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Cover mandate raises new fears

Big penalties possible for solitary lapse in offering insurance


WASHINGTON—The Treasury Department is moving to quell mounting employer fears that they could face huge penalties if just one full-time employee is not offered health care coverage.

Those fears involve a pivotal provision in the health care reform law that goes into effect in 2014. That is when the law imposes an employer penalty up to $2,000 a year for each full-time employee—those working an average of at least 30 hours a week during a month—not offered health care coverage.

The provision, experts say, states clearly that the penalty would be assessed for all full-time employees—including those with coverage—if just one lower-paid full-time employee was not offered coverage, was eligible for a premium subsidy and used the subsidy to purchase coverage in a state insurance exchange.

“That is the way the law reads. It is a sledgehammer,” said Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York.

“The provision seems pretty clear. There is no qualification,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

Fears about potentially massive fines on employers, even those offering coverage to virtually all of their full-time employees, have reached the Treasury Department, which is moving to ease those worries.

For example, in a notice issued this month, the Treasury Department asked for public comment on a possible approach to determine whether an employee is full time. In the notice, Treasury said it “contemplated” that forthcoming regulations would clarify that the assessment would not apply if an employer offered coverage to all “or substantially all” of its full-time employees.

In addition, the Treasury Department wants suggestions on “other situations where application of the...assessable payment may not be appropriate.”

“It is fair to say the notice suggests that Treasury is open to an interpretation that would involve some flexibility,” said Mark Iwry, a Treasury Department senior adviser to the secretary and deputy assistant secretary for retirement and health policy.

Mr. Iwry said Treasury and the Internal Revenue Service want to hear from employers and others about situations in which the assessment would not be appropriate.

“We want to hear from stakeholders on this. People may suggest, for example, that exceptions are needed for particular types of or categories of employees,” he said, adding that Treasury would like to publish proposed regulations on the issue this summer.

Without regulatory flexibility, there could be situations in which an employer could face the full force of the assessment even though it offered coverage to all, or virtually all, of its full-time employees.

One common situation, benefit experts say, involves employers that do not offer health care coverage to part-time workers working less than 30 hours a week.

But in any given month, a part-time employee might work more than an average 30 hours a week. As experts interpret the law, if that employee received a premium subsidy to buy coverage in a state exchange, the assessment would be applied on all full-time employees.

The $2,000 assessment is applied monthly, so if one full-time employee was not offered coverage, the employer would pay about $167 for each month for each of its full-time employees, excluding the first 30 employees.

Take the case of an employer with 100,000 full-time employees and one part-time employee who worked more than 30 hours a week in a month. In that situation, as experts read the law, the employer would be liable for an assessment of nearly $16.7 million.

“Intuitively, this isn't logical, but that is what the law says,” said Anne Waidmann, a director in PricewaterhouseCoopers' Washington office.

But observers are optimistic that Treasury will prevent such scenarios.

Regulators have “shown a continued sensitivity to developing workable rules for the health care reform law,” said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

For example, after protests last year, regulators revoked a requirement that would have stripped “grandfathered” status from a health care plan if the employer changed insurers. Grandfathered plans are exempt from certain health care reform law requirements, such as providing full coverage for preventive services.

And the opportunities for employers to influence the outcome of regulations should increase. While the Jan. 1, 2011, effective date of several reform law provisions gave regulators little or no ability to get public comments while developing interim final regulations for those provisions, many others, like the requirement that employers offer coverage or pay as assessment, don't take effect until 2014.

That will give regulators time to solicit and review public comment before finalizing proposed rules. “We prefer to go the proposed regulation route in order to obtain the benefit of public comment before rules take effect,” Treasury's Mr. Iwry said.