Article: The Affordable Care Act

The Affordable Care Act: What Every Labor and Employment Lawyer Needs to Know

The Affordable Care Act (ACA)[1] has led a relatively tortured existence in its still tender and young life. Yet despite its painful beginnings, it is now the law of the land.[2] With its implementation, it has impacted how employee benefits are sold, packaged and priced. As we move from the “implementation” of the exchanges (“Cover Oregon” in our state), to implementation of the individual mandate, followed by the employer penalties, the ACA will have a profound effect on labor and employment attorneys. This article addresses some of the more significant aspects of the structure of the ACA for the benefits novice, and then moves on to a few areas of particular interest to the day–to-day labor and employment law attorney.


1. Employer-Shared Responsibility


The provisions of the ACA focus upon two target groups — employers and individuals. For the employer, the most significant provision is the “employer mandate.” Essentially, large employers (those with more than 50 full-time equivalents) will be subjected to tax penalties if they do not satisfy certain ACA requirements. The implementation of this “shared responsibility” requirement has now been delayed, and it is effective for employers with more than 100 employees  in 2015, and for employers with 50 to 100 employees it will take effect in 2016. Notably, employers with fewer than 50 employees are not subject to these shared responsibility requirements. Employers that are subject to these provisions must provide affordable adequate coverage to their employees. Those who do not provide adequate coverage will be subject to a penalty that will be allocated, albeit indirectly, to for coverage for individuals on the exchange.


The first issue that employers will look at is whether they are subject to the act as “large employers.” This is a hybrid FTE analysis — take the total number of employees working greater than 30 hours on average per week and the 30 hour full-time equivalent (hours worked by the workforce that works less than 30 hours, and divide this by 30).


Assuming we are talking about a subject employer, the question is then whether the employer is providing affordable and adequate coverage to its full time employees (those who work over 30 hours a week). Adequate coverage is defined as coverage that provides “minimum value.” A plan provides minimum value if it covers at least 60 percent of the total actuarially determined cost of benefits that are expected to be incurred under the plan. At this stage of implementation, adequate coverage is largely a non-issue for most employers because the plan structures have already been established by insurers, and most are ACA compliant. The real issue for most employers will be affordability. Coverage is designated as “affordable” so long as the cost to the employee of obtaining coverage for themselves is less than 9.5% of their household income. So, for instance, a single employee who has a household income of $3,000 a month, and pays $300 a month for individual coverage, is not deemed to have been offered “affordable coverage.” ($300 is greater than $285 – which is 9.5% of $3,000.) However, that same person, if married and were the spouse to also earn $3,000 a month (e.g. household income of $6,000) would be deemed to have been offered affordable coverage.


A large employer who fails to offer affordable coverage will be hit with a penalty, under certain circumstances. First, if the employer offers no coverage to some or all of its full time employees, the employer will face a penalty of $2,000 per employee, minus the first 30 employees. This is true even if it offers affordable coverage to some of those employees. So, a 1,000 person employer who does not offer any coverage to 51 of its full time employees would face a penalty of 970 x $2,000 or $1,940,000. However, an employer will escape that penalty so long as the group that is not offered any coverage comprises less than 30% of its workforce in 2015, and less than 5% of its workforce in 2016, and thereafter. Further, this penalty only occurs if at least one employee purchases subsidized coverage on the exchange.


A separate penalty structure is implicated if coverage is offered, but it is not affordable. In that case, for every employee who is offered coverage but for whom coverage costs more than 9.5% of their household income, and the employee instead purchases subsidized coverage on the Exchange, the employer must pay a $3,000 penalty.


2. Individual Responsibility and Subsidy


The second target group under the ACA is individuals. These individuals will face a penalty if they do not have minimum coverage.  In 2014, the penalty is 1% of income or $95 per person, whichever is higher. In 2015, the penalty increases to 2% of income or $325 per person, and increases again in 2016 and thereafter, to 2.5% of income or $695 per person. After 2016, the penalty will be adjusted annually for inflation. In addition to this stick, the ACA creates a real carrot for individuals to obtain coverage. Essentially, coverage can be purchased on the Exchange and, for a large group of people, it can be subsidized. The threshold for qualifying for a subsidy on the Exchange is an income of less than 400% of the federal poverty level (FPL). By way of example, for a family of five, 400% of FPL in 2014 is $111,640. The amount of the available subsidy is determined by applying a sliding percentage of what is deemed an affordable percentage of income to devote to health care, and it generally increases as the family income decreases.  The “benchmark plan” (the second least expensive Silver plan on the Exchange) is subsidized, so that the cost is “affordable” depending on income. One advantage to individuals is that these subsidies are handled through the Exchange and the actual premium payment is reduced by the amount of the subsidy, so that an individual does not have to wait for the filing of tax forms.


3.         The ACA Going Forward


Now that readers are familiar with the basics, you should know that the ACA creates some new opportunities for labor and employment practitioners. For labor lawyers — particularly in the bargaining context,  large employers and their employee representatives should ensure that employers are offering coverage to all of their over 30-hour employees. Many collective bargaining agreements exclude employees from coverage if they work less than a 40 hour workweek. This should be addressed in bargaining. In addition, affordability requirements should be satisfied to ensure that the coverage being offered does not subject the employer to non-affordability penalties.


The ACA also affects employment lawyers. When an employee leaves a job, that former employee is able to keep job-based health coverage for a period of time, usually up to 18 months. This is called Consolidated Omnibus Budget Reconciliation Act (“COBRA”)[3]continuation coverage. With COBRA coverage, individuals pay the entire premium themselves, plus a small administrative fee. Prior to the ACA, this was a significant benefit. The cost of that coverage would frequently be used by counsel as a benchmark for determining how much severance would be necessary to ensure insurance payments into the future. For employers, severance for the individual’s insurance is a more palatable purpose to pay severance as part of a resignation agreement. Now, under the ACA, individuals can purchase coverage under the Exchange and do not necessarily need the access to their former employer’s group plan. Moreover, an out of work individual is more likely to qualify for subsidies based upon their now lower income. Those subsidies are not available for non-exchange offered plans. This is important information for clients to know and may free up individuals from having to maintain their employment just to maintain health insurance. Greater movement in jobs, more resignations and settlements are more likely to occur if maintaining employment is no longer the exclusive means of maintaining reliable health insurance for employees.


The ACA changes are not done either. Over the past three years, we have witnessed a sea change in benefits — this year preexisting conditions are no longer a basis to deny an application for coverage, last year free preventative care became a required part of most plans, the year prior dependents up to age 26 could now be covered under most plans. Following implementation of exchanges, shared responsibility and the individual mandate, implementation of the “Cadillac tax” on more generous plan will be next. This 40% Cadillac tax will initially affect 1/8 of all plans in 2018, but could reach 3/4 of all plans by 2029. This tax will create a downward pressure on the level of insurance most people will have available to them. In sum, the effects of the ACA will reach every practitioner in some sense. It is not just the benefits lawyers that need to be able to identify these issues and advise clients. Rather, as the landscape changes, employment and labor lawyers will need to be able to address these significant issues for their clients.

[1] Patient Protection & Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), available at The ACA is primarily codified at 42 U.S.C. §§ 300gg et seq.

[2] See NFIB v. Sebelius, 132 S.Ct. 2566 (2012) (substantially upholding the ACA with the exception of the Medicaid expansion requirements).

[3] Codified at 29 U.S.C. § 1161-1169.