Health Care Reform — The Employer Mandate

by Juliana Reno, Esq.  on Monday, Sep. 10, 2012 12:00 am  

Juliana Reno, Esq.Kutak Rock LLP

The health care reform law does not require any companies to offer a health plan to its employees. However, companies that fail to offer any health coverage, or fail to offer adequate coverage at a reasonable cost, will pay a penalty. We call this the “employer mandate” because most employers must either offer coverage or pay a penalty.


If your company is subject to the employer mandate, you have three basic options:

• Eliminate penalty cost (in which case the company will pay a lot in premiums).

• Eliminate premium cost (in which case the company will pay the maximum penalty).

• Pay some premium and some penalty.

When you are deciding among these options, it is important to remember that the premiums your company pays are deductible business expenses, but the penalty is nondeductible. It is also important to take more than financial considerations into account. Specifically, you should assess whether the company needs to offer health benefits, and whether it needs to pay some of the premium, in order to recruit and retain quality employees.

Employers Subject To The Mandate

Only large employers — employers with more than 50 full-time-equivalent employees (“FTEs”) — are subject to the mandate. For these purposes, two companies are considered a single “employer” if they are in the same “controlled group” or “affiliated service group.” For example, a parent corporation and its wholly owned subsidiary are considered a single employer.

The statute does not clearly explain how to count FTEs, but the government has provided preliminary, informal guidance. According to the guidance, FTEs are counted by using the following rules:

For each month, identify the employees who average more than 30 hours per week. Each of these is considered a full-time employee and counts as one FTE.

• For each month, add together the hours for the employees who are not full-time employees. Divide by 130. This is the number of additional FTEs for the month.



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