Jan 16, 2014

ACA noncompliance penalties could crimp farms

The confusion regarding the implementation of the nation’s new health insurance regulations should not derail agricultural employers from paying close attention to the measures in order to avoid costly penalties for noncompliance.

The consequences involved in not following the requirements that kick in for all qualifying employers on Jan. 1, 2015, will be significant, according to Nancy Farnam, employee benefits law attorney based in Detroit with the law firm Varnum.

Farnam discussed the Affordable Care Act (ACA), also known as Obamacare, during the Great Lakes Fruit, Vegetable and Farm Market EXPO in December.

Overall, Farnam said, health insurance “is going to be affordable for employees because employees can’t pay more than 9.5 percent of what their income is for employer-sponsored coverage. For employers, the cost on average is going up. (The ACA) is not making the cost of insurance more affordable at this point. It’s the same in the private market. Rates are going up, also.”

Under the provisions, if an employer does not have at least 50 full-time-equivalent employees (not including qualifying seasonal or contract workers), penalties do not apply. However, if the “small employer” has 25 or fewer employees and an average wage up to $50,000, it may be eligible for a health insurance tax credit.

“If you’re a small employer, with under 50 employees, you are under no responsibility to offer coverage under the ACA,” Farnam said. “If that’s your situation, you may be better to not offer coverage, because you’re not subject to penalties, and let your lower-paid employees go onto the marketplace and buy their own coverage because they may be able to have that paid for by Medicaid or through the tax credits.”

For small employers wishing to offer coverage, they may be able to purchase it through the Small Business Health Options Program (SHOP). Its features allow the employer to: control the coverage offered and how much it pays toward employee premiums; possibly qualify the employer for a tax credit; and allows the employer to deduct the premium costs covered by the tax credit.

The SHOP option enrollment began Nov. 1, 2013, for coverage starting in January 2014. Employers seeking this route must offer coverage to all of their full-time employees (30 or more hours per week). In many states, at least 70 percent of full-time employees must enroll in SHOP.

Farnam cautioned employers not to provide their workers with money outright to purchase their own health insurance, “because that would be considered income and would be taxed.”

It’s also not advisable under federal tax code, she said, to provide self-insured benefits to higher-paid employees only, to the detriment of lower-paid workers.

“Non-discrimination rules will apply,” she said. “You can’t buy coverage just for your higher-paid and not your lower-paid personnel.”

If the business qualifies as a “large employer,” having at least 50 full-time-equivalent employees, does not offer coverage to its workers and had at least one employee receive a premium tax credit or cost-sharing subsidy in the state health care insurance marketplace (some states have partnered with the federal health exchange), the employer must pay a penalty for not offering coverage.

For that employer, the penalty is $2,000 annually, multiplied by the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.

“That may be the option you want to take – that is to not offer coverage and pay the penalty,” Farnam said. “When you’re thinking of $2,000 a year per employee, that’s likely going to be less than you will be paying for coverage.”

In another provision, if the insurance offered by a large employer does not pay for at least 60 percent of covered health care expenses for a typical population, and the employees can choose to buy coverage in a public exchange and receive a premium tax credit, the employer must pay a penalty for not offering affordable coverage.

The penalty in this case is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 multiplied by the number of full-time employees minus the first 30. The penalty is increased each year by the growth in insurance premiums.

“You may want to do an affordability test on this,” she said. “In this scenario, it may be worthwhile to actually offer coverage, but not make it affordable, charging more than 9.5 percent of their income. Your employees might say, ‘I’m going to take my employer-sponsored coverage and pay 20 or 25 percent of the premium because that’s still less expensive than what I could purchase through the state marketplace.’ So you would only be paying the penalty for those employees who choose the state marketplace over your employer-sponsored coverage.

“The problem here is you have a large low-income workforce who would probably benefit from going to the state marketplace, so that probably wouldn’t be a good option for you.”

Employee categories

“If you’re considering working with a farm-labor contractor, we don’t generally advise you do that,” Farnam said “It’s a tricky issue, if you’re hiring through that method, on whether they will be your employees or the employees of the farm-labor contractor.

“With an independent contractor, the government refers to benefits when looking at who your employees are,” she said. “Just the fact that you’re calling them an independent contractor doesn’t make them an independent contractor. If you’re controlling the day-to-day work, telling them when they have to come to work, what they have to do when they get there, they’re probably your employees not independent contractors, meaning you will have to count them in the number of employees you have.”

As far as using “undocumented workers,” Farnam said, “you don’t have to count them for purposes of the ACA, but we don’t recommend that you hire undocumented workers because of the other problems that can lead to.”

Farnam acknowledged 2014 will be a year that employers sort out how to approach ACA’s benefit mandates and its added fees and taxes. Political wrangling in Washington, D.C., also could impact ACA going forward.

“2014 is going to be a year of a lot of guidance being issued and the final regulations on how to implement these employer mandates,” she said. “We’re going to continue to have a lot of questions and confusion because we have so many employee groups and issues that have not been addressed and answered at this time.”

Among the rules and guidance still to be clarified, according to Farnam: how employers with 50 or more full-time workers will count employee hours in accordance with a provision that requires them to offer health coverage to people who work more than 30 hours per week; and how employers will report data to the federal government about the coverage they offer.

Federal agencies still have to issue guidance on seasonal and short-term workers, such as people who work in agriculture or tourism where employers typically have not provided health benefits. Rules for seasonal employers “are not entirely clear,” Farnam said. The current guidance appears to exclude them from an ACA mandate, for companies with 50 or more workers, to offer employee coverage.

“If we get more guidance, hopefully we’ll be able to move on excluding short-term employees altogether,” she said. “But this year, it’s going to be kind of a year of learning and continued turmoil.”

Farnam said the employer mandate poses problems, especially for businesses in low-wage industries such as agriculture that tend not to offer health coverage to employees or have a low percentage of employees pick it up because they cannot afford it.

When those businesses start offering health coverage as required, providing a benefits package that meets ACA’s affordability requirements will prove to be challenging.

Under ACA, employers must offer at least one benefit package with a premium that costs employees no more than 9.5 percent of their income. In low-wage industries, that means employers will have to create a benefit package with high deductibles to keep premiums down – deductibles that low-wage employees may not have the ability to afford.

The delay in the employer mandate could cause further confusion for low-income people who buy coverage on their own through a public health exchange, Farnam said. Since employers don’t have to report for another year which of their employees have group coverage and which do not, the federal government may have a hard time figuring out which people enrolling through a public health exchange qualify for subsidies to buy individual coverage, she said.

An individual mandate in the ACA that requires everyone to have health coverage, either by taking it from their employer or buying it on their own, took effect Jan. 1, 2014. If someone lacked coverage after Jan. 1, they had to pay an annual penalty that starts at $95 for 2014, increases to $325 in 2015 and to $695 in 2016.

2014 will also bring non-discrimination guidance for health policies.

– Gary Pullano