In a landmark decision years in the making, the Supreme Court yesterday ruled by a vote of 5–4 to uphold the Affordable Care Act (ACA), finding that the mandate requiring individuals to purchase health insurance or face a penalty is constitutional.
To help shed light on the ruling and the subsequent breakdown of health care coverage—and any penalties that employers may incur—under this act, the National Restaurant Association (NRA) hosted a webinar this morning, led by Jennifer Kraft and Leon Sequeira.
Both Kraft, an Employee Benefits attorney, and Sequeira, a Labor and Employment attorney, practice at Seyforth Shaw LLP and helped draft the NRA’s amicus brief for the Supreme Court hearing.
While Sequeira and Kraft warn that the ACA is likely to go through many changes over the coming years—especially depending on the November presidential and congressional elections—employers need to go “full steam ahead” to prepare for changes this year and in 2013.
One of the most notable changes forbids group health plans to impose an annual dollar limit on any essential health benefits, which include items like preventative care, emergency services, maternity care, and prescription drugs.
The ACA also extends the nondiscrimination requirements—which previously only applied to self-insured plans—to insured plans, meaning that health care plans can no longer discriminate in favor of highly compensated employees.
“You tended to see these types of insurance arrangements frequently if you had only management employees that you thought would be interested in insurance coverage,” Kraft says, noting that this rule won’t go into effect until the IRS issues further guidance on how to design plans so they’re not discriminatory.
If employers wind up having options that discriminate, they will eventually be forced to pay a penalty of $100 per day per non-highly compensated employee.
In addition, employers will now have to offer Summaries of Benefits and Coverage (SBC), a four-page form in which the group health care plan is laid out, describing coverage and how the insurance will apply to certain situations. If employers fail to provide summaries, the fee is $1000 for each violation, with a possible additional penalty of $100 per day per effective participant.
By far, one of the biggest pieces of this legislation—and the one that may come to most heavily affect employers—is the employer mandate, which is slated to go into effect in 2014.
This mandate requires employers with 50 or more full-time equivalent employees to provide affordable minimum essentials coverage to all full-time employees, or risk facing penalties.
“A number of employers have not focused on this piece yet because they were busy implementing the other aspects of the Affordable Care Act and waiting to see how things checked out with the Supreme Court decision,” Kraft says. “But since we have the decision now, I think employers should really start looking ahead as to how the employer mandate would impact them and whether they want to implement some design changes to minimize any potential penalties.”
Under this mandate, there will be two possible penalties. First, if an employer fails to provide any coverage at all and at least one of its employees receives a tax credit or subsidy from a state-based Health Insurance Exchange—a marketplace for health insurance buyers—it will have to pay a fee of $2000 for each full-time employee.
The second penalty, known as the “free-rider penalty,” is enforced if employers offer some degree of health coverage, but a plan that is not considered affordable.
“Affordable means the cost of coverage to the employee is no more than 9.5 percent of the employee’s household income,” Kraft says, noting that the coverage also needs to provide minimum value, what equates to 60 percent of the value of health costs.
Employers who fail to meet this standard will be forced to pay the lesser of two options: $2000 times the number of full-time employees or $3,000 times the number of full-time staff that receives a credit or subsidy through an exchange.
“If you have coverage that most of your employees are able to elect into and you have a few folks who just decide to opt out and they don’t decide to go to the exchanges at all, then you may not end up paying any penalty,” Kraft says. “Or if one or two of them go to the exchanges and receive a credit or subsidy, then you may be paying the penalty just related to those people, so $3,000 for one person or $6,000 for two.”
Organizations like the NRA and The National Council of Chain Restaurants (NCCR) have spoken out heatedly against the ruling, predicting that the decision will have costly and dramatic effects on the restaurant industry.
The NRA will host another webinar on July 19 to discuss how the health care law will directly affect the restaurant industry and what companies should do to prepare for ACA implementation.
By Mary Avant