Companies with many low-wage, part-time workers may be sighing with relief after the controversial one-year delay announced last week for the employer-mandate provisions of the Affordable Care Act (ACA). But some of those same companies could be on a path to employee-relations and legal troubles in 2015, one prominent labor attorney suggests.
That attorney happens to be Chris Condeluci, of the law firm Venable, a former tax-benefits counsel to the Senate Finance Committee who helped draft the employer-mandate provisions. Under those rules, which were to have taken effect Jan. 1, 2014, employers with 50 or more full-time workers must offer them health insurance that meets standards of quality and affordability or else pay a $2,000-per-employee annual penalty. The law also mandates detailed new reporting on employer-sponsored health-benefits plans. The Obama Administration on July 2 delayed the effective date of those rules to Jan. 1, 2015.
The delay is particularly relevant to companies in such industries as hospitality, restaurant and retail that rely heavily on part-time workers. While the ACA defines “full time” as an average of at least 30 hours worked per week, many such companies deny health benefits to those working less than 35 or even 40 hours per week. And, says Condeluci, they’re unlikely to start offering the benefits until they have to, which is now 2015.
But any employee earning less than 400 percent of the federal poverty level who is not offered qualifying health insurance is eligible to apply for a federal tax-credit subsidy to help pay for a policy through the state and federal health-insurance exchanges that are scheduled to come on line in 2014. The effective date of that provision was not delayed.
For many workers, the federal subsidies will be more lucrative than the contributions toward their health-care benefits that their employees will make in 2015, Condeluci says. Those who are subsidy-eligible must pay a percentage of their income toward the insurance premiums. At 100 percent of the federal poverty level, that rate is 2 percent. But an employer-sponsored health plan meets the affordability requirement of the ACA if it costs employees as much as 9.5% of their income.
And therein lies the rub: Those whose employers offer qualifying health insurance will not be eligible for the federal subsidies. “So, an employee could go from paying 2 percent of their income for health insurance in 2014 to 9.5 percent in 2015,” says Condeluci. “When you look at the number of employees in those [low-paying] industries who work between 30 and 40 hours, this is a very valid issue to raise.”
Of course, companies could reorganize workers’ hours, or hire more workers, such that most people would work no more than 29 hours per week and therefore not be automatically eligible for benefits. But companies doing so in response to newly effective provisions of the ACA could well face not only labor unrest but legal challenges too, Condeluci says. Section 510 of the Employee Retirement Income Security Act says, specifically with regard to the employer mandate provisions of the ACA, that “by adjusting an employee’s hours such that the employer does not need to offer coverage to the individual, the employer may be interfering with the employee’s attainment of benefits, thereby exposing itself to potential litigation.” The ACA also added Section 18C to the Fair Labor Standards Act to prohibit discrimination against employees that receive the premium tax credit.
Condeluci, who represents companies in labor matters, says that in his opinion such legal challenges would fail. “Changing someone’s hours isn’t necessarily specific to the ACA,” he says. And even if it is done in response to the law, “you can make an argument that it’s not discrimination but has a valid business purpose, which is not incurring additional health-insurance expense.”
Still, he notes, “The last thing an employer wants to do is pay legal fees to fight a class-action claim and deal with bad press.”
The number of workers applying for the federal subsidies may be much higher than previously expected because of a new policy the Obama administration revealed on July 5. The policy suspends until 2015 a requirement that the state health-insurance exchanges verify the eligibility of individuals applying for the subsidies. Those using a federal exchange that will offer access to coverage for people in states that do not offer an exchange will still be subject to the verification requirement.
Steve Wojcik, vice president of public policy of the National Business Group on Health, an association of 364 large companies, acknowledges that retail, restaurant and hospitality companies face “a tough dilemma,” because “they know their employees are unlikely to be able to afford the full-blown coverage, even if it’s within the affordability requirements of the [ACA], and offering that coverage disqualifies them from federal help for exchange coverage.”
Still, Wojcik supports the delay of the employer-mandate provisions. “It’s sensible. These companies were saying they weren’t ready, and the government wasn’t ready either,” he says. (The government’s stated rationale for the delay is that it still won’t have the capacity to collect from employers the information required to determine which ones would be subject to penalties in 2014.) The delay gives companies “the needed breathing room” to decide on what benefits and work-force changes to make in order to comply with the law, he adds.
On the other hand, notes Wojcik, “It’s reasonable for an employer, or anyone else, to ask what else [about the ACA] is going to be delayed or changed.”
The delay also may result in fewer mistakes when companies do have to implement the employer-mandate provisions. “This gives them an opportunity to do a more robust analysis of their full-time-employee population and their compliance strategy, and enables a more accurate financial modeling of the impact of this law,” says Tami Simon, a managing director at Buck Consultants.
All companies are spared from the new reporting requirements until 2015. At that time they will have to report on what coverage they offer, who is participating and how much employees have to pay for it, among other information.