Compensation and Benefits Bulletin
Employers who offer health care coverage only to full-time employees traditionally classified as working an average of 40 or more hours per week will be glad to hear about proposed legislation repealing the Affordable Care Act’s (ACA’s) 30-hour definition of full-time employment.
Since President Obama signed the ACA on March 23, 2010, employers have been re-evaluating their health care coverage offerings and attempting to understand the complex rules on counting employees for various purposes. The ACA mandates that beginning with the calendar year 2015 employers with 50 or more full-time plus full-time equivalent employees are required to offer coverage to most employees working an average of 30 or more hours per week, or pay a penalty.
Employers who don't provide health insurance enrollment opportunities for at least 70% of employees in 2015 (95% beginning in 2016) who work more than 30 hours weekly will be fined a hefty, nondeductible excise tax amounting to $2,000 per year per full-time employee under Internal Revenue Code Section 4980H. (Another excise tax kicks in if coverage doesn’t meet minimum value and affordability requirements, although employers are subject to only one tax at a time.)
According to the Society for Human Resource Management (SHRM), employers are “experiencing challenges and unintended consequences” of the ACA requirements. “Specifically defining ‘full-time’ as an employee working 30 hours a week is inconsistent with standard employment practices and benefits coverage requirements in the U.S. and conflicts with other federal laws,” the SHRM says.
While the ACA chiefly focuses on reducing the number of uninsured individuals and the cost of health care, it is expected to be a burden on employers in terms of the cost and the complexity of compliance. Many employers across the country have been assessing whether — and how — they should provide health benefits to their employees. If no changes were made to the current plans, employers estimate that their health care costs would rise by an average of 8% per year, according to a survey conducted by Mercer.
Health care cost changes were originally projected to come mainly from additional government-mandated benefits for newly covered medical treatments, therapies and technologies, along with new taxes and fees. However, "[s]o many variables are affecting costs in ways no one can yet fully parse and understand," said Beth Umland, a director of research for health and benefits at Mercer. The plan enrollment rules are among the leading variables affecting health costs increases, employers estimate.
There had been speculation that employers would reduce staff or cut hours to limit the number of employees to whom they would have to offer coverage. Yet Mercer surveys have shown the vast majority of employers don’t plan to drastically change their workforce or the way they typically conduct business; however, they have indicated that they will manage schedules more carefully to avoid having employees occasionally working 30 or more hours a week.
Change on the horizon?
On Thursday, Jan. 8, 2015, by a vote of 252 to 172, the House of Representatives passed the Save American Workers Act of 2015, which aims to redefine full-time employees as those who work an average of 40 hours per week, instead of 30, under the ACA.
Republicans, and some Democrats, reason that this will help employers by requiring them to provide health insurance for fewer employees. However, most Democrats believe this gives employers more incentive to reduce all employees’ hours to 39 hours per week, and thus not offer coverage at all.
The bill is likely to pass the Republican-led Senate. President Obama has promised to veto the bill if it passes, and even with the Senate now led by Republicans, it’s uncertain if Congress would have the votes necessary to override the veto.
According to the Congressional Budget Office, passing this bill will add some $53 billion to the deficit and cost hundreds of thousands of Americans their health insurance. Although employers are expected to pay less in fines under the new bill, that same reduction is projected to cost about $31.8 billion in revenue over the next 10 years. In addition, increased Medicaid and Children’s Health Insurance Program claims are projected to cost an additional $21.4 billion over the same time period due to reduced employer coverage for part-time workers.
Change in focus
Changes brought about by passage of the Save American Workers Act could cause employers to focus on other issues such as their exposure to risk under the rules requiring minimum offers of coverage, which may be reduced.
Employers should be reminded of the complexity in other provisions of the ACA, such as the affordability penalty. Employers should be mindful of the risk of having ACA compliance handled by internal personnel or health plan administrators who do not usually work with tax regulations and may not understand the complexity and risks associated with the threshold requirements. For any employer, more guidance from a tax adviser can make a difference in achieving or falling below the 95% threshold.
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