Weighing the Risks: Why Your Employees Will Enforce the PPACA

Employers that have not yet fully considered the implications of the PPACA should do so as soon as possible. Although the agencies responsible for enforcement of the PPACA may not have the resources to ensure that every employer in the United States is in compliance with the PPACA, the law is set up so that employees will have a strong incentive to help enforce the PPACA.

Some employers are quick to point out that they will not be penalized under the PPACA unless employees go to the exchanges that will be established under the PPACA and an employee gets a subsidy for health insurance. These employers are correct. Both the large penalty and the smaller penalty only apply if an employee goes to a health insurance exchange and receives a subsidy. The larger penalty punishes applicable large employers for failing to provide minimum essential health benefit coverage for at least 95% of all full-time employees. The smaller penalty punishes applicable large employers for failing to provide “affordable” essential health benefit coverage that meets a “minimum-value” requirement.

Despite the fact employers will not be penalized unless employees utilize the exchanges and receive subsidies, employers need to be aware that employees will most likely utilize the exchanges if employees are eligible to receive subsidies. If employers wish to avoid penalties under the PPACA, employers should not rely on employees choosing to forego utilizing the exchanges.

The federal government has maintained that the exchanges will be up and running by October of 2013, and the incentive for lower income employees to utilize the exchanges will be substantial. Anyone with a household income of between 100% and 400% of the federal poverty line will be eligible for a subsidy; in the case of individuals close to the federal poverty line, the subsidy will be very generous.

It is more than likely that employees will know about the exchanges. Employers will be required to provide their current employees with notices containing information about the exchanges on October 1, 2013, and after October 1, 2013, employers will be required to provide new employees with information about the exchanges. Further, the federal government is planning on implementing public outreach programs that will seek to educate as many people as possible about the provisions of the PPACA, including the exchanges.

If you would like additional information on the notices that must be provided to employees on October 1, 2013, there was an earlier post on this blog  that provides links to the model notices released by the federal government and information about the notices.

Beyond simply providing employees with information about the exchanges, it appears employers will be required to fill out forms provided to employees by the federal government. These forms will help employees and the federal government determine if the employee is eligible for a subsidy. After completing any of these forms brought to the employer by employees, under proposed regulations, the employer may be required to verify that an applicant to the exchanges is eligible for or enrolled in health coverage that is “affordable” and provides “minimum-value.”

Employees are not the only ones that will be assisting the government in the enforcement of the PPACA. After December 31, 2013, applicable large employers will be required to file a form with the IRS that provides information on the health coverage offered by the employer to its full-time employees, if any.

Any employer that has not done so already should make a decision on whether they are going to provide insurance for their employees or pay the PPACA’s fines. For some employers paying the PPACA’s fines will be a prudent decision. For others, simply offering health insurance to all employees will be a wise choice. Offering insurance may be cheaper than employers expect because many low income employees may elect to forego purchasing the insurance. However, the PPACA’s penalties will be an incredible burden for employers that have not made this critical decision. Such employers may find themselves paying for health insurance for some employees while still paying substantial fines under the PPACA.

About Jim Hamilton

I am an employee benefits partner with Bose McKinney & Evans LLP. My broad-based practice covers health and welfare arrangements, insurance, executive compensation and federal and state taxation. Among other areas, I have specific experience with PPACA, HIPAA, COBRA, ERISA and numerous other state and federal laws affecting employee benefit plans.
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