goodnbn.pngOf the 2010 healthcare reform law it’s said that the only thing certain is uncertainty.

Topping the list of regulatory uncertainties is the so-called employer mandate—to either offer coverage to full-time employees that is both “affordable” and “comprehensive” or face a hefty fine. The provision is slated to take effect January 2014.

Employers got some good news August 12 when the U.S. Department of the Treasury and the IRS issued a Notice of Proposed Rulemaking (NPRM) clarifying what constitutes “affordable” employer-provided health coverage.

The Patient Protection & Affordable Care Act (PPACA) provides that an employee may qualify for federal government-subsidized health insurance from a state insurance exchange if the coverage offered by their employer is either unaffordable or not comprehensive, i.e., it doesn’t cover at least 60 percent of total allowed health costs. Under the law an employer can be subject to an “assessment” up to $3,000 for each such employee that qualifies for exchange-subsidized coverage. Read more.

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Healthcare Law Compliance: Good News and Bad News

Mon Aug 29, 2011

goodnbn.pngOf the 2010 healthcare reform law it’s said that the only thing certain is uncertainty.

Topping the list of regulatory uncertainties is the so-called employer mandate—to either offer coverage to full-time employees that is both “affordable” and “comprehensive” or face a hefty fine. The provision is slated to take effect January 2014.

Employers got some good news August 12 when the U.S. Department of the Treasury and the IRS issued a Notice of Proposed Rulemaking (NPRM) clarifying what constitutes “affordable” employer-provided health coverage.

The Patient Protection & Affordable Care Act (PPACA) provides that an employee may qualify for federal government-subsidized health insurance from a state insurance exchange if the coverage offered by their employer is either unaffordable or not comprehensive, i.e., it doesn’t cover at least 60 percent of total allowed health costs. Under the law an employer can be subject to an “assessment” up to $3,000 for each such employee that qualifies for exchange-subsidized coverage.

While the law defines “unaffordable” to mean employee premium costs that exceed 9.5% of an employee’s household income, employers were in the dark about how the 9.5% figure was to be calculated.

The August 12 NPRM clarifies first, that the 9.5 % test is to be applied only to individual or self-only coverage, not to the employer plan in which the employee actually enrolls; and second, that employers can use an employee’s W-2 wages as a “safe harbor” proxy for household income.

Put another way, and setting aside the question of whether the coverage offered meets the “comprehensiveness” standard, it will now be possible for an employer to know whether the coverage offered full-time employees meets the “affordability” test.

According to the NPRM, regardless of the health plan option the employee actually elects, the employer will simply calculate the employee share of the total plan premium for self-only coverage as a percentage of the employee’s current W-2 wages. As long as the result of that calculation is below 9.5% the employer is essentially deemed to be offering affordable coverage, notwithstanding whether the employee ultimately qualifies for a tax credit subsidy for exchange-provided coverage.

The new NPRM guidance is good for employers for a couple of reasons: One, the statutory language provided that affordability of coverage be based on “household income,” a figure employers cannot be expected to know.

And two, under the statute an employer could calculate in good faith that an employee’s coverage was affordable, only to be informed later by a state exchange that the employee had qualified for a subsidy based on the employee’s household income. This could have made the employer retroactively liable for a $3,000 “free rider” assessment. In the NPRM Treasury promises in future guidance to specify an employer safe harbor to prevent retroactive assessments. Good news for employers.

The bad news, of course, is that the PPACA is still on track, starting in 2014, to impose a sweeping mandate on all but small employers to offer “affordable” and “comprehensive” coverage to their full-time employees (those averaging 30 or more hours per week) or face stiff penalties. This will represent a huge regulatory burden on all employers, even those who are fully in compliance.

The August 12 NPRM is helpful but clarifies only one detail in a colossal piece of legislation that remains incomprehensible to many employers. Federal courts are reviewing the constitutionality of the mandate on individuals to purchase health insurance. But no one seems to be reviewing the regulatory burden of the employer mandate.

Forthcoming Health & Human Services and Treasury Department clarification of the employer mandate is expected—and welcomed. Really good news from Washington DC would be a significant reduction in the employer compliance burden!