BASICS OF THE AFFORDABLE CARE ACT

Under the Affordable Care Act (the “Act”), effective January 1, 2014, employers must provide healthcare coverage to their full-time employees (and those employee’s dependents) or risk paying a financial penalty.  The provision applies to employers with fifty (50) or more full-time non-seasonal employees in the preceding calendar year.  Under the Act, a full-time employee is defined as one who works an average of least thirty (30) hours per week in any given month, while a seasonal employee is one who works fewer than one hundred twenty (120) days in a calendar year.  Companies with less than fifty (50) full-time employees in the preceding calendar year are exempt from this provision of the Act

If an employer with at least fifty (50) full-time employees offers a medical plan to its employees, but that plan requires a contribution greater than 9.5 percent of income or covers less than sixty (60) percent of medical costs on average, then the employee is eligible to join a new health insurance exchange, and the employer faces a penalty.

Employers not offering coverage with at least one employee receiving subsidies in the exchange will pay $2,000 multiplied by the number of full-time employees. Employers offering coverage with at least one employee receiving subsidies in the exchange pay the lesser of $3,000 multiplied by the number of full-time employees receiving subsidies and $2,000 multiplied by the total number of full-time employees. The first thirty (30) employees above fifty (50) employees are excluded from the penalties.

Waiting periods of more than ninety (90) days are banned under the Act. This ban applies to all plans, including grandfathered plans, self-insured plans, single plans and family plans.   However, according to an initial federal notice, for newly-hired employees, in certain circumstances, employers will have six months to determine whether an employee is full-time and would not be subject to penalties during that time period.

Finally, employers with more than two hundred (200) full-time employees must automatically enroll employees into a plan unless they opt out of coverage. This provision will be in effect once final regulations are issued, which the Department of Labor does not expect to happen in time to take effect in 2014.

The law establishes new standards for employer-sponsored plans, but plans in existence as of March 23, 2010 are grandfathered with regard to many of the standards for current employees, their family members and new employees.

However, certain changes to plan design will nullify a plan’s grandfathered status, such as elimination of benefits for certain conditions; any increase in coinsurance percentage; an increase in deductible or out-of-pocket limit by more than fifteen (15) percent plus medical inflation; an increase in co-payment by more than $5 adjusted for medical inflation or fifteen (15)  percent plus medical inflation, whichever is greater; an increase in employee share of premium by more than five (5) percentage points; or certain increases in a plan’s annual benefits limit. These limits are applied on a cumulative basis, not an annual basis.

Changes to premiums, changes made to comply with federal or state laws, or a change of third party administrator will not cause a plan to lose its grandfathered status. Employers that change insurers can maintain grandfathered status as long as the new plan has cost sharing and benefits that are similar to the original plan.

Fully-insured plans pursuant to a collective bargaining agreement (CBA) are grandfathered until the last expiration date of a CBA related to that coverage. Grandfathered status may be maintained upon the CBA expiration date if no changes were made since March 23, 2010 that would have otherwise caused the plan to lose its grandfathered status.

Finally, self-insured plans are exempt from some of the Act’s requirements.

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