Affordable Care Act (ACA): The Affordable Care Act (ACA) is also known formally as the Patient Protection and Affordable Care Act (PPACA) and informally as Obamacare or federal health care. President Barack Obama signed the Act into law on March 23, 2010. Together with the Health Care and Education Reconciliation Act (enacted by Congress to amend the ACA/PPACA and signed into law by President Obama), it represents the most significant regulatory overhaul of the U.S. health care system since the passage of Medicare and Medicaid in 1965. The ACA is aimed primarily at decreasing the number of uninsured Americans and reducing the overall costs of health care. It stipulates a number of mechanisms intended to increase the coverage rate including mandates, subsidies and tax credits for employers and individuals. Additional provisions are aimed at improving health care outcomes and streamlining the delivery of health care.
Automatic Enrollment: Section 18A of the Fair Labor Standards Act (FLSA), as added by section 1511 of the ACA, directs an employer to which the FLSA applies, and that has more than 200 full-time equivalent (FTE) employees, to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law), and to continue the enrollment of current employees in a health benefits plan offered through the employer. Section 18A further requires adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled. Related regulations from the U.S. Department of Labor (DOL) have yet to be issued. The DOL has indicated that, until such regulations are issued (which it says will happen by 2014), employers are not required to comply with section 18A.
Employer Mandate: Beginning in 2014, employers meeting certain ACA thresholds will be required to offer minimum essential health benefit packages or pay a set portion of the cost of those benefits for use in Health Insurance Exchanges (see definition below). This ACA provision provides that an applicable large employer (50 or more FTE employees) could be subject to penalty if any full-time employee is certified to receive a premium tax credit or subsidy.
Health Insurance Exchange (HIX): The ACA requires each state to create a Health Insurance Exchange (HIX) or Health Benefit Exchange, which is a competitive insurance marketplace where individuals and small employers can shop for health plans. Exchanges will assist individuals and small businesses in comparing and purchasing qualified health plans. If a state decides not to establish an Exchange, the federal government will establish an Exchange in that state. The Exchanges are to be implemented by states or the federal government by 2014.
Affordability Standard: A term used in the ACA to designate both the types of coverage arrangements available to individuals and the level of family income that is considered available to pay health insurance premiums, the affordability standard requires that, for an employee whose household income falls between 100% and 400% of the federal poverty line, his/her contribution to the self-only premium (i.e., not the premium for family members/dependents) must not exceed more than 9.5% of his/her household income. Employers can use an employee’s W-2 income to calculate affordability.
Minimum Value Standard: In order for a health benefits plan to meet the “of minimum value” threshold under the ACA, the plan must cover at least 60% of allowable medical expenses.
Large Employer Penalty: Beginning in 2014, employers with 50 or more FTE employees may be subject to a maximum annual penalty of up to $2,000 or $3,000 per employee, respectively, if the employer either (1) offers no coverage; or (2) offers coverage, but such coverage does not meet the affordability or minimum value standards as defined above.
Common Ownership/Common Control: An employer that is part of a group of businesses under the common control of small group of individuals, as defined by IRS tax code, may be treated as a single employer under the ACA. According to the Coalition of Franchisee Associations (CFA), “The common control test said that if two or more businesses have the same five or fewer owners collectively owning at least 80% of the shares or interest, they shall be considered run by a single employer.” This should not be taken at face value, however; it is essential to further consult with one’s accountant and/or legal counsel for specific guidance.
Medical Loss Ratio (MLR): A Medical Loss Ratio (MLR) is the proportion of premium dollars that an insurer spends on health care services and certain recognized plan administration costs relative to health insurance premiums paid by subscribers. The ACA requires health insurers offering health insurance coverage in either the group or individual (non-group) market to submit an annual report to the Secretary of Health and Human Services on their MLR and to provide rebates in circumstances in which losses exceed permissible levels (80% in the individual market; 85% in the group market). The MLR and rebate requirements apply to both new and grandfathered insurance plans and went into effect for plan years beginning September 23, 2010.
Small Business Tax Credit: The ACA provides certain small businesses that offer health plans a tax credit. These tax credits vary with the size, contribution and tax status of the small business. To be eligible, the business must: cover at least 50 percent of the cost of single (not family) health care coverage for each employee; have fewer than 25 FTE employees; and those employees must have average wages of less than $50,000 a year. Such businesses may qualify for a small business tax credit of up to 35% (up to 25% for non-profits) to offset the cost of insurance. Starting in 2014, the small business tax credit increases to 50% for qualifying businesses (up to 35% for non-profits).
MA Health Care Law Update
NOTE: Franchise operations located in the Commonwealth of Massachusetts are subject to the Massachusetts Health Care Reform Law, also known as the Massachusetts Mandated Health Insurance Law, and its subsequent applicable amendments.
Massachusetts health care insurance reform became law in 2006 and served as the prototype for the federal plan. It has since undergone significant revisions, most recently to the Fair Share provisions.
As originally written, the law required any Massachusetts employer with 11 or more full-time equivalent (FTE) employees to provide employees with health insurance that passed certain tests, or pay the Commonwealth $295 per year per FTE. Further, if fewer than 25 percent of employees opted to accept the coverage, the employer had to pay the penalty.
The law made no consideration for the reasons an employee might opt out of employer coverage (e.g., already covered under a spouse’s or parent’s plan or as a senior citizen or military personnel), and the 11 FTE threshold seemed arbitrary and excessively burdensome.
Dunkin’ Donuts franchise owner Rob Branca helped lead an effort to amend the law, bringing franchise owners’ concerns to the attention of key legislators. They agreed the law was unjust and fought to fix it accordingly. In August 2012, the Massachusetts legislature passed, and Governor Deval Patrick signed into law, an act that includes new Fair Share provisions. The new provisions, which go into effect on July 1, 2013, will raise the FTE threshold from 11 to 21 and make an adjustment for employees with other coverage.
Special thanks to Daniel S. Field and David G. Abbott of Morgan, Brown & Joy, LLP for help building this glossary. Morgan, Brown & Joy, LLP is located in Boston and is New England’s oldest and largest managementside employment law firm. See more at www.morganbrown.com.