CWA HEALTH CARE REFORM UPDATE: Multi-employer Plans

Are multiemployer plans subject to ACA penalties?

The recent announcement of the delay of the employer mandate noted that simplified rules on how business will report data will be issued this summer. New, simplified rules for employers will be released in the coming months followed by a year of testing and fine tuning before employers will be expected to comply. This means that current rules, including those for multi-employer plans and participating employers, will be subject to change. The following is an explanation of the rules as they stand now.

The Treasury Department and IRS have issued a transition rule for contributions made by large employers participating in a multiemployer plan. The rule, which will apply through 2014, provides that an employer will be exempt from the penalty if the employer contributes to a multiemployer plan on behalf of its full-time employees, the coverage is offered to full-time employees and their dependent children, and that coverage is affordable and provides minimum value (as defined under the ACA).

Regarding affordability, the ACA requirement is that employee premiums for individual coverage may not exceed 9.5% of total household income. The rule sets forth three voluntary safe-harbors for determining affordability, and a fourth special rule for multiemployer plans. The multiemployer affordability rule provides that coverage will be considered affordable if an employee’s required contribution toward self-only coverage does not exceed 9.5% of the wages reported to the multiemployer plan. Wages may be determined based on actual wages, or on an hourly wage rate under the applicable collective bargaining agreement.

Many multi-employer plans have fixed, or limited, employer contributions, and employees contribute the remainder of the cost. For these arrangements, whether the plan meets the affordability standard for individual participants could fluctuate year to year with changes in health care costs.

Regarding minimum value, the ACA requirement is that a plan’s share of the total allowed costs of benefits provided must be at least 60 percent of those costs. (Most multiemployer plan coverage is more generous than 60 percent.)

If a multiemployer plan fails the affordability or minimum value test, the participating employer will be subject to a penalty of $3,000 per employee who opts out of plan coverage in favor of coverage on a state-based exchange and receives a Federal subsidy.

For more information, see Multiemployer Plans vs. the Exchanges and Proposed Rule on the Affordable Care Act’s Employer Penalty Addresses Application to Multiemployer Plans.