (for 2019, as adjusted) of the employee’s household income.

Because employers are not likely to know the household income of their employees, the notice describes that employers would be able to apply the already-available affordability safe harbors to determine affordability as it relates to individual coverage HRAs. The notice also describes new safe harbors for employers that are specific to individual coverage HRAs, intending to further reduce administrative burdens.

Minimum value requirement: The notice explains that an individual coverage HRA that is affordable will be treated as providing minimum value for employer mandate purposes.

Next steps: Nothing is finalized yet. Employers are not permitted to rely on the proposed regulations or the notice at this time. The proposed regulations are aimed to take effect on Jan. 1, 2020, if finalized in a timely matter. The final regulations will likely incorporate the special rules contemplated by the notice (perhaps with even more detail). Stay tuned.

This article originally appeared on the Foley & Lardner website. The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

SOURCE: Simons, J.; Welle, N. (17 January 2019) "Developing guidance could free employers from ACA mandate" (Web Blog Post). Retrieved from



From The ACA Times, let's take a look at ACA Health Coverage in 2018.

It was meant to have the opposite effect.

The Trump administration’s decision to undermine the Affordable Care Act (ACA) by shortening the annual open enrollment period to 45-days and cutting funding to promote open enrollment was predicted to reduce the number of people who might seek insurance coverage for 2018 on

Instead, more than 600,000 people signed up for health insurance under the ACA in the first four days of enrollment. According to Reuters: “The Centers for Medicare & Medicaid Services, a division of the Department of Health and Human Services, said that during the period of Nov. 1 through Nov. 4, 601,462 people, including 137,322 new consumers, selected plans in the 39 states that use the federal website”

Access to healthcare remains top of mind for Americans. For instance, exit polls in Virginia for state elections found healthcareto be the most pressing issue on the minds of voters who elected a Democratic governor in that state. And entrepreneurs and small businesses owners and employees are among those that benefit greatly from having access to healthcare insurance plans through the ACA.

For employers, all this, along with recent guidance from the IRS, points to the ACA continuing strong and the employer mandate being enforced. If you haven’t done so already, now is the time to assess your compliance with the ACA and what data you need to file ACA related forms with the IRS for the 2017 tax year.


Read the original article.

Sheen R. (20 November 2017). "WHY IT MATTERS THAT MORE PEOPLE SIGNED UP FOR ACA HEALTH COVERAGE IN 2018" [Web blog post]. Retrieved from address

Supreme Court's Ruling Means No ACA Compliance Reprieve

Originally posted by Stephen Miller on June 26, 2015 on

In what many are viewing as an anticlimax, the U.S. Supreme Court’s June 25 ruling in King v. Burwell left the status quo in place regarding the Affordable Care Act’s (ACA's) tax-credit subsidies for individual “marketplace” coverage and, indirectly, the employer mandate to provide group health care coverage. Under the ACA, employer penalties are triggered when employees receive insurance tax credits because their employer-provided plan failed to meet ACA coverage specifications.

But health care policy wonks are pointing out what should have been obvious, though it is a lesson that some plan sponsors may have forgotten: As long as the law is the law, it's the law. In other words, some might wish that the courts, Congress or a future administration will alter or rescind the statute. But unless and until that happens, employers should take all necessary steps to maintain compliance with the ACA's coverage and reporting requirements—and not delay doing so in the hopes of a last-minute penalty reprieve.

Ruling's Impact for Employers

In an online commentary posted the day of the ruling, Timothy G. Verrall and Hera S. Arsen, attorneys with law firm Ogletree Deakins, explained that:

Importantly, the Court’s decision does not alter employer responsibilities under the ACA’s “employer mandate” and its related tax reporting obligations. Since the enforcement mechanism behind the employer mandate—tax penalties under Code Section 4980H—are premised on the availability of tax-credit subsidies for exchange coverage, had the Court rejected the IRS’s approach, the “teeth” of the employer mandate would have effectively been removed in the majority of states where federal exchanges operate. However, the Court’s decision affirms the IRS’s regulatory approach, thereby preserving the employer mandate as well.

“This court’s decision confirms the advice we have given since the Affordable Care Act was adopted,” added Joel A. Daniel, the practice group leader for Ogletree Deakin’s employee benefits practice, in the same commentary. “Employers should plan their compliance strategies based on the assumption that the act and the regulations issued under it are here to stay.”

In a similar vein, Shawn Jenkins, CEO of benefits management and administration firm Benefitfocus, commented that the ruling “is another strong indication that ACA is here to stay. The result is more clarity for employers and carriers as to the stability of ACA allowing them to move confidently forward in their benefits planning.”

Driving the point home, the takeaway highlighted in an analysis of the decision by consultancy PricewaterhouseCoopers confirmed that “full on implementation of the ACA may now proceed,” adding:

Employers and insurers are facing the ACA mandates and associated reporting, and must be diligent to gather all the required information and implement the processes and procedures to comply with these requirements and provide the annual forms to individuals and the IRS next January. Planning to avoid the employer mandate penalties, as well as the 2018 tax on high cost plans, will occupy the attention of tax professionals, HR administrators and payroll departments, as well as internal audit and finance.

Many HR benefit managers will consider that an understatement.

Options for Small Businesses

Maintaining the status quo doesn't imply there will be no other ramifications from the ruling beyond affirming the need for vigilant compliance, but the effects will likely be most pronounced on firms that are not subject to the ACA’s “shared responsibility” mandate to provide health coverage.

By upholding premium tax credits to individual policyholders for health care purchased through the ACA’s public exchanges, including the federal marketplace, the King ruling makes it more likely that small employers not subject to the coverage mandate (those with fewer than 50 full-time employees or part-time equivalents) will shift away from group coverage.

“Small business owners, who are most affected by increasing premiums, now have the certainty needed to help transition themselves and employees to the individual market, which we expect to increase to more than 100 million by 2025," predicted Zane Benefits, which helps small businesses reimburse employees for individual health insurance plans. “We expect small businesses [not subject to the employer mandate] to continue to offer health benefits to employees in the form of monthly allowances (or ‘stipends’)” in lieu of providing group health coverage.

Not the End of the Story

While it should not deter employers from complying with the act, there could still be some rather significant fixes and adjustments made to the ACA. “Knowing that the ACA will be upheld, one would expect Congress to get more aggressive in working to improve it rather than rescind it,” said Jenkins.

Congress is already moving to pass and send revisions of the law to the president (which he, of course, may veto). These include, as Zane Benefits pointed out, measures to simplify the overly complex employer IRS reporting requirements, and to change the definition of a full-time employee to 40 hours per week (versus the current 30), while at the same time adjusting the definition of large employers to only include employers with 100 or more employees.

Similarly, the ERISA Industry Committee (ERIC), representing benefit plan sponsors, issued a statement contending that while the Supreme Court had removed a source of potential uncertainty with its decision, much legislative work is still needed to fix the underlying law.

“With the legal case settled, Congress should use this opportunity to repeal the burdensome and unnecessary taxes, mandates and reporting requirements imposed by the ACA,” said Annette Guarisco Fildes, president and CEO of ERIC. “Specifically, we want Congress to repeal the 40 percent health care excise tax, the employer mandate and all the related reporting requirements.”

The Society for Human Resource Management (SHRM) also took note that “While [the tax-credit subsidy] provision of the statute remains intact, other challenges in the ACA remain for employers. SHRM pledges to work with policymakers to address these challenges, including the definition of a full-time employee, the pending excise tax on high-value health care plans, and employer flexibility in offering wellness programs.”

Adding to the litany, the Business Roundtable, representing corporate CEOs, released a statement saying that “Moving forward, we believe Congress and the administration should address the problems that still accompany the Affordable Care Act, such as the medical device tax, insurance tax, pharmaceutical tax and the complexity of complying with the regulatory requirements.”

So while the Supreme Court's ruling ends a frontal assault on the act that could have undermined the foundation on which employer penalties rest, legislative skirmishes will continue. But that's no excuse for employers not complying with the ACA as it currently stands.

IRS Confirms W-2 Safe Harbor to Determine Plan Affordability

Originally posted by

The employer mandate, effective beginning in 2014, requires employers with 50 or more employees to pay a penalty if certain conditions are not met. One of these conditions is to provide affordable coverage. Coverage is considered to be affordable if an employee’s required contribution does not exceed 9.5% of the employee’s household income – something that is not readily accessible by employers. As previously reported, the IRS proposed a safe harbor that would allow employers to use the W-2 wages of an employee to determine whether coverage is affordable for purposes of the employer mandate, instead of using household income. In Notice 2012-58, The IRS confirms that the Form W-2 safe harbor will be available to employers to determine affordability with respect to the employer penalty provisions, at least through 2014. To take advantage of the safe harbor, employers must offer full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan, and ensure that the employee portion of the self-only premium for the employer’s lowest cost coverage that provides minimum value does not exceed 9.5% for the employee’s W-2 wages. Application of the safe harbor would be determined after the end of the calendar year and on an employee-byemployee basis, taking into account the employee’s particular W-2 wages and contribution. The safe harbor can also be used prospectively, at the beginning of the year, by structuring the plan to set the employee contribution at a level that would not exceed 9.5% of the employee’s W-2 wages. It is important to note the safe harbor only applies for purposes of determining whether an employer’s coverage satisfies the affordability test for purposes of the employer mandate – it would not affect an employee’s eligibility for a premium tax credit, which continues to be based on the affordability of employer-sponsored coverage relative to an employee’s household income. Thus, in some cases, this means that an employer’s offer of coverage to an employee could be considered affordable based on W-2 wages for purposes of determining whether the employer is subject to a penalty under the employer mandate, and the same offer could be treated as unaffordable based on household income for purposes of determining whether the employee is eligible for a premium tax credit (i.e., no penalty even though the employee receives subsidized coverage in the Exchange). Although the guidance is helpful to employers and will make it easier to look at contribution structures for benefit programs in 2014, further guidance is still needed in several areas, including what constitutes a “minimum value” plan, and what constitutes providing coverage to “substantially all” full-time employees in order to avoid the application of the penalty that applies with respect to not offering coverage.

Does the employer mandate matter?

Originally posted June 27, 2014 by Kathryn Mayer on

Over the past few years, the Patient Protection and Affordable Care Act has had no shortage of scrutiny.

But the employer mandate, perhaps more than any provision, has become a lightning rod for criticism of the law. The provision — once thought of as a key, if not essential, part of PPACA — since its inception has been vehemently attacked by employer groups and business owners. Originally scheduled to go into effect in 2014, the mandate has twice been delayed by the administration, which says it needs more time to implement the provision.

Under the latest delay, announced in February of this year, employers with between 50 and 99 employees have until January 2016 to offer health insurance or pay a fine, and employers with more than 100 employees must offer insurance or pay a fine of $2,000 per worker by January 2015. Companies with fewer than 50 employees are exempt.

Attention to the mandate hit a new high at the Benefits Selling Expo back in April, when Robert Gibbs predicted during a keynote address that the mandate would never be put into effect.

“I don’t think the employer mandate will go into effect. It’s a small part of the law. I think it will be one of the first things to go,” he said to a notably surprised audience.

Gibbs, a former longtime advisor to President Barack Obama, noted there aren’t many employers who fall into the mandate window. He said the delays point to the fact that the mandate “will never happen.”

Media outlets quickly ran with the news, prompting the White House to respond.

House Minority Leader Nancy Pelosi, D-Calif., maintained that PPACA’s employer mandate will — and must — remain part of the law.

Appearing on CNN’s “State of the Union,” Pelosi said that the “employer mandate, the individual mandate, are an integral part” of PPACA, “This is an initiative that has strong pillars in it that relate to each other.”

Even if it’s nothing more than political fodder over the often controversial law, the latest debate raises the question: Will PPACA’s employer mandate really go into effect? And perhaps more importantly, does it matter?

Mandate doesn’t matter

Experts at the Urban Institute researched this very idea. Their overall consensus? Eliminating the mandate “certainly wouldn’t spell disaster.”

Overall, the Washington, D.C., based think tank said, eliminating the mandate would have little effect on employer-sponsored coverage, would “remove labor market distortions” in the law, and might even squash some of the political opposition.

First of all, it would “scarcely affect the total number of Americans who have coverage.” Even without the mandate, 250.9 million people will have coverage, compared to 251.1 million — only 200,000 more — if the mandate remains intact, researchers said.

“So many people have coverage through their employer now, and no one is requiring them to do,” says Linda Blumberg, a health economist and senior fellow at The Urban Institute. “But there are still incentives for [employers] to do it. It’s a way for them to retain and attract the kinds of workers they want. What we did [in our report] was analyze the tradeoff — firm by firm, worker by worker — and look at how employers make these decisions. And for most of them, they will continue to do this to keep employees happy.”

Frankly, Blumberg says, the employer mandate isn’t central to PPACA’s overarching goals.

“The employer mandate isn’t what’s driving the increase of health insurancecoverage; the individual mandate is,” she says. “And also the subsidies. You don’t want to think about the employer and the individual mandate in the same breath. They are very different. One is really essential to it achieving its goal, and one really isn’t.”

Another advantage of eliminating the employer mandate is simply to please employers. Groups such as the U.S. Chamber of Commerce and the National Retail Federation have been asking for the mandate to be repealed all along. They’ve argued over detrimental effects: that numerous companies would downsize or cut hours for their employees to dodge the rule. So not only will killing the mandate subdue those concerns, but, Blumberg says, it could get employers to focus on more important issues — and potentially get them on board with supporting the controversial law.

By taking away those requirements for employers, Blumberg says, “you lessen, significantly, the political resistance to the law from employers.”

“If we could get employers more involved with making sure that the workers have coverage, instead of them worrying about how to avoid [the mandate] or being angry about a requirement that might not even affect them, this could be more successful,” she says. “You take away that friction that the employer community has felt, and I think that’s an advantage for broad-based implementation of the law.”

The mandate matters

Still, there are reasons to be cautious about repealing the mandate. One significant one is funding.

By eliminating the employer penalties and the expenses for employee subsidies, the repeal would open a giant hole in PPACA’s financing. The Congressional Budget Office has estimated that gap at $140 billion through 2023, while the Urban Institute places it lower, at about $46 billion.

“What we found was smaller than what the CBO estimated, but still, penalties make the revenue,” Blumberg says. “That helps support the cost of the program. I would expect it would have to be replaced by another revenue source.”

Of course, there is the issue of what’s best for employees and employers. Without the requirement of offering employees coverage, will employers simply dump their employees into the exchanges? That’s the fear — one that’s been supported by various studies and reports.

The CBO has predicted that as many as 1 million more people may be uninsured in the absence of the employer mandate, though others argue the number will be much smaller. And those dropped from employer-sponsored coverage would likely face paying more for coverage on the exchanges, some argue.

Tim Jost, a professor at Washington and Lee Law School who supports the law, outlined some issues in a post in Health Affairs.

“The end of the employer mandate, and the reporting requirements that accompany it, would also make the exchanges’ job of determining eligibility for premium tax credits and for exemptions from the individual mandate more difficult,” Jost said. “Eligibility for tax credits and for the individual mandate exemption turns on employee coverage offers and enrollment.  If employer reporting were eliminated together with the mandate, precise verification of whether an employee is eligible for coverage and the extent and cost of that coverage might not be possible.”

Killing the mandate, too, many industry insiders say, wouldn’t quash political wrangling. Killing it may bring up legal questions—the government could face lawsuits over not implementing the law, for example--and it might also be an admission from the administration that Obamacare is failing. Democrats may suffer in the next election cycle. PPACA opponents may call for more repeals in the law. Arguments are endless.

Other alternatives

Of course, because of the revenue hole, there needs to be an alternative if the employer mandate is repealed.

Jost suggested one way: to not just repeal the mandate, but replace it—by requiring employers to spend a certain percentage of their payroll on health benefits. He noted that the House passed a similar version of the employer mandate in 2009.

“The House bill required all employers to spend at least 8 percent of payroll on health benefits,” Jost wrote for Health Affairs. “Small employers were required to pay a smaller percentage of payroll, which rose as total payroll increased. Employers who spent less than the minimum paid the difference between what they actually spent and 8 percent of payroll to the federal treasury as a tax.”

The new version of the mandate, Jost said, would “dramatically” reduce the complexity of the current approach.

“Employers would only need to know two numbers: the amount of their payroll and the amount they spent on health benefits,” Jost said.

Of course, it’s not easy to simply repeal and replace.

Still, even without the employer mandate, industry insiders note, employers would need help from brokers on other areas of PPACA compliance, including market reforms and notice requirements.

And, of course, the political environment might not allow for any changes.

“There are certainly a lot of revenue sources, like a payroll tax assessment,” Blumberg says. “There are lots of options for revenue; the problem is you’re going to have political agreement to do that. But that puts us back in the place of, can we get folks to reach across the aisle and say, ‘this isn’t an essential component of this law; it’s a revenue-raising tool causing enough grief and concern among employers that we’d like to find a different revenue source.’ I think the chances are low because of the political reactions these days.”

Looking forward

Whatever the decision, industry folks want to know it — and soon.

Delaying the mandate — though praised by some — has caused more anxiety in the community, because no one knows when, or if, the requirement will really go into effect. And the mandate, whether in place or not, can have an effect on future premiums under the law.

“There’s a real fear, there’s a lack of understanding and there’s confusion — it’s a complicated law,” Blumberg says. “You take a complicated law and you layer on top of it delays and implementing pieces of it  — it creates more confusion and angst.”

Glenn Dunehew, director of health and benefits at the Barrow Group in Atlanta, agrees.

“We need to know, now, that the law is either going to be implemented or postponed,” he says. “The longer that the administration waits on starting it, the more money it costs companies and brokers.”

Employer Mandate Repeal Won’t Relinquish Employers From ACA Compliance

Originally posted May 13, 2014 by Melissa A. Winn on

Eliminating the Affordable Care Act’s employer mandate would not significantly reduce the number of insured Americans, according to a recent analysis by researchers at the Urban Institute in Washington. But, it would also not eliminate your employer client’s need to maintain an ACA-compliant plan, one industry expert notes.

Completely abandoning the employer shared responsibility rule would reduce the number of people in 2016 with health insurance from 251.1 million to 250.9 million, a decrease of just 200,000 people, the report says, adding that it would also eliminate labor market distortions in the law and lessen opposition to the law from employers.

Regardless of whether the mandate is eliminated, however, work will remain for benefit advisers helping employers meet ACA compliance, says Jessica Waltman, senior vice president of government affairs for the National Association of Health Underwriters.

“Maintaining an ACA-compliant plan requires a lot of other components,” she says. “Employers have to comply with all of the market reforms and notice requirements and offer all of the benefit mandates, as well,” requirements brokers and agents can assist employers with, she says.

“There are significant penalties for not maintaining ACA compliance” with other requirements of the health law, such as limits on mandatory waiting periods, she adds.

Also, employer-sponsored health plans will not go away if the employer shared responsibility rule is eliminated, she says, noting that the value of benefit advisers will remain there, as well. “The vast majority of businesses affected by the mandate offered coverage before the mandate.”

The authors of the analysis — Why Not Just Eliminate the Employer Mandate? — agree. About two thirds of American workers now have offers of employer coverage when there is no mandate to do so, they write. “Most employers would not drop coverage if the penalties were eliminated,” the report says.


Ending the employer responsibility rule would, however, eliminate the federal revenue expected from penalty payments that employers would pay under the law, which the authors estimate at just less than $4 billion in 2016. Slight increases in Medicaid and marketplace subsidies due to the elimination of the employer requirement would also cost the government about $46 billion between 2014 and 2023.

Alternative sources of revenue would have to be found to compensate for the federal loss of penalties, the analysis notes.

The Internal Revenue Service in February issued final guidance saying that employers with fewer than 100 employees won’t have to provide health insurance coverage until Jan. 1, 2016.

Previously, on July 2, 2013, the Obama administration delayed the need for all employers with 50 or more employees to provide health insurance coverage until Jan. 1, 2015.

HR leaders rate ACA concerns as a lower-tier issue

Originally posted by Michael Giardina on

New research from a North American sample of HR leaders finds that the Affordable Care Act is not a primary concern among employers, even as the landmark health care law continues to worry the masses.

Roughly half of the 358 individuals surveyed in the Human Capital Institute’s new report disclose being “very much prepared” or “quite a bit prepared” to take on the unknown future environment being forged by the ACA. The participants surveyed include human resource professionals, executive management or those working in a recruiting function.

Forty percent of the sample highlight that they are neutral or cannot judge the ACA, according to HCI’s Talent Pulse, a quarterly research e-book that tracks new talent management trends.

“We found that most HR professionals express neutral attitudes about Obamacare, suggesting that they need more information or time to better understand its impact,” says Jenna Filipkowski, PhD, a senior research analyst at HCI.

Even more peculiar is that only 15% of organizations are worried about cutting employee hours. Previously, the industry was reeling over the most recent employer mandate delay, as many pointed to shifting employee hours could alleviate the law’s restrictions but limit recruitment of needed talent. Other options have been to delay the stiff individual penalties through legislation.

The Talent Pulse report finds that 88% of the surveyed population understands the law, while 91.5% are adhering to compliance and regulations and 88.6% have communicated these changes to employees. However, HCI mandates that HR executives are concerned with the impending excise tax, or Cadillac tax, which will roll out in 2018.

In order to address additional concerns, participants’ surveyed state that they are looking to increase their communication and education, utilize external expert consultations and adding or adjusting their benefits package.

The strategic talent management organization finds that tracking employee hours has been confusing for some and others even question whether the law will be around for the long term.

“What is nerve racking to some extent is the unforeseen,” says one respondent. “Will the Act still be around next year or after the next election?”



Is PPACA a Threat to Employer-Sponsored Plans?

Originally posted February 27, 2014 by Linda Bergthold on

If you are among the 60 percent of Americans who have health insurance coverage through your workplace, you may be worried about how the Affordable Care Act (aka Obamacare) is affecting your coverage.

There are so many rumors circulating about the impact of the new law on private companies that it is not surprising you may be concerned. First, there was a threat that employers would drop their full-time employees to part-time to avoid penalties in the law. Then we heard that they might drop your coverage altogether or raise your premiums because of the law. A few weeks ago, the Obama Administration delayed the implementation of the law forsome employers even longer.

Should any of this keep you awake at night?

To address some of these concerns, I asked Larry Levitt, the Senior Vice President for Special Initiatives at the Kaiser Family Foundation, to respond to some questions about employer-sponsored coverage. Larry has been working in health policy for over 25 years and was a Senior Health Policy Advisor in the Clinton Administration.

Are employers dropping health benefits?

Linda Bergthold: Despite all the dire warnings about medium- or large-size employers dropping their health insurance benefits or making significant changes, does it look like the Affordable Care Act is having that impact? Other than pure political pressure, why did the Administration delay the mandate for employers between 51 and 100 employees to provide insurance?

Larry Levitt: I always believed that the fear of larger employers dropping health benefits now or in the near future was highly exaggerated. The vast majority (93 percent) of firms with 50 or more employees already offer health coverage to their workers. They do so voluntarily to attract a quality workforce. That’s not likely to change anytime soon.

Over time, a small number of firms may drop health benefits. This is consistent with what the Congressional Budget Office has projected, showing a modest decline in employer coverage over time. Those that do drop benefits are likely to be smaller businesses not subject to the requirement to offer coverage or pay a penalty, and lower-wage firms where the tax exemption for employer-provided health benefits is lower and the availability of premium tax credits in exchanges under the Affordable Care Act (ACA) provide greater subsidies for their workers.

Ultimately, employers will likely make economic judgments about whether to offer benefits or not, balancing a variety of factors such as:

  • The value of the tax exemption for employer-provided insurance, which is greater for higher-wage employees whose desires are likely to carry the most weight.
  • The penalty for not offering coverage for medium and large firms.
  • Perceptions about the attractiveness of insurance in exchanges vs. employer coverage.

One consequence of the problematic rollout of the exchanges is that employers are likely to be even more cautious about making changes in their offering of health benefits until they see how the new marketplace works over time.

For a variety of reasons, regulations for the employer requirement were issued very late, and there were some complicated details to work out around employer reporting. That led to a delay in the coverage requirement for one year, and a subsequent phase-in of the requirement for another year. This provides for a gradual transition in much the same way that the law phased-in the individual mandate.

Are they changing hourly requirements?

Linda Bergthold: There has also been a lot of hype about employers reducing employees to part-time status to avoid requirements of the ACA. Are you aware of any data that shows employers changing hourly requirements? If you are an employee working 35 hours a week, what can you expect?

Larry Levitt: The aggregate data show no systematic shift to part-time work, and the recent CBO report on the labor effects of the ACA said there is no compelling evidence that such a shift is occurring.

That should not be surprising. The employer requirement was delayed, so there has been no economic incentive to reduce worker hours. And, reducing hours is not always so easy. The work still needs to get done, so it could mean more disruption and greater costs associated with hiring and training.

That said, there have been anecdotal reports of some employers reducing work hours of some part-time workers in anticipation of the requirement to offer coverage to those working an average of 30 or more hours per week. That will no doubt continue to occur, though it’s unlikely to add up to many people in aggregate terms.

It’s also important to put all this in context. Employers that offer coverage have always had hour thresholds that determine eligibility for health benefits. All the ACA did was make those thresholds uniform. Any time you require such uniformity, there will be some amount of movement and change on the margin.

Shifting from a 30-hour threshold to 40 hours would largely undermine the employer requirement to offer coverage. It would be a relatively simple matter for employers to reduce work hours for employees not offered coverage to just below that 40-hour threshold with minimal disruption to their businesses. It’s certainly a reasonable debate as to whether employers should be required to offer coverage or pay a penalty, but such a significant change would have economic consequences, significantly reducing revenue to the federal government and raising costs.

Are mandated benefits driving up costs?

Linda Bergthold: Most employer-sponsored health benefit packages are quite comprehensive and already include almost all of the essential benefits required by the ACA. The exception might be rehabilitation and MH/SA (Mental Health/Substance Abuse) benefits that are not always included in every benefit plan. Is there any evidence that requiring essential benefits has driven up employer benefit costs?

Larry Levitt: With a few minor exceptions, such has habilitationand mental health parity in some cases, the essential benefits in the ACA are very similar to what employers already provide. In fact, states had a variety of options for setting benchmarks for the essential benefits, and in the vast majority of cases chose one of the largest existing small-business plans in the state, so the package is based in large part on what most employers were already providing.

There is some confusion, though, about what benefit rules apply to employers. Medium and large employers do not have to offer the essential benefits (although many already do, per above). Small-business insurance does have to include the essential benefits, but again, the effect is likely to be modest. And, small businesses that self-insure, which may be a growing trend — are not subject to the benefit requirements.

The private exchange trend

Linda Bergthold: Large-employee benefit firms like Mercer, Aon Hewitt and Towers Watson are all offering “private exchanges” to their large-employer clients. These exchanges give employees or retirees more choice of carriers and plans and ultimately propose to lower costs. How do you view the “private” exchange trend? Do you see a two-track exchange landscape – one for individuals and low -income citizens and the other for middle and upper class people with job-based benefits? What would the impact on the public exchanges be in that case?

Larry Levitt: These new private exchange share a name with the ACA but are really quite different. For example, there are nopremium subsidies for low- and middle-income enrollees in private exchanges.

These efforts are more part of a long-running discussion about the potential for employers to move towards a defined contribution approach for health insurance, much the way they did for pensionsthrough the shift to 401(k) plans. This may – with an emphasis on “may” – finally be happening for a variety of reasons. Maybe it’s the semantic similarity to the ACA exchanges. Maybe it’s a response to the long-term trend of health insurance costs rising faster than inflation and wages (even though we are at this moment in a period of historically low increases in premiums). Or, maybe it’s in anticipation of the so-called Cadillac plan tax, which will impose a40 percent tax on high-cost plans beginning in 2018 and will provide a strong incentive to reduce the cost and growth of employer-sponsored health benefits.

Private exchanges, like ACA exchanges, provide individual employees with a choice of health plans, though they also facilitate employers turning their contributions towards coverage into what is in effect a voucher, shifting the risk of rising costs to employees.

I don’t think private exchanges represent a two-track landscape any more than the reality that most people of working age will still get their insurance through employers, while some will be covered through Medicaid or ACA exchanges. And, the ACA will significantly equalize coverage across the population, so what kind of insurance people have access to will vary much less than it did historically.

The future of employer-based benefits

Linda Bergthold: What do you see as the future of our employer-based benefit approach? Will the economics of health reform ultimately force employers to drop this benefit and send employees to the public exchanges, which may turn out to provideless costly coverage?

Larry Levitt: There’s nothing inherently advantageous to our employer-based health insurance system, which is mostly an accident of history. Proposals from the right and the left have both advocated moving away from it.

However, employer-based coverage does do a remarkable job of pooling risk and facilitating people to sign up for coverage. And, any significant dropping of coverage by employers – which I don’t think is likely – would increase government expenditures for premium subsidies.

While the ACA does not require a shift away from employer-sponsored insurance, it does provide some of the same benefits as breaking the tie between employment and health insurance coverage. People who lose their jobs will no longer lose their insurance in most cases, with expanded Medicaid coverage, guaranteed access to private insurance, and premium subsidies in exchanges.

This will largely eliminate the problem of “job lock” where people stay in a job simply because they fear losing their insurance. (Note that some people are still left out, in particular many poor adults in states that choose not to expand Medicaid.)

So, while there is some uncertainty around the future of employer-based health insurance under the ACA, there is now a safety net that didn’t exist before, if the availability of employer coverage declines.

“Play or Pay” Rules Delayed Until 2016 for Smaller Employers

Originally posted by

The Department of the Treasury and the Internal Revenue Service announced today that the Affordable Care Act’s health coverage mandate for employers with more than 50 employees but fewer than 100 employees working at least 30 hours per week will be delayed another year until 2016.

Employers with over 100 employees working at least 30 hours per week will become subject to the health coverage mandate under the Affordable Care Act (ACA) as previously announced beginning in January 2015. If these employers decide not to offer insurance to their employees, they will make an employer shared responsibility payment beginning in 2015 to help offset the costs to taxpayers for employees getting tax credits through the Health Insurance Marketplace.

“While about 96 percent of employers are not subject to the employer responsibility provision, for those employers that are, we will continue to make the compliance process simpler and easier to navigate,” said Assistant Secretary for Tax Policy Mark J. Mazur in the Treasury press release.  “Today’s final regulations phase in the standards to ensure that larger employers either offer quality, affordable coverage or make an employer responsibility payment starting in 2015 to help offset the cost to taxpayers of coverage or subsidies to their employees.”

Today’s announcement included final regulations for implementing the employer shared responsibility provisions under the ACA, often referred to as the “Play or Pay” rules that will take effect in 2015.

To avoid this payment for the failure to offer affordable coverage meeting the minimum requirements as set forth in the regulations, these large employers will need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent starting in 2016.  Full-time employment is defined as regularly working at 30 or more hours per week.

The immediate practical impact for employers includes:

  • For employers with fewer than 50 employees:  No impact, as this group was not subject to the employer shared responsibility provisions previously.
  • For employers with 50 to 99 employees:  For employers in this group that do not provide full-time employees with quality affordable health insurance, they will not have to pay any employer responsibility penalties in 2015.  For 2015, this group will still be subject to provide an employee and coverage report as outlined in the ACA rules but will have until 2016 before the employer responsibility payments begin.
  • For employers with 100 or more employees:  Employers in this group are still subject to the mandate starting in 2015.  What follows below are the highlights of the final regulations released today impacting the mandate for these employees to comply in 2015.

Key Elements of the Final Rules Impacting Employers with 100+ Employees in 2015

According to the Treasury Department Fact Sheet, the final regulations include the following changes:

  • Coverage Thresholds:  To avoid a payment for failing to offer health coverage, employers need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent starting in 2016. The original ACA rules required the 95 percent coverage beginning immediately.
  • Full-time Employee Definitions:
    • Volunteers:  Bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not be considered full-time employees.
    • Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
    • Seasonal employees:  Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
    • Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees.
    • Adjunct faculty: Until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer responsibility provisions. However, to accommodate the need for predictability and ease of administration and consistency, the final regulations expressly allow crediting an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.
    • Full-time Employee Measurements:  The final rules remain unchanged from the proposed rules that allow employers to use an optional look-back measurement method to determine whether employees with varying hours and seasonal employees are full-time.  On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period – the time during which an employee with variable hours must be offered coverage – of up to 12 months.
    • Affordability Safe Harbors:  As with the proposed regulations, the final rules provide safe harbors for employers to determine whether the coverage they offer is affordable to employees, including the W-2 wages, employees’ hourly rates, or the federal poverty level.
    • Other Provisions of the Final Regulations:
      • Employers first subject to shared responsibility provision: Employers can determine whether they had at least 100 full-time or full-time equivalent employees in the previous year by reference to a period of at least six consecutive months, instead of a full year.
      • Non-calendar year plans: Employers with plan years that do not start on January 1 will be able to begin compliance with employer responsibility at the start of their plan years in 2015 rather than on January 1, 2015, and the conditions for this relief are expanded to include more plan sponsors.
      • Dependent coverage: The policy that employers offer coverage to their full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.

Treasury and the IRS stated that additional final regulations will be forthcoming to streamline the ACA reporting requirements.  Final rules will be published in the Federal Register on February 12th.  We will continue to provide updates as more information is known.

For more information:

Treasury Press Release:

Treasury Fact Sheet:

IRS Regulations (227 pages):


DOL Says No Fine for Failing to Provide Exchange Notices in 2013

Originally posted by Stephen Miller on September 13, 2013 on

U.S. employers were again surprised by another unexpected suspension of a provision of the Patient Protection and Affordable Care Act (PPACA or ACA) when, on Sept. 11, 2013, the Department of Labor (DOL) announced there will be no penalty imposed on employers that fail to distribute to workers a notice about available coverage under state- and federal-government-run health insurance exchanges (collectively referred to by the government as the "health insurance marketplace"), scheduled to launch in October 2013.

Fair Labor Standards Act (FLSA) Section 18B, added to the labor statute by the PPACA, requires employers that are subject to the FLSA to provide all their employees by Oct. 1 of each year (the traditional start of the annual open enrollment season for employee health plans), and all new employees at the time of hiring, a written notice informing them of the following:

  • The existence of the government-run health care exchanges/the marketplace, including a description of the services provided and the manner in which employees may contact an exchange to request assistance.
  • If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, workers may be eligible for a premium tax credit under Section 36B of the Internal Revenue Code if they purchase a qualified health plan through an exchange.
  • Employees who purchase a qualified health plan through an exchange may lose their employer’s contribution to any health benefits plan the organization offers. All or a portion of this contribution may be excluded from income for federal income tax purposes.

According to the PPACA and subsequent guidance, the notice must be provided to each employee, regardless of plan-enrollment status or part-time or full-time status. Employers are not required to provide a separate notice to dependents or retirees, but an employer's obligation to provide notice may extend to its independent contractors and leased workers, depending on the nature of their relationship with the employer as determined under the FLSA's "economic reality" test.

The PPACA has a $100-a-day penalty for noncompliance with its provisions (unless otherwise specified in the statute), and it had generally been assumed this penalty would apply to employers that fail to distribute the exchange notice, possibly with additional penalties for failure to comply with a provision of the FLSA. However, the penalty provision had not been made explicit in any previous guidance, nor had the regulators described how the penalty would be implemented and enforced.

Then, on Sept. 11, 2013, the DOL posted on its website a new FAQ on Notice of Coverage Optionswhich states:

Q: Can an employer be fined for failing to provide employees with notice about the Affordable Care Act’s new Health Insurance Marketplace?

A: No. If your company is covered by the Fair Labor Standards Act, it should provide a written notice to its employees about the Health Insurance Marketplace by Oct. 1, 2013, but there is no fine or penalty under the law for failing to provide the notice.

DOL Encourages Compliance

Keith R. McMurdy, a partner at law firm Fox Rothschild LLP, commented in a posting on his firm’s Employee Benefits Legal Blog that Section 18B of the FLSA clearly states that any employer subject to the FLSA “shall provide” written notice to current and future employees and that the DOL’s Technical Release No. 2013-02, issued in May 2013, states that Section 18B of the FLSA generally provides that an applicable employer “must provide” each employee with a notice. McMurdy wrote:

My experience with the federal laws and the enforcement of said laws by federal agencies is that when things say “shall” and “must,” there are penalties when you don’t do them. So when the DOL now takes the position that it is not a “shall” or “must” scenario, but rather only a “should” and “even if you don’t we won’t punish you” proposition, I get suspicious. But I also think this confirms what I have said since the beginning about PPACA compliance for employers. It is all about your risk tolerance.” …

So, if you don’t want to send the Oct. 1, 2013 Notice, apparently the DOL “FAQ” says you have no penalties and thus no risk. Me? My risk tolerance is a little lower than that and my experience with regulatory agencies is such that I don’t trust informal “FAQs” posted on the web as much as I trust the clear language of the statutes and prior technical releases. Words like “shall” and “must” usually mean that if I don’t do it I get burned. So I am still recommending that employers comply with the notice requirement. Why? I can almost guarantee that if you send the notice, you won’t face a penalty for not sending it. But if you don’t send one, well, I still say all bets are off.

Christine P. Roberts, a benefits attorney at law firm Mullen & Henzell LLP,commented on her “E is for ERISA” blog, “This information, at this late date, is more confusing than it is helpful to employers who have already invested significant resources in preparing to deliver the Notice of Exchange.” She added this cautionary note:

“Particularly for employers with pre-existing group health plans, the Notice of Exchange potentially could be viewed by the DOL as within the scope of the employer’s required disclosures to participants and thus within the scope of an ERISA audit, or separate penalties could be imposed through amendment to the FLSA or the ACA.”

Model Notices

The DOL’s Sept. 11 FAQ reiterated that the department has two model notices to help employers comply with the Oct. 1 exchange/marketplace notice deadline (which they are strongly encouraged to meet):

Employers may use one of these models, as applicable, or a modified version. The model notices are also available in Spanish and MS Word format at