Large Employers, Fines, and the PPACA Health Reform Law

According to the federal government’s definition, a “large employer” is a company that employs 50 or more full-time employees or “Full-Time Equivalents” (FTEs). An FTE is some combination of part-time employees whose hours equate to that of a full-time employee. For an easy example, two employees working half-time hours equal one FTE. In case you’re wondering, the IRS considers someone to be a full-time employee if that person works an average of 30 hours a week or 130 hours in a month.
Under the health reform law (obliquely named “Patient Portability and Affordable Care Act” (PPACA), beginning on January 1, 2014, large employers who don’t provide affordable health insurance coverage to their employees, and have at least one employee who buys tax-subsidized health insurance through the new state health insurance exchange, will be subject to a fine that would equal $2,000 per employee per year, with the first 30 employees being excluded. For example, a business with 60 employees that does not provide coverage, and who has at least one employee purchase it through a state exchange, would pay a $60,000 fine to the government each year (60 employees, minus the first 30 = 30. 30 x $2k each = $60k).
In case you’re wondering, the government considers health coverage “affordable” if it doesn’t exceed 9.5% of a worker’s annual income.
Now a case could be made that many businesses will do the math and decide that the fine is cheaper. But at the very least this provision of the health bill provides a disincentive to businesses of a certain size to add employees. There will no doubt be many businesses who form new corporations to divide their workforce in order to avoid these increasingly burdensome regulations.
These are interesting times in this (and every other) industry. AC Forrest Insurance is committed to helping our clients stay on top of these issues and helping them navigate these waters as best they can. Because we operate in both the group and individual markets, we are positioned to help you and your employees whichever way makes sense for you.
(And now a brief disclaimer. This is intended to be informational (as we understand it) and is not legal advice or legal interpretation.)