U.S. Supreme Court Upholds the Patient Protection and Affordable Care Act
In a 5-4 decision on June 28, 2012, the U.S. Supreme Court upheld the hotly debated and contested insurance mandate of the Patient Protection and Affordable Care Act (“PPACA”).
Writing for the majority, Chief Justice John G. Roberts upheld the constitutionality of the PPACA’s individual mandate, reasoning that the requirement that citizens acquire health insurance or pay a penalty for failing to do so may be characterized as a tax, and Congress has power under its taxing authority to order individuals to pay money to the federal government.
What Does This Ruling Mean for My Business?
The PPACA imposes a number of requirements on both individuals and businesses which are slated to go into effect in 2013 and 2014. This Alert briefly summarizes the PPACA’s major requirements.
Beginning in 2014, the PPACA requires all individuals to have minimum essential health insurance coverage, or pay a tax penalty. Some individuals may be eligible for a government subsidy if their household income is:
o Less than 400% of the federal poverty level, or
o If the employer coverage is below 60% actuarial value, or
o If the premiums exceed 9.5% of the individual’s household income.
Although the law imposes a mandate on individuals to obtain health insurance, the PPACA does not expressly require an employer to offer its employees health insurance. Instead, beginning in 2014, “large employers” (defined below) not offering coverage may be subject to tax penalties under certain circumstances, discussed below. To incentivize small employers with fewer than 25 full-time employees to offer coverage, there is also a tax credit for small businesses who offer coverage.
Only employers with 50 or more “full-time equivalent employees” can be subject to penalties. A full-time employee under the PPACA is one who works at least 30 hours per week (120 hours per month). Moreover, each 120 hours per month of part-time labor comprises a full-time equivalent employee. Moreover, employers with 200 or more employees must automatically enroll newly hired or newly eligible full-time employees into a default health plan that provides “affordable” coverage.
An employer that is part of a group of employers or that is under common control may be treated as a single employer under the PPACA for purposes of determining “large employer” status.
Beginning in 2014, large employers may be liable for a tax penalty under two scenarios:
1. Penalties for Employers Not Offering Insurance. If an employer does not provide health insurance to its employees and if one or more employees receive a federal premium credit or subsidy, the employer will be penalized $2,000 per employee for each employee over 30 employees. For example, a 51-employee organization that does not offer health insurance to its employees would pay $42,000[(51-30) x $2,000] in new annual taxes, and an additional $2,000 tax for every new hire.
2. Penalties for Employers Offering Insurance. If an employer does choose to provide insurance, and if one or more employees receive a federal premium credit or insurance subsidy, the employer will be penalized $3,000 per subsidized employee, or $2,000 per employee (minus the first 30), whichever is less. This $3,000 per subsidized employee penalty will only be assessed if a full-time employee opts out of the employer’s plan either because the employee’s share of the premium would exceed 9.5% of the employee’s income, or because the plan offered by the employer pays less than 60% of the covered cost, and the employee receives a subsidy.
The PPACA also imposes a number of additional requirements on employers, such as reporting the “aggregate cost” of employer coverage on IRS Form W-2, capping dollar limits on health care flexible spending arrangements, and increasing Medicare withholding for those earning more than $200,000 per year. Employers also cannot forget that they must comply with the reforms already in effect, such as coverage for dependents up to age 26.
What Should I Do Now?
It is now time for employers to turn their attention to the PPACA and its numerous mandates, and begin to prepare for its implementation in 2013 and 2014. It is important to note, however, that the PPACA is a complex law imposing a number of new requirements on individuals and employers in 2013 and 2014 and the above is not an exhaustive explanation of the PPACA. Leech Tishman’s Employment Practice Group is available to guide you through the PPACA and its regulations, and provide guidance on how to comply with the new law. Please contact us with any questions.
Please feel free to contact the Employment Group with any questions regarding the PPACA and its regulations, or any other employment law issue.
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