What Does Obamacare Mean for Farmers?
Nov 24, 2012
While the law remains uncertain, here's important employer information for implementing the new healthcare mandate.
By Anthony P. Raimondo, attorney
In 2014, the mandatory coverage provisions of the Affordable Care Act (also known as Obamacare) will take effect. While there remains significant uncertainty about the law because regulations have not been completed, employers should begin to plan now for the implementation of the law.
All employers who offer health coverage must be aware that the law requires that W-2 forms issued for 2012 include the cost of employee health coverage. But 2014 marks the year that the law has its greatest impact on health care coverage.
The basic principles behind the law are, first, a requirement that all individuals secure medical insurance coverage. For those who work for employers with 50 or more employees, the law is designed for the employer to provide coverage, and penalizes large employers who do not offer coverage. For those whose employers do not provide coverage (either large or small employers who choose not to offer coverage), the law establishes a subsidized insurance exchange designed to make coverage available and affordable, and coverage will be available through the exchange for families that meet certain income requirements.
The most significant item taking effect in 2014 is the so-called “pay or play” penalty. Employers with more than 50 full time employees must provide minimum essential coverage that meets an affordability or value test. Employers who do not provide coverage must pay an annual penalty of $2,000 (assessed monthly) for each fulltime employee, but the penalty is subject to reductions and credits that can reduce the obligations on employers, especially those just over the 50 employee threshold. Employers with more than 200 fulltime employees must automatically enroll employees in their health plans, subject to an employee opt out. However, the regulations for this process have not been developed as of yet, and the requirement will not be implemented until regulations are in place.
These penalties are designed to push employers to offer coverage that is both “affordable” and of “minimum value.” Affordable means that the employee’s premium contribution for self-coverage (as opposed to family coverage) must be less than 9.5% of the individual’s household income. Accordingly, employers can avoid the penalty by keeping the premium for employee-only coverage below the 9.5% threshold, even if family plans exceed the threshold. Minimum value means the plan covers at least 60% of medical costs through deductibles, co-pays at the like.
Fulltime employees are those working at least 30 hours a week on average. While there is an exemption available for seasonal employees, who qualifies as “seasonal” has not yet been defined through the regulatory process. However, the statutory structure does allow agricultural employers to plan for how seasonal employees will be handled under the law.
The key for agricultural employers is the definition of a “fulltime employee” and how it is applied to seasonal workers. Under the law, a fulltime employee is one who works 30 or more hours a week on average. The key is how this average is determined. For current employees, the employer will use a “look-back” period as the law takes effect to determine the average hours worked. First, the employer must determine a “standard measurement period.” This look-back period must be at least three months and no more than 12 months long. By using a longer look-back period, such as a year, the employer can avoid the 30 hour per week threshold by including periods of time when the employee was not working due to seasonal inactivity.
If the employee is fulltime during the look-back period, then they must be treated as full time for the entire “stability period.” The stability period is a period of time equal to the standard measurement period, but never less than six months. The “stability period” is the period of time looking forward from the determination that was made based on the look-back period. For example, if we look back 12 months, and the employee worked 30 hours per week, then the employee must be treated as fulltime for the next year (stability period) regardless of the actual hours worked during the stability period. An employee who is not fulltime during the look-back period (12 months in this example) can be treated as not fulltime for the stability period, the next 12 months looking forward.
For new employees, employers must make a good-faith determination as to whether the employee will work fulltime (30 hours per week, average). For example, it appears that if current seasonal employees who are similarly situated are not fulltime because of the 12-month look-back period, then the employer can treat the new employee as not fulltime. However, after the employee has worked a complete standard measurement period (three to 12 months), the employer must recalculate the hours worked and determine whether the employee has averaged 30 hours and is thus fulltime.
As discussed above, much of the coverage obligation will be determined by the hours worked and the period used to measure that average. Unfortunately, there remains a great deal of uncertainty about Obamacare as regulations continue to be drafted to implement the law. Agricultural employers should continue to monitor these developments, especially as regulations are developed to address the exemption for “seasonal” employees. But planning for 2014 should begin now, because staffing levels and hours worked will impact the look back-period that could be the difference between providing coverage, facing penalties, or having choices regarding benefits.
The goal of this article is to provide employers with current labor and employment law information. The contents should not be interpreted or construed as legal advice or opinion. For individual responses to questions or concerns regarding any given situation, the reader should consult with Anthony Raimondo at McCormick Barstow LLP in Fresno, at (559) 433-1300.