Commentary: Farm employers confront play-or-pay health care rule
The Affordable Care Act requires you to provide coverage only to certain employees.
Which employees must be covered? An employer who meets the play-or-pay mandate must provide coverage to full-time employees—those who on average throughout the year work at least 30 hours per week or at least 130 hours in a month.
When must coverage be provided? The Affordable Care Act requires Applicable Large Employers to provide coverage to full-time employees starting on Jan. 1, 2014. Internal Revenue Service regulations permit employers to use a "measurement period" that is at least three but no more than 12 months long, in which an employer will look back on an employee's work history to determine whether the employee is full-time.
Thus, employers should be aware that hiring and firing decisions made in 2013 may affect whether coverage must be provided in 2014.
How much time is there to arrange and obtain coverage for a new employee? The Affordable Care Act allows an "administrative period" of up to 90 days. During this time, an employer can determine whether a new employee is eligible for coverage, and the employee can then enroll in coverage if eligible.
Once an employer provides coverage, for how long must it be provided? The Affordable Care Act does not mandate provision of coverage during 2013; rather, an employer may use employment patterns experienced in 2013 to determine if coverage must be provided in 2014. After Jan. 1, 2014, coverage must be provided to any eligible employee if an employer is covered by the play-or-pay mandate.
If an employer is covered by play-or-pay, is it better to "play" or to "pay"? This is a question probably best answered with advice of an insurance broker or tax professional. In short, if an employer fails to provide insurance, or fails to provide insurance that meets minimum benefit requirements, the IRS may impose $2,000 fines for each full-time employee if any of them seeks taxpayer subsidies to provide their own coverage through a state health care exchange.
However, for the purpose of calculating the penalty, the first 30 employees are excluded from the total. For example, someone who employs 55 employees and incurs this liability from the IRS could face a penalty of $2,000 multiplied by 25 employees: $50,000. If providing coverage that meets Affordable Care Act requirements for all 55 employees costs more than $50,000, it could be an economic benefit to elect not to provide coverage and to pay the penalty instead.
Every employer's situation will be slightly different. The possible penalty could be different if, for example, coverage is provided that the ACA does not deem "affordable"; in that case, the penalty would be $3,000 for each employee seeking the tax subsidy through the exchange.
All these calculations depend on variables that employers may not—and probably don't—know yet; for example, it's possible that any employee who could seek a taxpayer subsidy might have a spouse or parent who has employer-provided coverage for which they are eligible. An employer's potential liability would depend on that employee's action, or lack of action, to seek the subsidy.