Employers must provide a summary of benefits of their plans on the first day of coverage or the date of open enrollment for 2013.
Although the requirement for mid-sized employers to offer insurance to employees under the Affordable Care Act (ACA) doesn’t kick in until 2014, employers who now offer insurance have some paperwork to do, says Charles Stevens, an attorney and partner with Michael Best & Friedrich, LLP. That includes farmers.
Employers must provide a summary of benefits of their plans on the first day of coverage or the date of open enrollment for 2013. This summary of benefits is an eight-page document that details the coverage offered. Some open enrollment periods begin Oct. 1, so employers must provide that summary of benefits by next Monday. Failure to do so can result in a $1,000 fine for each employee covered by the plan, says Stevens.
All plans, insured and self-funded, must comply. If the summary of benefits is not done correctly, the employer risks benefit claims and possibly penalties, says Stevens. In addition, if an employer makes a mid-year change in benefits, there is now a 60-day advance notice requirement.
Department of Health and Human Services (HHS) officials say they will only impose the penalty for “willful failure” to provide the benefit summaries. But these officials get to define “willful failure,” says Stevens. “Clearly, the imposition of penalties is at the discretion of (hopefully, not whim) HHS officials.”
Certain “grand-fathered” plans that were in existence prior to March 23, 2010 when ACA was enacted by Congress are exempt from some but not all rules. Non-grandfathered plans will be subject to more stringent rules, especially starting in 2014.
A grandfathered plan will lose that status if it has had substantial changes since the law was enacted. “If you have any doubt that your policies have remained grandfathered, talk to your broker or your lawyer,” says Stevens.
For mid-sized employers, those with 50 or more employees, the tough decisions come later next year. By 2014, these employers will have to offer “minimum essential coverage” or pay penalties. But it’s complicated.
First off is the calculation of what constitutes 50 employees. In the ACA, a full-time employee is defined as a person who normally works 30+ hours per week. Part-time employees are also included in the calculation. The hours per month of all part-time employees are added and that number is divided by 120 hours to come up with a full-time equivalent.
Example: an employer with 10 part-time employees who work an average in total 840 hours per month divided by 120 equals seven full-time equivalent (FTE) employees. These seven FTEs must be added to the number of other employees who work at least 30 hours per week to see if the 50-employee threshold is reached. Seasonal workers are excluded from the calculation, but leased employees are included.
There are also aggregation rules for businesses under common control. HHS will not allow companies to split into smaller entities to avoid the 50-employee threshold, says Stevens.
If a company offers no coverage, if it pays less than 60% of the cost of the coverage or if it does not follow other rules, the company is subject to a $2,000 per employee per year penalty. However, the penalty is not applied to the first 30 employees nor to part-time employees. So if a farm has 60 full-time employees, it would pay the $2,000 penalty on 30 employees—or $60,000 per year ($5,000 per month). In most cases, this is less than the cost of insurance—and paying the penalty is likely to be cheaper than providing insurance.
But it gets even more complicated, says Stevens. If an employee qualifies for government-subsidized insurance through an insurance exchange (because his household income is under 400% of the Federal Poverty Level and his employer requires him to pay more than 9.5% of his household income for coverage), the employer could be subject to a $3,000 penalty per employee.
It’s little wonder ACA is so controversial. “A lot will be determined by the election in November,” says Stevens.
“Even if President Obama is re-elected, you could see some delay in the ‘pay or play’ rules and in the creation of state and federal insurance exchanges. Some of this stuff just won’t work,” he says.
If Romney is elected but the Democrats retain control of the Senate, ACA would remain the law of the land. But House Republicans could put financial restrictions on the agencies administering the law—HHS, the Department of Labor and the Internal Revenue Service—which could delay rule writing and enforcement.
“If we don’t get consensus in Congress, it will be a bumpy ride,” says Stevens.
You can read more on the summary of benefit requirements here.