Healthcare reform requirements for employers: are you ready for 2015?

• Author: Curtice, Melanie K.
• Position: Legal Speak

Healthcare reform's employer shared responsibility provisions, often referred to as the "employer mandate," are effective January 1, 2015. These requirements are found in income tax regulations under the Internal Revenue Code. If you haven't been tracking your full-time (FT) or full-time equivalent (FTE) employees during 2014, you may be surprised by penalties that could be assessed in 2016 for failing to provide health insurance coverage to your FT employees in 2015.

The General Rules

In general, and unless you are subject to the 2015 transition rule (discussed below), any employer employing at least fifty FT or FTE employees must offer health coverage to an employee by the first day of the month immediately following the conclusion of three full calendar months of employment or pay a penalty (called an "assessable payment") to the IRS. Employees in part-time positions need not be offered coverage. The penalties apply regardless of whether you are a for profit, non-profit, or government employer.

There are two types of penalties: the "no coverage penalty" and the "insufficient coverage penalty." The no coverage penalty applies when an employer does not offer minimum essential coverage to "substantially all" of its FT employees (and their dependent children) and any FT employee is certified to receive a premium tax credit or cost-sharing reduction (Federal Subsidy) when purchasing individual health insurance coverage through a state-based or the federally facilitated exchange (an Exchange). For 2015, "substantially all" means 70 percent of FT employees. For 2016 and beyond, "substantially all" means 95 percent of FT employees. The "no coverage penalty" is equal to (i) $2,000, multiplied by (ii) the number of FT employees minus 30 (80 for 2015).

Example: Employer A has 150 FT employees and does not offer coverage to any of those employees in 2015, and at least one of its FT employees receives a Federal Subsidy when purchasing Exchange coverage. Employer A would be subject to a penalty equal to $140,000 for 2015, to be paid in 2016 (150 employees minus 80 = 70 x $2,000 = $140,000). In 2016, the penalty would be $240,000 (150 employees minus 30 = 120 x $2,000 = $240,000). (Note that the penalty amounts are subject to annual adjustments, so the $2,000 number will likely be slightly higher in 2015, and will increase each year thereafter.)

The insufficient coverage penalty applies when an employer offers health insurance coverage to...