Posted on | August 2, 2013
Written by | Keven Danow and Arielle Albert
Details & definitions have big implications
The Patients Protection and Affordable Care Act (PPACA) is in its infancy, and regulations are still being generated. Much remains unknown and unknowable. The Supreme Court found it a constitutional exercise of the federal government’s taxing powers. Moving forward, the Internal Revenue Service (IRS) has been charged with the responsibility of overseeing its implementation.
It is important to note that the new law imposes significant responsibility on the part of employers. Moreover, a given employer’s requirements are to be based on the number of employees, which in turn is based on rather complicated guidelines that will be enforced by the IRS.
As soon as the regulations are issued, employers with more than the equivalent of 200 full-time employees will be required to automatically enroll new full-time employees into a health benefit plan. Beginning January 1, 2014, any employer that has the equivalent of 50 full-time employees is required to offer its employees and their dependents health insurance coverage. At the same time, employers with 100 employees and less will have access to the new public health insurance exchange. Larger employers will not have access to the exchange until 2017. Employers with fewer than 25 employees may be eligible for a tax credit to help pay insurance premiums. Under the law, employers are not permitted to discriminate by offering better health care to highly compensated employees than to its other workers.
Critical Term: ‘Controlled Group’
The IRS has elected to apply its pension plan regulations to the PPACA. These regulations were designed to prevent systems designed by business owners to favor owners and managers and include complicated rules related to common ownership and control. All the employees in a “Controlled Group” must be counted to determine if an employer has the equivalent of 50, 100 or 200 full-time employees. Similarly, the non-discrimination rules apply throughout the entire group.
The term “Controlled Group” is not self-explanatory. The IRS applies complicated attribution rules which bring certain family members under a single umbrella. Because New York does not allow ownership interests in more than one package store, and minors are not permitted to own an interest in a licensed entity, such attribution rules would not normally affect package stores.
However, consider this scenario: A father owns one package store, his wife owns another and their daughter owns a third. A fourth business provides accounting and management services to all three companies. Even though the services provided by the fourth business may not violate the New York State Liquor Authority’s rules against joint ownership, the IRS could define all four companies to be a single employer under the PPACA.
Or consider a scenario in which a woman owns a package store with 10 full-time employees and a catering establishment with 40. The IRS can treat the two businesses as a “brother sister” affiliated group with 50 full-time employees.
The penalties for non-compliance with the PPACA can be extremely onerous. Employers that do not offer health coverage can be assessed a penalty equal to the number of full-time employees who apply for and receive a federal premium tax credit in connection with the purchase of health insurance multiplied by $2,000 per year.
Even if the employer does cover all full-time employees, it may be assessed a penalty if the coverage being offered either is unaffordable, fails to provide minimum essential coverage or fails to provide minimum value, and at least one full-time employee receives a federal premium tax credit in connection with purchasing coverage on a public health insurance exchange.
A charge of discriminatory coverage might result in a penalty of $100 per day for each non-highly-compensated employee who receives coverage that is less favorable.
The PPACA is filled with potential pitfalls. If you have close to 50 full-time employees in one or more businesses, or if you work with a company which supplies management services, discuss your legal obligations with a competent professional.