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Tuesday, December 11, 2012

Understanding the Facts of the Affordable Health Care's Penalty Rule

The Affordable Care Act requires employers who have 50 or more workers to provide coverage for full-time employees starting on Jan. 1, 2014. During 2013, however, calculations will begin to count for employers that will determine if the 50-employee threshold has been reached. This is important to know because the numbers will determine how much an employer will either need to pay for health insurance or how much the penalty will cost them. Since ACA will affect almost every employer and employee in the U.S., it is equally important to understand the terminology used in ACA in order to accurately calculate the impact.

First, the term full-time employee is an employee who works at least 30 hours per week or 120 hours per month. Most employers also utilize part-time workers who work less hours. Their hours are also counted toward the 50 or more rule by adding all the hours they worked in a given month and dividing that number by 120 hours. The resulting average number of part-time people is then added to the full-time count. Example: 15 part-time workers x 80 hours per month/each, divided by 120 hours = 10 full-time employees. This mandate is to prevent employers from avoiding the penalty by simply turning full-time workers into part-time.

Seasonal employees are not counted toward the 50 or more threshold if they worked 120 or fewer days. If they worked more than 120 days, their hours are included in determining how many full-time works will need to be added to the monthly count. The key is average monthly employees. If during 2013 an employer's average monthly employees, according to the required calculations on both full-time and part-time workers, exceeds 50, that employer will be categorized as an Applicable Large Employer and be required to provide health insurance. Employers must provide health insurance not only to full-time employees but also part-time employees who work an average of 30 hours per week.

Second, many employers will take the time to calculate which decision--providing insurance or paying the penalty--is going to cost them more. There is an exclusion from penalty of the first 30 employees. After that, a penalty will be assessed of $2,000 for each full-time employee who applies for a government subsidy to purchase their own insurance through a state exchange. If it costs the employer more than $2,000 per employee to provide health insurance, taking the penalty might be a more affordable option. The unknowns, of course, are how many employees would apply for the government subsidy. In addition, when calculating both potential costs, employers must make sure they are offering health insurance that meets the federal government minimum standards. They could incur the same penalty if the package they provide is not up to par.

The bottom line is that 2013 will be a pivotal year for many employers as they plan their workforce. Their decisions, in light of the impending deadline for the Affordable Care Act to take full effect in January, 2014, will have a direct impact on whether or not they must provide health coverage in 2014.
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