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Both Employers and Employees Worry About PPACA's Thresholds for Coverage

By Allen Smith  1/16/2013
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The battle cry among opponents of the Patient Protection and Affordable Care Act (PPACA) up to this point has been to repeal the law. But as the 2014 implementation date of the employer mandate approaches, time to repeal the legislation is either running out or, with the re-election of President Obama, effectively has run out.

Do the law’s opponents have any plan B? Could there, for example, still be time to amend it, even in the increasingly all-or-nothing politics of the nation’s capital?  Not likely. Amending core provisions of the centerpiece of the president’s first term would require not only enough votes for passage in the Senate and House—a stretch in the Democrat-controlled Senate—but enough votes to override the all-but-inevitable veto.

Still, few provisions of the law cry out for amendment like its definition of “large employers.”

How Low Can You Go?

“Large employers,” as defined by the law, are subject to penalties if they do not offer full-time employees and their dependents the opportunity to enroll in minimum essential coverage, and additional penalties if their coverage is unaffordable or does not provide minimum value.

But, at just 50 or more full-time or full-time equivalent employees, the law’s threshold for large employers is far below what most businesspeople would consider acceptable.

As Rep. Tom Reed, D-N.Y., remarked on the House floor on March 26, 2012: “In the last month and a half I went to a business just north of Cornell, New York, a small electronics company that’s been struggling day after day, just trying to make ends meet. It has about 48 employees. [The owner] stated to me that because of this law, the Affordable Care Act, and its 50-employee threshold for the additional bureaucracy and requirements and taxes and penalties that Washington, D.C., is putting on that business if he goes over that 50-employee threshold … he will keep his employee rolls at 48 and not venture down the path of hiring two more individuals.”

What’s more, few employees would consider the law’s definition of full time—a mere 30 hours per week—to really be full time, either. And many employees are scared that their hours will be cut because of the PPACA.

Just six days after the Internal Revenue Service (IRS) posted its notice of proposed rulemaking, on Jan. 2, 2013, Kelly Holland O’Leary of the Kalamazoo Valley Community College Federation of Teachers in Kalamazoo, Mich., wrote, “As the president of a newly formed union of part-time community college faculty, I am deeply concerned that the government’s attempt to provide health coverage to full-time workers of 30 hours per week will result in colleges and universities, nationwide, increasing the number of part-time faculty so as to decrease our hours to avoid paying health coverage for the majority of their teaching staffs.”

Every day, employers are getting calls from employees who read about the PPACA and are worried about their hours being cut below the 30-hour threshold, Adam Solander, an attorney at Epstein Becker Green in Washington, D.C., reported during the firm’s Jan. 9 webcast on the law’s shared responsibility rules. Some employees are even asking their employers to keep their hours the same, promising the employers that if they offer them health insurance, they’ll decline it.

But Solander noted that nothing in the law would prevent those employees from turning around and getting a federal health care subsidy, which could result in employer penalties even though the employer offered health insurance.

Anti-Abuse Rule

Not only is the employer-mandate threshold low, but the IRS stated in its proposed rule that the final rule would include an “anti-abuse rule” aimed at penalizing employers that try to structure worker employment in such a way as to avoid PPACA coverage.

“The Treasury Department and the IRS are aware of various structures being considered under which employers might use temporary staffing agencies (or other staffing agencies) purporting to be the common law employer  to evade application of Section 4980H,” the shared responsibility penalties of the PPACA, the IRS said.

For example, “In one structure, the employer (referred to in this section as the “client”) would purport to employ its employees for only part of a week, such as 20 hours, and then to hire those same individuals through a temporary staffing agency (or other staffing agency) for the remaining hours of the week, thereby resulting in neither the ‘client’ employer nor the temporary staffing agency or other staffing agency appearing to employ the individual as a full-time employee,” the agency stated.

“It is anticipated that the final regulations will contain an anti-abuse rule to address the situations described in this section of the preamble,” the IRS stated. “Under that anticipated rule, if an individual performs services as an employee of an employer, and also performs the same or similar services for that employer in the individual’s purported employment at a temporary staffing agency or other staffing agency of which the employer is a client, then all the hours of service are attributed to the employer for purposes of applying Section 4980H.”

Allen Smith, J.D., is SHRM’s manager, workplace law content.
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