At the end of June, the U.S. Supreme Court upheld the Affordable Care Act (“ACA”) including the individual mandate and it is now the law of the land. Although we now have clarity that the ACA will remain in effect, many other questions, particularly the details about how the new law will play out, remain unanswered. One thing is certain; the new law brings challenges that employers and health care providers must meet.
Planning From Employer Perspective
Employers who were waiting to see how the Supreme Court would rule should now prepare for the law to take effect and ensure compliance. The most important issue from the employer perspective is to determine whether your business will be subject to the requirement that it either offer a minimum level of health insurance coverage to full-time employees and their dependents or pay a “penalty” or tax. Only employers with 50 or more full-time equivalent employees are subject to the penalty/tax, thus employers must determine whether they meet this threshold. That’s easier said than done.
A full-time employee under the ACA means one who works 30 or more hours per week. However, part-time employees are included in the calculation to determine whether an employer meets the 50 or more full-time equivalent threshold. Specifically, the hours of part-time employees who work less than 30 hours per week and employees whose hours vary are included in the calculation to determine the number of full-time equivalent employees. The calculation is made on a monthly basis by taking the total number of monthly hours worked by all part-time employees divided by 120 (which is the equivalent of four 30-hour weeks). For example, a business that has 35 full-time employees (30+ hours) and 20 part-time employees who work 24 hours per week (96 hours per month) would be deemed a “large employer” subject to the ACA requirements. The part-time employees’ hours would be treated as the equivalent to 16 full-time employees, meaning that this business has 51 full-time equivalent employees and is subject to the employer mandate. Even if you don’t meet this threshold now, you must consider whether you will reach this in 2013 or 2014.
Employers reaching this threshold must either offer a minimum level of health insurance to employees or be prepared to pay the applicable penalty/tax. Employers must then decide whether the cost of providing minimum required coverage outweighs the costs associated with paying the tax for not offering coverage. Employers should approach this decision with an eye not just to pure economics but also to employee relations; a decision to eliminate or reduce coverage will likely have an impact on recruitment and retention, among other things. Starting later this year, employers will also face new requirements such as providing new summaries of benefits and coverage, and reporting the value of employer-sponsored coverage on each employee’s W-2 beginning with the 2012 tax year.
Note that small employers with fewer than 25 full-time equivalent employees and average annual wages of less than $50,000 will be eligible for a health insurance tax credit if offering health insurance to employees.
Implications for Medical Providers
From the medical care provider standpoint, there are also unanswered questions and challenges. While the ACA does not impose direct requirements on the medical community, it will certainly be affected by the law. First, medical providers face the challenge of making sure that the increase of insured people will not result in a decrease in coordination and quality of care. The medical care community also must respond to the anticipated increased demand for services and will face the challenge of providing access for these new people. Meanwhile, it is not clear exactly how everything will be paid for. Medical care providers may be optimistic that there will be less bad debt and charity cases, but are also cautious over the uncertainty regarding whether those will be funded by cuts to Medicare reimbursements. Specialists also face uncertainty over whether Medicare will cut specialty fees in an effort to curb the costs of covering so many new people.
Only time will tell how everything will ultimately play out. However, planning is the “ounce of prevention” that is “worth a pound of cure.”