The Affordable Care Act’s Employer Mandate & How It Impacts Nonprofits and Small Businesses
Over the past two years, a recurring theme in legal news has been the current Administration’s changes to, interpretations of, and delays in implementing President Obama’s flagship Affordable Care Act (“ACA”) otherwise known as “Obamacare.” This law has wide-reaching implications for many industries across the United States and impacts each individual American’s private life. Two of the most significant provisions of the ACA are (1) the requirement for large employers to provide affordable health care for their employees, and (2) the requirement for all providers of health insurance to cover contraceptive services. This short memo aims to give a brief overview of these two requirements and how they may impact you or your organization, whether nonprofit or for-profit, religious or nonreligious.
Under the large employer mandate, if your organization qualifies as a “large employer,” it must provide affordable, minimum essential health coverage (MEC) that provides the essential “minimum value” to their employees.
Is my organization a “large employer”? To determine if your organization is a “large employer,” you generally must have employed, in a calendar year, on average 50 or more full- time employees (FTEs). FTEs are those employees who worked each month an average of at least 30 hours per week, on business days during the previous calendar year. This calculation also includes FTE equivalents, which are not actual employees, but a fictional construct that accounts for the combined labor of part-time employees who each worked fewer than 30 hours per week. The number of FTE equivalents is obtained by aggregating all the hours worked in a month by non-full-time employees and dividing that number by one hundred twenty (120) (the total number of work hours per month for an FTE working 30 hours a week).
For example, assume that your organization employs 49 FTEs. Your organization also employs 12 other part time employees, but none of them work, on average, more than 30 or more hours per week in any given month. These12 employees work a total of 240 hours during a month. By dividing 240 (total hours worked by non-FTEs) by 120 (average hours worked by a FTE in a month), we get 2, which translates into 2 FTE equivalents that you must add to your organization’s employee calculations. This brings the total FTE count to 51, thus making your organization a “large employer” subject to the shared employer payment requirement of the ACA (see below). You are not a large employer, however, if you employ more than 50 employees for 120 or fewer days during the calendar year, and those excess workers are seasonal workers.
When making the necessary calculations to determine whether you are a “large employer,” remember that employees who work for different corporations, which are all part of the same “controlled group” of corporations under a parent entity relationship, can be lumped together for the purposes of the 50-employee threshold.4 Unless you have contacted legal counsel first, do not overlook counting the employees of your subsidiary churches and integrated auxiliaries that are controlled through a parent organization/church that has 80% or more authority over the subsidiary boards.5 If you have questions about whether your organization qualifies under this definition, please contact our firm or your attorney to determine your liability.
My organization is a large employer. What now? If your organization does qualify as a large employer, then it must provide to all employees the opportunity to enroll in affordable “minimum essential coverage” (MEC) through an eligible employer-sponsored plan (ESP).6 An eligible ESP includes a governmental plan (provided by the government for its employees), any other plan covered in the group market within a state, a grandfathered plan in a group market, or a self-insured group health plan. As a large employer, you may be subject to the Employer Shared Responsibility Payment if the insurance plan you offer to your employees fails to provide affordable MEC for minimum value.
What do “affordable” and “minimum value” mean? Affordable coverage means that the employee’s share of the premium is not more than 9.5% of the employee’s yearly household income (generally you can estimate from their W-2 wages). Minimum value means that the plan’s share of the total costs of covered services is at least 60%.
If your organization does provide healthcare coverage to its employees, but it does not qualify as “affordable” coverage or does not provide “minimum value,” then you may be responsible for a “shared responsibility payment.” Liability for this non-tax deductible “payment” takes effect in 2015, and arises in the following situations:
(1)You fail to offer insurance altogether. In this case, the penalty is $2000/yr. per full- time employee (excluding the first 30 employees); or
(2)You offer insurance, but the healthcare plan is not affordable and does not meet minimum value. In this case, the penalty is $3000/yr. per full-time employee who qualifies to save money on their monthly premiums if they were to purchase a plan through the Marketplace (where all plans meet minimum value).
What benefits must our Employer-Sponsored Plan include? The ACA requires all “Qualified Health Plans,” that is, those plans that may be sold on state and federal healthcare exchanges, to provide certain “Essential Health Benefits” (EHB). EHB requirements vary from state to state, but, by statute, they must include the following ten categories:
- Ambulatory patient services;
- Emergency services;
- Maternity and newborn care;
- Mental health and substance use disorder services, including behavioral health treatment;
- Prescription drugs;
- Rehabilitative and habilitative services and devices;
- Laboratory services;
- Preventive and wellness services and chronic disease management;
- Pediatric services, including oral and vision care.
What are the required “Preventive services” required under the contraceptive mandate? The Comprehensive Guidelines promulgated by Health and Human Services require plans to cover “all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity.” All non- grandfathered health plans (including self-insured plans) must cover such preventive services with no out-of-pocket cost to the insured. That means that your organization’s health insurance plan must provide these services for employees.
What if my organization objects to contraception on moral grounds? An exemption is made for “religious employers” who, as a matter of conscience, object to being forced to provide contraceptives for their employees (popularly referred to as the “contraception mandate”). Under 45 CFR 147.130(a)(1)(iv)(B), a religious employer is defined as an organization that meets the following criteria:
- The inculcation of religious values is the purpose of the organization;
- The organization primarily employs persons who share the religious tenets of the organization;
- The organization serves primarily persons who share the religious tenets of the organization;
- The organization is a nonprofit organization as described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended.
This definition of “religious employer” issued by HHS regulations is so narrow that its application is likely only limited to individual churches, to the exclusion of religious organizations that engage in charitable work with members of the community who do not share their faith, and religious nonprofit organizations who employ individuals who are not members of their faith. Thus, religious nonprofits engaged in educational, charitable, and health services likely are not exempt, and therefore must provide contraceptive coverage, even if doing so violates their conscience.
The HHS modified their regulations after an understandable outcry from the religious community. Their modification, however, provided little comfort as it still required that the contraceptive services be provided, but merely allowed the healthcare provider and not the employer to provide them. HHS allowed for an accommodation for an organization that could not meet the above definition of a religious entity, but that could meet the following criteria of a “qualified organization:”
- The organization is organized and operates as a nonprofit entity and is referred to in section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended;
- The organization opposes providing coverage for some or all of any contraceptive services required to be covered on account of religious objections;
- The organization is organized and operates as a nonprofit entity;
- The organization holds itself out as a religious organization;
- The organization self-certifies, in a form and manner specified by the Secretary, that it satisfies the criteria above, and makes such self-certification available for examination upon request by the first day of the first plan year to which the accommodation in paragraph (c) of this section applies.
While many more organizations can meet these criteria, the fact that the contraceptive services would still be provided through the healthcare provider, even though the employer would no longer be required to “contract, arrange, pay, or refer for contraceptive coverage,” makes the changes almost meaningless for a majority of religious organizations.
For example, the exemption does not apply to an order of Catholic religious nuns, the Little Sisters of the Poor, who operate a nursing home for the indigent elderly in Denver. Because the Sisters serve many in the community who do not share their Catholic faith, the Sisters do not qualify as a religious employer because their organizations does not “serve primarily persons who share the religious tenets of the organization,” as required by HHS regulations. The Sisters obtained an emergency injunction against enforcement of the contraception mandate from Justice Sotomayor on December 31, 2013, hours before the mandate went into effect. The issue of their eligibility will not be tested in the courts.
Numerous other lawsuits have been brought challenging the contraception requirement, from both religious and nonreligious for-profit and nonprofit organizations. Although the full implications of the ACA and its contraceptive mandate may not yet be known, for most Americans—whether employees, small employers, or large employers—it will have a significant impact on their day to day lives.
Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. Please contact Robert Showers at firstname.lastname@example.org or Justin Coleman at email@example.com or Daniel J. Hebda at firstname.lastname@example.org or call Robert Showers at (703) 771-4671 for legal advice specific to your church or organization. Simms Showers LLP © 2014
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