Now IRS says you don’t have to offer health coverage to every full-timer

The IRS has indicated it’ll offer some leniency in its enforcement of perhaps the most controversial requirement of the healthcare reform law.

Since the law’s inception almost three years ago, employers have been under the impression that come 2014 they’ll be required to provide affordable health insurance to each of their full-time workers or risk paying a penalty of $2,000 or $3,000 per worker if just one opts to receive a federal subsidy to purchase insurance in an exchange.

Now that’s only mostly true.

Must cover at least 95%In its latest round of proposed regs, the IRS said the per-full-time-employee penalty will not apply so long as employers offer coverage to at least all but 5% of its full-time employees — or five full-time employees, if that number’s greater — and their dependents up to age 26.

Without this flexibility, many employers could’ve been forced to pay the costly penalty even when they were trying in good faith to provide their entire full-time workforce with healthcare coverage.

Who will this help — and why?Say an employer with more than 50 full-time employees offers all of its full-timers affordable health coverage, thus avoiding the per-employee-penalty. But over the period of one month, it has a part-time employee who averages more than 30 hours per week.

Under the law as it was previously written, if that employee were to receive a premium subsidy to buy insurance on a state or federal exchange, that employer could’ve been assessed the per-employee-penalty on top of paying premiums for each of its other employees.

But now the new regs give employers in situations like this a little leeway.

The IRS had hinted that a regulation like this was coming back in May of 2011 when it said the penalty would not apply, so long as “substantially all” full-time employees were offered coverage. But, of course, it didn’t define what “substantially all” meant.

Now we know — it’s all but 5% of full-timers (or five, if that number’s greater).

Also included in the regs was the IRS’s announcement, which we covered previously, stating that while coverage offered to full-time employees had to be “affordable,” that’s not the case for insurance offered to spouses and dependents.

Russ Caforio
[email protected]
630-495-2901

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