Flamm Walton PC

A T T O R N E Y S A T L A W

EMPLOYMENT LAW NEWSLETTER

JUNE, 2012

The Health Care Reform Law: A Primer for Employers

On June 28, 2012, the United States Supreme Court upheld the individual mandate provisions of the 2010 Health Care Reform Law, commonly known as Obamacare. This edition of the Employment Law Newsletter explores the main provisions of the Health Care Reform Law that will impact Employers who must now scramble to review their health care coverage options to ensure they are in compliance with Obamacare.

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Who will be affected by the law?

First of all, the law is not intended to apply to all businesses. In order to be covered by the Health Care Reform Law, an Employer must be considered a large business. Small businesses, defined as businesses which employ 50 or less full-time employees, are exempt from the provisions of the law. Under the law, an employee who works at least 30 hours per week is considered a full-time employee. If you think about it, 50 employees is not a lot. In one good season, most medium-sized construction companies might employ between 50 to 80 full-time employees. And here is something else to keep in mind: companies with 50 199 employees represent 8 percent of total firms in the United States; however, employees across these companies comprise of 22 percent of the total employment in the United States. So the idea that 50 employees is a magic cut-off line between big and small business is arbitrary. This law will impact a lot of Americans and a lot of businesses.

What must a large business do under the law?

Starting in January, 2014 an Employer with more than 50 full-time employees will face significant tax penalties if the Employer: 1) chooses not to provide health insurance coverage to its employees; and, 2) has any one of its full-time employees receiving federal subsidies to pay for health insurance. The tax penalties will be tantamount to fines. An Employer will have to pay a $2,000 fine for every one of its full-time employees. The fines will be applied to the entire number of employees employed by the business, excluding the first 30 employees.

For example, if an Employer employs 100 employees and fails to provide health insurance coverage, and at least one of its full-time employees receives a federal subsidy to purchase health insurance coverage, the Employer will have to pay an annual fine of $2,000 for every one of its full-time employees, minus the first 30. Therefore, for 70 of its full-time employees the Employer will have to pay a $2,000 fine per person, equaling $140,000.

What about Employers that already offer health insurance coverage?

The law also puts additional requirements and penalties on Employers who already offer health insurance for their employees. This is a significant segment of the employment market. As of 2008, more than 95% of employers with at least 50 employees offered health insurance. Under the law, if an Employer with 50 or more employees offers health insurance coverage that: 1) does not meet the minimum coverage requirement as spelled out in the health care reform law; or, 2) offers unaffordable coverage, the Employer faces a penalty of paying the $2,000 fine for each full-time employee, minus the first 30 employees as set forth above, or a $3,000 fine for each employee, whichever amount is less. Under the law, minimum coverage is a plan that covers at least 60% of the benefit costs, with an out-of-pocket limit equal to the Health Savings Account (HSA) current law limit, which is currently $5,950 for individuals and $11,900 for families.

The law does not give any clear guidance on unaffordable coverage. Unaffordable coverage must be determined on a case-by-case basis depending on the income of the employee. This is highly problematic and is highly subjective for most Employers. Moreover, if an Employer chooses to provide health insurance coverage to its employees, but a particular employee finds the coverage offered through the Employer to be too expensive in comparison to the percentage of their income, the Employer will be required to take further action to assist this employee in purchasing health insurance coverage. The Employer will have to provide vouchers to employees who opt to purchase their own coverage in the amount that the Employer would have covered had the employee accepted the company plan.

New IRS problems for Employers

Under the law, all fines and penalties will be collected by the IRS. The IRS will also be responsible for monitoring compliance with the law. The law requires that an Employer must report to the IRS on corporate tax returns whether the Employer has purchased or provided the requisite level of coverage and disclose to the IRS which months, if any, the Employer failed to provide coverage. Also, an Employer must disclose the value of the benefits they provided for each employee's health insurance coverage on the employees' annual Form W-2's. On a related topic, the law also mandates that Companies will now be required to issue 1099 forms to any vendor of services or rental property to which the business has paid more than $600. As most companies are aware, Form 1099 is also sent to the IRS. Under the existing law, companies issued the Form 1099 only to individuals who provided services or property to a business. The healthcare law requires the same form

be issued to corporations as well, and that the form be issued to individuals and corporations that provide property to the Company. Only business related payments are reportable, personal payments not. There are a number of exceptions: payments for merchandise, telephone, freight, storage, and payments of rent to real estate agents are excluded.

Why small businesses might want to consider providing health insurance coverage to their employees and why they may not.
Although small businesses that employ 50 or fewer workers are exempt from the provisions of the health care reform law, there are tax incentives offered through the law, which might persuade small businesses to offer health insurance coverage to their employees. Beginning in 2010 and lasting through 2013, small businesses which employ less than 26 full-time employees and have an average annual income of less than $50,000, will receive a tax credit of up to 35% of the Employers contribution toward the employees premium, as long as the Employer contributes 50% or more of the total premium costs. A full tax credit will be available to Employers who employ less than 10 workers with an average annual income of less than $25,000. As of 2014, small businesses will be able to sign up for health exchanges that will be setup through the law. If a small business signs up for one of the health exchanges, it can receive a tax credit of up to 50% of its costs, similar to the 2010-2013 programs. That all sounds good but the Congressional Budget Office estimates that this brief tax credit period will impact at most 12 percent of businesses with 25 or fewer employees and expire after two years beginning in 2014. As for the full tax credit option for Employers who employ less than 10 workers with an average annual income of less than

$25,000, most of these workers will qualify for premium subsidies in the state exchanges anyway. So even with the significant incentives these small businesses probably have no benefit to offering coverage.

Expect Health Insurance Premiums and health costs to continue to rise.

Keep in mind that while the new law essentially forces people and Employers to sign up for health insurance plans, none of the Health Care Reform law freezes or reduces premiums or costs for Employers or employees. The Health Care Reform Law places significant new requirements on insurers such as:

Insurers are prohibited from charging co-payments or deductibles for Level A or Level B preventive care and medical screenings on all new insurance plans. Insurers' abilities to enforce annual spending caps will be restricted, and completely prohibited by 2014. Insurers are required to reveal details about administrative and executive expenditures. Health insurance companies become subject to a new excise tax based on their market share; the rate gradually rises between 2014 and 2018 and thereafter increases at the rate of inflation. Insurers are required to implement an appeals process for coverage determination and claims on all new plans. Given the avalanche of new requirements for insurers, expect insurers to pass the

costs of these requirements onto consumers. In fact, most experts project that premiums and health costs will continue to rise for Employers and individuals. For just one specific example, a study on the issue of deductibles projected that deductibles may run as high as $400 or more because the Health Care Reform law does not control the rate of medical cost inflation. Employees may be shocked when Employers present such health care plans to the employees during open enrollment periods.

Tips and Tactics

In summarizing this law, we can see that Employers who wish to expand payrolls and make new hires will have to weigh a lot of new concerns. Employers have faced the problem of the high cost of health insurance plans for years. The new health care law adds to this problem, given that Employers are now forced to shoulder the burden of health care costs that are sure to skyrocket. Rather than end this article with only the problems, here are some tips on how to handle these issues: 1. Consider expanding employee wellness programs to receive a break on

insurance costs. 2. Consider increasing employee contributions for health insurance coverage

to help offset the costs. In a recent survey of 700 employers over 30 industries, almost 42% responded that they intend to increase employee contributions to help defray costs. It may not make a business owner popular with employees, but it should help save the company money. 3. Consider plans that have higher deductibles and higher co-pays such as

pre-managed care benefit systems. Most experts predict that the Health Care Reform Law will help pull down the cost of prescription drugs, thus easing the burden of co-pays on employees. Finally, any Employer should read the Health Care Reform Law and consult with an HR professional. Many of the provisions discussed in this article go into effect over the next eight years. Any strategic decisions by Employers with respect to health plans should also bear in mind that 2018 is the magic date when Cadillac health plans will be

subject to higher taxes. The labor attorneys of Flamm Walton would be happy to discuss your needs with you.
Robert J. Krandel is an Attorney in the Labor and Employment Group at Flamm Walton PC. Irene Montero, a Summer Intern with the Firm, provided assistance with this article.
The EMPLOYMENT LAW NEWSLETTER is produced and published solely to inform and not to provide any advice, legal or otherwise. Although this newsletter is based on existing case law, the statements herein are general, for information only and are not intended to be relied on for any purpose. Individual facts in a given case may alter the procedural necessities or substantive issues involved in addressing a specific legal issue or prosecuting or defending a claim. Should you have an issue that you believe is similar to one of those discussed herein, we urge you to consult an experienced attorney. If you have any additional questions on the EMPLOYMENT LAW NEWSLETTER, or the topics discussed herein, please contact the FLAMM WALTON PC Labor and Employment Law Group.