Date: Feb 01, 2013
Magazine:
February 2013 Fiscal Cliff Averted

Dear Jon,

I’m a large employer and I thought I only had to provide benefits to my employees.  Now I understand I have to also offer benefits to my employees’ dependents.  Can you clarify?

–Frustrated in Fresno

 

Dear Frustrated,

The Patient Protection and Affordable Care Act (the “ACA” or health care reform) does not require that employers “provide” health benefits or even to “offer” them.  Large employers, however, may be subject to penalty if they don’t at least offer coverage to full-time employees and dependents.

Keeping that in mind, and to answer your question, the Internal Revenue Service, in new proposed regulations promulgated on January 2, 2013, clarified an ambiguity in the ACA regarding the requirement to offer coverage to dependents.

The proposed regulations provide that large employers, those with 50 or more full-time employees or full-time equivalent employees, may be penalized if:

1.  the employer fails to offer the opportunity to enroll in minimum essential coverage to full-time employees and dependents; or

2.  the employer offers coverage that is unaffordable or does not provide minimum value to full-time employees and dependents; and

3.  an employee goes to a health insurance exchange and receives a tax credit or cost-sharing reduction for coverage through the exchange (“Subsidy”).

Full-time employee is defined as one who is reasonably expected to work an average of 30 hours per week or 130 hours per month.  The IRS, however, narrowly defined dependents to include only an employee’s child as, for example, a son, daughter, stepson, stepdaughter, adopted child, child placed for adoption and foster child up to age 26 (“Dependents”).  The definition is quite surprising as it excludes spouses, which may encourage employers to drop spousal coverage in order to allow spouses to obtain Subsidy assistance for coverage purchased through a health insurance exchange.

The proposed regulations clarify that employers choosing to offer plans must offer coverage (not pay for or provide, merely offer) to Dependents, which as the above definition demonstrates means children to age 26 and not spouses.  Failing to offer a plan or offering an unaffordable plan (or a plan that does not provide minimum value) does not automatically trigger the penalty.  A penalty is only triggered by employees (not Dependents or spouses) who receive subsidies as briefly explained above.

 

(Editor’s Note: Dear Jon is a new WG&S series devoted to answering all your health-care related questions.  As we continue to move into uncertain waters, Western Growers Compliance Counsel Jonathan D. Alexander is here to help.  Specializing in Health Care Reform, all things PPACA and more, Jon will answer your questions however small or big they seem.  To submit your question, write dearjon@wga.com.)

 

WG Staff Contact

Jonathan Alexander
Vice President & PCMI Compliance
949-885-2330

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