Legal Liability from the Health Care Bill—How They Get You

My clients are asking "What now? What can employees sue for under the new Health Care Bill?!" The good news is that employees cannot sue their employer under this law because the company doesn’t provide health insurance, or provided the "wrong" insurance. There are, however, governmental agencies which may get you for non-compliance: the Department of Labor ("DOL"), Department of Health and Human Services ("HHS"), the IRS, and state insurance departments for example.

Those agencies are supposed to issue guiding regulations including penalties for non-compliance. But not all of these regulations have been issued. Here’s what we know you need to watch out for:

• The law does not require any employer (large or small) to provide health insurance. However by January 1, 2014 all Americans (with a few exceptions) will be required to have health insurance either individually or through their employer. No insurance? You will personally pay an annual fine. (Since the fine, which increases annually, will only be $695 or 2.5% of the offender’s annual income by 2016, people may opt to pay the fine and forgo the insurance.)

• To assist individuals to obtain insurance, states are required to establish health insurance exchanges, and those that can’t afford insurance may be eligible for premium credits.

• Only "large" employers will be penalized if they either do not provide health insurance, or provide "unaffordable" insurance (where the premium exceeds 9.5% of an employee’s household income), and then will be penalized ONLY if a full-time employee gets individual insurance through an exchange AND that employee obtains a premium credit. (This penalty is not applicable if a part-time employee does so.)

Potential Gotcha's

• What’s a "large employer"? One with 50 or more FULL TIME EQUIVALENTS ("FTE"). One of the "gotcha’s" in the new law is keeping track of when "employee" means anyone on payroll, when it means a "full time employee" and when it means a "full time equivalent."

• The new law defines "full time employee" as one regularly scheduled to work 30 or more hours per week. If a company has health insurance coverage, all full time employees must be offered coverage. (Nothing in the new law requires health insurance coverage to be provided to part-time employees, or requires full-time employees to accept coverage, although very large employers with over 200 employees will have automatic enrollment where employees need to opt out to decline coverage.)

• A "full time equivalent" is determined by taking the number of part time hours worked in a month by all part time employees, and dividing by 120. (I know—a month has 4.5 weeks, not 4 weeks, but that’s the current guidance.)

• Penalties do not apply to employees who are not covered during a new employee "waiting period," but after but after January 1, 2014 the waiting period cannot exceed 90 days. (Penalties for longer waiting periods are not yet defined.)

• There is potential hidden liability in the "household income" standard used to determine premium "unaffordability." Companies should take care with information gathered, for example regarding a spouse’s disability benefits, to avoid potential liability for "association discrimination claims" (allegations that adverse employment actions were taken because an employee is associated with an individual with disabilities).

Excessive Penalties

• Penalties on large employers can be excessive. For example, if a large employer offers "unaffordable" health insurance, AND any full-time employee opts to obtain coverage through a state exchange AND receives a premium subsidy, the company will be assessed a penalty that will be the lesser of: $3,000 for each full-time employee who received a subsidy, or $2,000 for the total number of full time employees, excluding the first 30.

• Under any new or non-grandfathered plans, coverage must be equally offered to all full-time employees and may no longer discriminate by providing better benefits (for example, payment of a larger percentage of the premium payment) to higher-level employees. Discriminatory plans will be assessed an IRS excise tax of $100/per affected person per day until remedied.

• Businesses taking actions to get below the 50 FTE threshold by, for example, converting "employees" to "independent contractors" will likely be subjected to DOL scrutiny, which may impose fines, fees and penalties.

• "Creative" time-keeping to get employees below 30-hours per week could likewise be scrutinized and be subject to fines. Like policies prohibiting full-time employees from working over 40 hours in a work week without permission so the company does not incur overt-time pay liability, companies should implement policies prohibiting part-time employees from working over 30 hours in a work-week without permission. Regularly working extended hours could potentially turn them into full-timers who must be covered under the health insurance plan.

• All employers who provide health insurance will have IRS reporting requirements. The value of health insurance will be included on W2 forms provided in 2012 for 2011. Penalties for non compliance are as of yet unclear, but companies should coordinate with their payroll companies to capture this information in 2011.

• Large employers will have reporting requirements to the DOL regarding insurance provided and its coverage. Again, penalties for not reporting are unclear.

• While certain provisions of the plans themselves need to change (for example, coverage of children up to age 26 and coverage of children with pre-existing conditions; provisions for appealing denials of benefits, etc.), your health carriers are the ones to institute these changes, and your insurance agents and brokers should provide you with information about how these affect your plans.

To protect against potential liability under the new Health Care law, companies would be wise to partner with their insurance broker/agent, their tax consultant and their employment lawyer to ensure they are in compliance and have the protections they need in place.