This is the second of four weekly Affordable Care Act ("ACA") Employer Mandate Alerts. Each Alert highlights a planning consideration (or two) related to the Affordable Care Act's requirement to provide coverage to full-time employees (and their dependents) or pay a penalty (the "Employer Mandate"). In addition, each Alert links to a summary, in a question & answer format, discussing the scope and implications to employers of the legal rules governing the Employer Mandate.

In connection with this second Alert, we have added Q&As addressing the following topics: "Which Employers are Subject to the Employer Mandate?" and "Who Must Be Offered Coverage?" The Q&As can be found by clicking on the link below. A separate link is provided for the overarching Affordable Care Act summary Jones Day published in August 2012.

Planning Consideration: Spousal Coverage

To comply with the Employer Mandate and avoid a penalty, a large employer must offer coverage to full-time employees and their dependents. "Dependent" is defined as a child of an employee who is under age 26, meaning an employee's natural, step, adopted, or foster child. Spouses, however, are not included in the definition of "dependent." Due to the increasing cost of coverage, some employers are revising eligibility rules to limit spousal coverage to those spouses who are not eligible for coverage through their own employer. Because employees are likely to prefer having all family members enrolled in the same coverage when possible, if many employers in a geographic area have this restriction on spousal coverage, the employers who do not may find more spouses enrolling, and more dependents as well. Employers should consider whether changes to their own eligibility rules are warranted.

Planning Consideration: Controlled Groups of Related Employers

Employers that are part of a controlled group have a planning opportunity because the Employer Mandate penalty applies separately to each related employer in the controlled group. To illustrate, there are three companies in a controlled group that together have more than 50 full time employees and full-time equivalents, so all three companies are subject to the Employer Mandate. Two of the companies offer coverage to their employees and the third does not. The Employer Mandate penalty applies only to the third company and is computed only with respect to the third company's employees. Because the penalty applies separately to each related employer, a controlled group can substantially reduce the aggregate amount of the "no coverage" penalty, in particular if it is able to assign employees who are offered coverage to different subsidiaries from those who are not offered coverage. In considering this option, however, it is important for employers to be aware that there are nondiscrimination rules (and penalties) related to providing health coverage, which apply on a controlled group basis. The nondiscrimination rules for self-insured plans are already in force through long-standing regulations. The rules for fully insured plans have not yet been issued. Additional nondiscrimination rules apply if employee contributions are paid through a cafeteria plan. Therefore, employers will want to evaluate implications under the nondiscrimination provisions before engaging in any restructuring designed to limit Employer Mandate penalties.

We hope you enjoy these Affordable Care Act Employer Mandate Alerts, and the practical observations contained within them, and find them useful to your health benefits planning.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.