The Patient Protection and Affordable Care Act’s (PPACA) ultimate impact on all aspects of a business remains to be seen. Questions and concerns about the law extend beyond the technological problems with the website ( While much about the PPACA implementation remains uncertain, employers cannot afford to ignore it. Businesses seeking to mitigate potential liability under the PPACA—now and in the future—need to take a strategic and comprehensive approach to complying with the law.

There is no “one size fits all” approach that is right for every employer. However, companies that consider the full spectrum of labor, employment and benefits implications will be better prepared to meet the legal and business challenges created by the PPACA.  

Under the PPACA “play-or-pay” mandate, “large” employers must either provide health care coverage to full-time employees that meets certain requirements or pay a penalty. Beginning in 2015, the penalty applies to employers with 100 or more full-time and full-time equivalent employees. Beginning in 2016, employers with between 50 and 99 full-time and full-time equivalent employees will also be subject to the employer “play-or-pay” mandate. Full-time employees are defined as those who work 30 or more hours a week calculated on a monthly basis (equating to 130 hours a month). Employers may determine each employee’s full-time status by measuring their average working hours over a period of three to 12 months. 

In 2015, employers with 100 or more full-time and full-time equivalent employees that fail to provide “minimum essential” health coverage to 70 percent of their full-time employees (and their children) will pay a penalty. The penalty will be equal to $2,000 per year for each full-time employee in excess of 80 employees if any full-time employee receives a federal subsidy to purchase insurance through an exchange. Beginning in 2016,  employers with 50 or more full-time and full-time equivalent employees that fail to provide “minimum essential” health coverage to 95 percent of their full-time employees (and their children) will pay a penalty of $2,000 per year for each full-time employee in excess of 30. Employers that offer coverage that does not provide “minimum value” (at least 60 percent of the actuarial value) or is not affordable (the premium is more than 9.5 percent of the employee’s compensation) will pay the lesser of the above penalty or $3,000 per year for each full-time employee receiving a premium tax credit to purchase coverage through an exchange. 

Beginning in 2015, the PPACA also requires employers to report information about the health care coverage provided to employees to the Internal Revenue Service.   

The delay of the play-or-pay mandate and employer reporting requirements affords employers an opportunity to try to simplify the burdens created by the mandate and implement optimal play-or-pay strategies. The question of whether to play-or-pay (and when to do so) is not as simple as it may seem. Employers need to look beyond 2015 and weigh the costs and benefits to their workforce, business operations and bottom line. Employers considering workforce restructuring strategies, such as limiting workers to less than 30 hours per week or hiring more part-time employees, must carefully evaluate the benefits and employment law implications of such actions.

Moving employees from full-time schedules to part-time schedules and hiring more part-time workers presents possible legal risks. ERISA section 510 provides that “[i]t shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan.” This provision has been construed to restrict an employer’s right not only to terminate entirely the working relationship between an employer and a plan participant or beneficiary in order to deny him or her benefits, but also to reclassify an employee’s status (e.g., from employee to independent contractor) to deny him or her benefits. 

The prohibitions of ERISA section 510 could restrict an employer’s actions to restructure its workforce if individuals who used to be eligible for benefits (or who would be eligible in 2015 under the current terms of the plan) were made ineligible in 2015 or later to reduce benefit costs. Complicating this issue is a U.S. Supreme Court decision that held conduct that appears discriminatory may be insulated from liability under ERISA section 510 if it could be demonstrated that the employer acted in furtherance of a “fundamental business decision.” Adding further uncertainty to this issue, courts have consistently required ERISA section 510 claimants to, first and foremost, be eligible for benefits. While some employees may try to take legal action on these grounds, there do not appear to be any clear answers regarding the outcome of such claims.

Employers also should be mindful of potential employment law issues that may arise with PPACA-related workforce restructuring strategies. For example, if an employer attempts to reduce its financial exposure by reducing the hours of certain workers and converts them to part-time status, it could expose the company to disparate impact claims if the employees of a protected class are impacted more severely than others. Whether such a theory would pass muster is open to question, but employers need to consider the broad ramifications of their PPACA play-or-pay decisions.

Even with the delay in the employer mandate and reporting requirements, employers cannot ignore other provisions of the PPACA that already are effective or will take effect this year. The following provisions are effective for plan years beginning on or after Jan. 1, 2014.
  • Group health plans cannot impose a waiting period that exceeds 90 days.
  • The maximum out-of-pocket limitation is $6,350 for employee-only coverage and $12,700 for family coverage. There is limited transition relief for plans and issuers that use more than one service provider to administer benefits that are subject to the annual limit. This requirement applies to both self-funded and insured plans.
  • The prohibition on preexisting condition exclusions (currently applicable only with respect to individuals under age 19) is extended to individuals of all ages.
  • Annual limits on the dollar amount of essential health benefits are prohibited.
  • Plans must cover routine patient costs associated with approved clinical trials.
Employers that sponsor group health plans also have to contend with new fees imposed under the PPACA. Health insurance issuers and sponsors of self-funded plans must pay a fee to fund the Patient-Centered Outcomes Research Institute (PCORI) based on the average number of lives covered. The PCORI fee is $2 per year ($1 in the case of a policy or plan year ending before Oct. 1, 2013, and $2 for subsequent years). Insurers and plan sponsors must pay a transitional reinsurance of $63 per enrollee. The number of enrollees must be reported by Nov. 15, 2014. The first fee must be paid in early 2015.   

While the delay in the employer mandate and reporting requirements certainly were welcome news for employers, it does not mean they can ignore the PPACA or the critical decisions it calls on them to make. The reporting requirements themselves will take significant time and attention to implement. Employers need to continue planning for the upcoming PPACA requirements, even as critical questions about the future of the law remain unanswered.

Ilyse Schuman is a shareholder in the Washington, D.C., office of Littler Mendelson. For more information, email