Commentary: Farm employers confront 'play-or-pay' health care rule

Issue Date: December 12, 2012
By Bryan Little
Bryan Little

One of the cornerstones of the Patient Protection and Affordable Care Act (often called "Obamacare") is its "play-or-pay" mandate that requires certain employers to furnish health insurance meeting certain minimum coverage and cost thresholds.

The applicability of the play-or-pay mandate is one of the more complicated and confusing aspects of a complex piece of legislation. The implementation of the Affordable Care Act and the play-or-pay mandate will affect virtually every employer and employee in the U.S.

To help farmers and ranchers understand whether they will be required to furnish employees with health insurance under play-or-pay on Jan. 1, 2014, here are some basic questions and answers to them:

Are you an "Applicable Large Employer"? "Applicable Large Employers" will be required to furnish health insurance to their full-time employees by the play-or-pay mandate. These are employers who employed an average of 50 or more full-time employees and "full-time equivalent" employees per month in the prior year. For this purpose, calculate the average level of employment, month by month, in 2013. Employers with a relatively high number of employees for a few months, but relatively few the rest of the year, will see their averages reduced.

What is a "full-time employee" versus a "full-time-equivalent"? The full-time equivalent or FTE concept is intended to ensure employers will not replace all their full-time employees with part-timers to avoid the Affordable Care Act coverage mandate. For play-or-pay purposes, a full-time employee is an employee who works at least 30 hours per week or 130 hours per month. The number of FTEs is calculated by adding together all the hours that part-timers work in a month and dividing that total by 120. So, an employer with 10 employees who work 100 hours per month in any given month has eight full-time equivalents who will count toward the 50-employee threshold.

How does an employer calculate whether the 50-employee threshold has been reached? If the sum of your full-time (30 hours/week or more) employees and your FTEs exceeds 50 on average for all the months of 2013, you will be an "applicable large employer" covered by the play-or-pay mandate. However, "seasonal" employees don't count toward the 50 employee/FTE total.

What's a seasonal employee? For the purpose of calculating employee totals to determine the applicability of play-or-pay, seasonal employees do not count toward the 50-employee threshold. Any employees who performed seasonal labor for 120 or fewer days are not counted toward the total number of employees in the months they work. Thus, when calculating monthly full-time/FTE employee totals, exclude employees who worked 120 or fewer days in that same year. In contrast, an employee who worked in that month and ultimately worked more than 120 days in that year is included in the total for that month.

The Affordable Care Act requires you to provide coverage only to certain employees.

Which employees must be covered? An employer who meets the play-or-pay mandate must provide coverage to full-time employees—those who on average throughout the year work at least 30 hours per week or at least 130 hours in a month.

When must coverage be provided? The Affordable Care Act requires Applicable Large Employers to provide coverage to full-time employees starting on Jan. 1, 2014. Internal Revenue Service regulations permit employers to use a "measurement period" that is at least three but no more than 12 months long, in which an employer will look back on an employee's work history to determine whether the employee is full-time.

Thus, employers should be aware that hiring and firing decisions made in 2013 may affect whether coverage must be provided in 2014.

How much time is there to arrange and obtain coverage for a new employee? The Affordable Care Act allows an "administrative period" of up to 90 days. During this time, an employer can determine whether a new employee is eligible for coverage, and the employee can then enroll in coverage if eligible.

Once an employer provides coverage, for how long must it be provided? The Affordable Care Act does not mandate provision of coverage during 2013; rather, an employer may use employment patterns experienced in 2013 to determine if coverage must be provided in 2014. After Jan. 1, 2014, coverage must be provided to any eligible employee if an employer is covered by the play-or-pay mandate.

If an employer is covered by play-or-pay, is it better to "play" or to "pay"? This is a question probably best answered with advice of an insurance broker or tax professional. In short, if an employer fails to provide insurance, or fails to provide insurance that meets minimum benefit requirements, the IRS may impose $2,000 fines for each full-time employee if any of them seeks taxpayer subsidies to provide their own coverage through a state health care exchange.

However, for the purpose of calculating the penalty, the first 30 employees are excluded from the total. For example, someone who employs 55 employees and incurs this liability from the IRS could face a penalty of $2,000 multiplied by 25 employees: $50,000. If providing coverage that meets Affordable Care Act requirements for all 55 employees costs more than $50,000, it could be an economic benefit to elect not to provide coverage and to pay the penalty instead.

Every employer's situation will be slightly different. The possible penalty could be different if, for example, coverage is provided that the ACA does not deem "affordable"; in that case, the penalty would be $3,000 for each employee seeking the tax subsidy through the exchange.

All these calculations depend on variables that employers may not—and probably don't—know yet; for example, it's possible that any employee who could seek a taxpayer subsidy might have a spouse or parent who has employer-provided coverage for which they are eligible. An employer's potential liability would depend on that employee's action, or lack of action, to seek the subsidy.

(Bryan Little is chief operating officer for the Farm Employers Labor Service and director of labor affairs for the California Farm Bureau Federation. He may be reached at

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.