EdLawConnect Blog

The Supreme Court’s decision in National Federation of Independent Business v. Sebelius (2012) 132 S.Ct. 2566, settled any question surrounding the so-called “Individual Mandate” under the Patient Protection and Affordable Care Act” (“Act”). Accordingly, effective January 1, 2014, individuals, subject to limited exceptions, are required to be covered by a minimum level of health insurance. An individual can take advantage of health insurance offered by an employer, or can she can purchase her insurance through a state or federally operated health insurance “exchange.” Regardless of what method is chosen, an individual will be required to demonstrate proof of coverage or will be subject to certain tax penalties.

Until recently, the impact of the individual mandate on employers was unclear. However, just before January 1, 2013, the Internal Revenue Service (“IRS”) released proposed regulations that established the requirements employers must follow in order to avoid financial penalties. In sum, the regulations stated that an applicable large employer must provide (1) affordable coverage that provides (2) minimum essential coverage to all full-time employees by January 1, 2014, subject to certain exceptions. The financial penalties for violating these requirements are known as “employer shared responsibility” penalties.

There are multiple elements to the obligations placed on employers so we will address each one individually.

1.   Applicable large employer – the proposed regulations issued by the IRS define an applicable large employer as, “an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year.”

2.   Affordable coverage – pursuant to the IRS regulations, coverage under an employer-sponsored plan is “affordable” if the employee’s required contribution does not exceed 9.5 percent of the employee’s household income for the taxable year. Exploration of this criteria will be the subject of a future blog post.

3.   Minimum essential coverage – Federal statute provides several definitions of this term. In order to satisfy this criteria, employers need to ensure that they offer a plan that provides benefits that are equivalent to 60 percent of the full actuarial value of the benefits provided under the plan.

4.   Full-time employees – under the IRS’ proposed regulations a full-time employee means, “with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer. For this purpose, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, provided the employer applies this equivalency rule on a reasonable and consistent basis.”

School district and community college employers with less than 50 employees are not obligated to meet these requirements by January 1, 2014. Accordingly, the next few blog posts will be focused on “applicable large employers” and what they must do to get ready for January 1, 2014. We will also focus on some of the exceptions that may be available to applicable large employers that may allow an employer delay compliance with the Act.