Employers curious about how the Patient Protection and Affordable Care Act (PPACA) is likely to be enforced might look at how enforcement agencies in Massachusetts went after companies when its employer mandate was in place. (The state employer mandate was repealed in 2013 to avoid duplication of similar requirements of the PPACA.)
An employer’s determination that it is in compliance with the PPACA should not be the end of the conversation, emphasized Peter Marathas, an attorney at Proskauer in Boston and New York. Experience with the Massachusetts law has taught businesses there to “document, document, document” how their actions comply with it.
Don’t assume enforcement agencies will piece together the facts to see that your company is in compliance, he cautioned. “We learned from Massachusetts that when—not if—agencies audit for compliance, they very quickly shift into assessing penalties.” And if a company fails to quickly prove that it meets the law’s requirements, agencies will assume it doesn’t and assess penalties.
One compliance strategy organizations can use is to ask workers who aren’t taking advantage of health insurance to sign a waiver that explains their decision. That can help prevent worker claims that the employer didn’t offer insurance with minimum essential coverage, and help businesses anticipate what regulators are seeking.
Organizations shouldn’t assume that enforcement agencies will agree with their determination of how many full-time employees they have, either. “If you do not meticulously track who is a full-time employee, you leave that to an agency to decide, and it may use a more liberal view than an employer,” Marathas cautioned.
Even model employers need to think about this, he added. Say a company pays 100 percent of the premium and offers affordable coverage. If an enforcement agency shows up unexpectedly, the employer may not be able to quickly prove which employees are full time or that certain workers refused coverage, he said.
If the Internal Revenue Service, for example, notifies a business that its records indicate an employee received a federal subsidy and a penalty should be paid, the employer would have the right to appeal. If the business had its ducks in a row, it might be able to show it does not have 50 employees or that it offered an affordable plan, said Christopher Condeluci, an attorney at Venable in Washington, D.C.
Cutbacks in Hours
As of Jan.1, 2015, employers with 50 or more full-time staff that do not offer full-timers affordable minimum essential coverage will face penalties.
Many businesses operating on slim margins, such as restaurants, “have already begun cutting the hours of our employees to get well below the 30-hour threshold,” noted Eric Oppenheim, chief operating officer and franchisee at Republic Foods Inc. in Rockville, Md.
Consequently, “all of our new job postings are for part-time positions only,” he added. “Adjusting the hours of our current employees has had a dramatic impact on the employee-employer relationship, causing the loss of other fringe benefits such as loss/reduction of vacation eligibility, reduction/elimination of discretionary bonus programs, and an increase in the loss of eligibility/participation in 401(k) retirement programs. These are all unintended consequences of the decisions employers have had to make due to the mandate.”
The small-business community is being hit hardest by the cost of the PPACA, according to Oppenheim.
“Everyone should be required to offer coverage, but perhaps a more productive approach would be to ‘means-test’ the level of coverage that meets employer and employees’ needs.”
He said the small-business community is proposing to Congress a profit-per-employee (PPE) metric, to determine the degree to which a business can absorb a mandate. “High-tech, oil and gas, financial services, pharma and other sectors [can] earn a PPE well above $100,000, while service-industry business earns less than a $5,000 PPE.”
Oppenheim observed that mandates based on “metrics like number of employees or gross revenue are arbitrary—they are not supported by credible research. A 2010 study by the University of Tennessee validates the PPE metric as the preferred way to gauge ability to implement a mandate.”
Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.
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