This is the last of four weekly Affordable Care Act ("ACA") Employer Mandate Alerts. Each Alert highlights a planning consideration 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 this last Alert, we offer Q&As addressing the following topics: "What Health Coverage Satisfies the Employer Mandate?" and "What is the Penalty for Noncompliance and How is it Collected?" 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.

Providing a Minimum Coverage Option to Meet the Employer Mandate

The Employer Mandate requires employers to offer health coverage to full-time employees and their children that is both "affordable" and provides "minimum value" or risk a penalty. Affordability is determined for each full-time employee based on the employee contribution for the lowest-cost self-only coverage option that meets minimum value and is offered to that employee. The employee contribution for other coverage tiers, such as employee plus spouse or family, is not subject to any affordability test. Further, the employee contribution for any tier of more expensive coverage options (including the self-only tier) need not meet the affordability test.

Minimum value, unlike affordability, is not determined for each full-time employee, but rather is determined based on the plan as a whole. To meet the minimum value requirement, the plan must pay at least 60 percent of the actuarially projected total allowed costs of covered services under the plan. The actuarial value of most employer-sponsored health coverage is currently higher than this threshold.

To meet both of these requirements and avoid a penalty, an employer must offer to full-time employees at least one health coverage option that has an actuarial value of 60 percent, for which the employee contribution for self-only coverage meets the affordability threshold. If one health coverage option meets these requirements, other available health coverage options need not. In other words, all other health coverage options could (using the definitions above) be unaffordable or not provide minimum value, or both. This creates a planning opportunity for an employer to simultaneously offer coverage that protects it from an Employer Mandate penalty while also offering coverage that is better aligned with the needs of its workforce. For example, if the employer has a low-paid workforce, it could simultaneously offer coverage that has a lower minimum value, and thus a lower up-front cost. Likewise, if the employer has a relatively high-paid workforce, it could simultaneously offer coverage with a higher minimum value and employee contributions greater than the affordability threshold allows.

In considering these options, employers will also want to consider whether the plan design meets applicable nondiscrimination testing requirements.

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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