Employers seeking 'clarity' of federal health care law details

Joint federal and state health-insurance exchange vs. Iowa system throwing employers for loop

Lack of an Iowa health insurance exchange could make it difficult for employers to explain to their workers about how the complex Patient Protection and Affordable Care Act will affect them.

Gov. Terry Branstad decided to pursue a joint federal and state health-insurance exchange instead of having Iowa set up its own system. The exchange will be electronic markets that help consumers and small businesses compare and buy health insurance policies.

"Now that the election is over and settled, and the courts have ruled (on the health care act), everybody is anxious to get some clarity on some of the details of  the PPACA," said Bob Mreen, who handles employee benefit compliance solutions for TrueNorth Companies in Cedar Rapids.

"The state of Iowa has to get its act together to know how its insurance exchange is going to work. Employers are supposed to provide initial notice about the exchange to their employees by March, but we don't know what to tell them because the state hasn't told us anything."

Lack of definitive information is especially frustrating for small business owners, said Marshall Peterson, vice president of Hawkeye Convenience Stores in Cedar Rapids.

"There's so much that employers don't know right now," Peterson said. "As a small business, I don't have a team of people managing health care and other benefits for our company. It makes it very difficult to be an expert about this stuff.

"We have a good benefits package for our people, so I'm not going to lose sleep at night about it. We're going to be compliant, regardless of what comes down the pike."

Iowa must submit a blueprint for its exchange to the U.S. Department of Health and Human Services by Feb. 15. The federal agency will begin issuing approvals for federal-state partnership exchanges on March 1.

The Internal Revenue Service, which will enforce the law — referred to by some as Obamacare —  on Jan. 4 released the latest regulations spelling out employer penalties for not providing "affordable minimum essential coverage" for employees and their dependents.

Some of the key points spelled out for coverage include:

  • Children under age 26 — but not spouses — are considered dependents under the health care law.
  • The complex regulations apply to "large" employers who had at least 50 full-time employees in the last calendar year.
  • A full-time employee is defined as anyone who works an average of 30 hours or more per week.
  • Part-time employees also are counted using a full-time equivalent formula. For a given month, employers need to add the number of hours for all part-time workers and divide by 120 (4 weeks at 30 hours per week).

So if a company has 47 full-time employees (working an average of 30 hours or more per week) and 8 full-time equivalent employees, it would be considered to have 55 full-time employees.

"Employers need to start keeping track of part-time employee hours in 2013," TrueNorth's Mreen said. "That will be very important to determine whether they exceed the 50 employee threshold  in 2014."

Here is the main issue for employers: Under the IRS guidelines, if an employer does not offer minimum essential coverage to "substantially all"  its full-time employees and their dependents, and a full-time employee obtains subsidized exchange coverage, it must pay a penalty  equal to $166.67 multiplied by the number of its full-time workers in excess of 30.

"Substantially all" is defined as all but 5 percent of full-time employees, or if greater, five full-time employees.

Mreen pointed out there are a number of ways that a full-time employee can qualify to get subsidized health care insurance exchange coverage.

"An employee can obtain subsidized exchange coverage only if his or her household income is between 100 percent and 400 percent of the federal poverty line," Mreen said. "He or she enrolls in exchange coverage and is not eligible for Medicaid" or other government coverage.

For a household of 4, for example, the federal poverty income for 2012 is $23,050.

"They also can qualify for subsidized exchange coverage if no employer coverage is offered, or the employer coverage offered fails to meet either a minimum value test or an affordability test."

  • Employer coverage meets the minimum value test if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. U.S. Department of Health and Human Services is working with IRS to develop a calculator for employers to determine whether the test is met.
  • Employer coverage meets the affordability test if an employee is required to pay no more than 9.5 percent of their  household income for self-only coverage. As employers have no practical way of knowing what an employee's household income is, the IRS will allow them to use an employee's reported wages on their annual W-2 form.

"If an employee decides to obtain coverage under an employer's group health plan, they cannot qualify for subsidized exchange coverage even if the employer's coverage fails the minimum value or affordability test," Mreen said. "That was done to prevent double-dipping by an employee."

Mreen said everyone, with certain exceptions, must have some form of health insurance beginning Jan. 1, 2014. Failure to purchase private or subsidized health exchange coverage will subject them to an annual penalty.

The penalty starts at $95 per adult and $47.50 per child (maximum $285 per family) in 2014 and grows to $695 per adult, $347.50 per child and up to $2,085 per family in 2016 and beyond.

Mreen said employers are looking to their health insurance brokers and providers for answers and many workers are depending on employers to explain how the provisions of the new law will affect them."There will need to be a lot of communication between now and the fall of the year," Mreen said. "That's when employees will receive information and make choices about their health insurance coverage beginning in January 2014.”

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