Employers Must Offer Family Care, Affordable or Not

Published: December 31, 2012|NY Times
WASHINGTON — In a long-awaited interpretation of the new health care law, the Obama administration said Monday that employers must offer health insurance to employees and their children, but will not be subject to any
penalties if family coverage is unaffordable to workers.
The requirement for employers to provide health benefits to employees is
a cornerstone of the new law, but the new rules proposed by the Internal Revenue Service
said that employers’ obligation was to provide affordable insurance to
cover their full-time employees. The rules offer no guarantee of
affordable insurance for a worker’s children or spouse. To avoid a
possible tax penalty, the government said, employers with 50 or more
full-time employees must offer affordable coverage to those employees.
But, it said, the meaning of “affordable” depends entirely on the cost
of individual coverage for the employee, what the worker would pay for
“self-only coverage.”

The new rules, to be published in the Federal Register, create a strong
incentive for employers to put money into insurance for their employees
rather than dependents. It is unclear whether the spouse and children of
an employee will be able to obtain federal subsidies to help them buy
coverage — separate from the employee — through insurance exchanges
being established in every state. The administration explicitly reserved
judgment on that question, which could affect millions of people in
families with low and moderate incomes.
Many employers provide family coverage to full-time employees, but many
do not. Family coverage is much more expensive, and the employee’s share
of the premium is typically much larger.
In 2012, according to an annual survey by the Kaiser Family Foundation,
premiums for employer-sponsored health insurance averaged $5,615 a year
for single coverage and $15,745 for family coverage. The employee’s
share of the premium averaged $951 for individual coverage and more than
four times as much, $4,316, for family coverage.
Starting in 2014, most Americans will be required to have health
insurance. Low- and middle-income people can get tax credits to help pay
their premiums, unless they have access to affordable coverage from an
In its proposal, the Internal Revenue Service said, “Coverage for an
employee under an employer-sponsored plan is affordable if the
employee’s required contribution for self-only coverage does not exceed
9.5 percent of the employee’s household income.”
The rules, though labeled a proposal, are more significant than most
proposed regulations. The Internal Revenue Service said employers could
rely on them in making plans for 2014.
In writing the law, members of Congress often conjured up a picture of
employees working year-round at full-time jobs. But in drafting the
rules, the I.R.S. wrestled with the complex reality of part-time,
seasonal and temporary workers.
In addition, the administration expressed concern that some employers
might try to evade the new requirements by firing and rehiring
employees, manipulating their work hours or using temporary staffing
agencies. The rules include several provisions to prevent such abuse.
The law says an employer with 50 or more full-time employees may be
subject to a tax penalty if it fails to offer coverage to “its full-time
employees (and their dependents).”
Employers asked for guidance, and the Obama administration provided it,
saying that a dependent is an employee’s child under the age of 26.
“Dependent does not include the spouse of an employee,” the proposed rules say.
Thus, employers must offer coverage to children of an employee, but do
not have to make it affordable. And they do not have to offer coverage
at all to the spouse of an employee.
The administration said that the rules — which apply to private
businesses, nonprofit organizations and state and local government
agencies — would require changes at many work sites.
“A number of employers currently offer coverage only to their employees,
and not to dependents,” the I.R.S. said. “For these employers,
expanding their health plans to add dependent coverage will require
substantial revisions to their plans.”
In view of this challenge, the agency said it would grant a one-time
reprieve to employers who fail to offer coverage to dependents of
full-time employees, provided they take steps in 2014 to come into
compliance. Under the rules, employers must offer coverage to employees
in 2014 and must offer coverage to dependents as well, starting in 2015.
The new rules apply to employers that have at least 50 full-time
employees or an equivalent combination of full-time and part-time
employees. A full-time employee is a person employed on average at least
30 hours a week. And 100 half-time employees are considered equivalent
to 50 full-time employees.
Thus, the government said, an employer will be subject to the new
requirement if it has 40 full-time employees working 30 hours a week and
20 half-time employees working 15 hours a week.