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Complying with Affordable Care Act

May 5, 2016
Employers with less than 50 full-time employees (FTEs) are not required to offer health insurance Under the Play or Pay mandate, 2016 penalties will be calculated one of two ways The employer sponsored health plan is affordable if the employee cost for self-only coverage does not exceed 9.5% of the full time employee’s income

More than five years after its enactment, the Affordable Care Act (ACA) continues to be one of the top concerns for employers. Phased implementation of the complex ACA requirements has kept employers consistently busy over the last few years while trying to ensure full compliance with the regulation. This article provides some basic practical tips for ACA compliance and is not intended to be a comprehensive resource. Please consider the following:

Offering healthcare coverage: Employers with less than 50 full-time employees (FTEs) are not required to offer health insurance and face no penalties. Employers with 50 or more full-time employees (FTEs) are required to offer health insurance to all eligible full-time employees.

Determining applicable large employer (ALE) status: An employer is considered an ALE for the calendar year if it employed on average, at least 50 FTEs during the previous calendar year.  Employers must track total numbers of full-time employees and full-time equivalents (total hours worked by all part-time employees for the month (but not in excess of 120 hours for any such employee) divided by 120 (retaining any fractions) for each month and obtain a yearly average.  If that average number of FTEs exceeds 50, the employer must comply with the Pay or Play Mandate.  

Waiting period: Regardless of whether an employer chooses to offer health insurance or the ACA requires that they do so coverage must begin no later than the 90th day of employment.  

Determining classification of individual: A full-time employee is an employee who is employed on average at least 30 hours of service per week. A part-time employee is an employee who is employed on average less than 30 hours of service per week. An ongoing employee is an employee who has been employed by the employer for at least one complete standard measurement period. A variable hour employee is based on the facts and circumstances at the employee’s start date, it cannot be determined whether the employee is reasonably expected to work full-time hours during the initial measurement period because the employee’s hours are variable or uncertain.

A seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less. Period of employment should generally begin in approximately the same part of the year (for example, summer or winter).  

ALE’s must establish, document measurement periods: Employers may use “Look-Back” Measurement Period for variable hour and/or ongoing employee’s full-time status by “looking back” at the standard measurement period (a defined time period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer). Then the employer may need time between the standard measurement period and the associated stability period to determine which ongoing employees are eligible for coverage, and to notify and enroll employees, an employer may make time for these administrative steps by having its standard measurement period end before the associated stability period begins. This period is referred to as the administrative period. Then, the employer establishes a stability period, which is a period of at least six consecutive calendar months that is no shorter in duration than the standard measurement period and that begins after the standard measurement period (and any applicable administrative period.)  The employer may choose an optional monthly measurement period that involves a month-to-month analysis where full-time employees are identified based upon their hours for each month.  

The employer sponsored health plan is affordable if the employee cost for self-only coverage does not exceed 9.5% of the full time employee’s income.

Pay or Play mandate: Under the Play or Pay mandate, 2016 penalties will be calculated one of two ways. Consider that for a calendar month, the amount of penalty for not offering coverage is equal to the product of:

1.) $2,160 divided by 12; and
2.) The number of full-time employees of the applicable large employer minus 30.

For a calendar month, the amount of penalty for Unaffordable Coverage or Not Minimum Value is the product of:

1.)   $3,240 divided by 12; and
2.)  The number of full- time employees who are certified to receive a premium tax credit or cost-sharing reduction for purchasing health coverage through a Marketplace.

The employer will always pay the lesser penalty of the two.  

Affordability: The employer sponsored health plan is affordable if the employee cost for self-only coverage does not exceed 9.5% of the full time employee’s income. There are three safe harbor options an employer may use to determine whether the monthly premium meets affordability. 

● Premium is less than 9.5% of the employee’s income on Form W-2, Box 1.  
● Premium is less than 9.5% of the employee’s hourly rate (as of the first of the plan year) multiplied by 130 hours.
● Premium is less than 9.5% of Federal Poverty Level (FPL) for one person.   

ACA required reporting: The regulations require employers, both large and small, to comply with certain reporting requirements. All employers must distribute the Notice of Exchange beginning on Nov. 1, 2013, to all ongoing and newly hired employees.

All employers are also required to provide employees with a standard Summary of Benefits and Coverage form explaining what their plan covers and what it costs at the time of open enrollment. Finally, all employers must comply with the Internal Revenue Service (IRS) reporting of the 1094 and 1095 forms on an annual basis. Small employers will have this requirement met by the Insurance Carrier whereas large employers will need to complete both the 1094C and 1095C using comprehensive employment and insurance plan document data.

Cease reimbursement for non-employer sponsored premiums: The common practice common for small employers to “reimburse” employees for health insurance premiums paid for health insurance plans that were not provided by the employer is prohibited as of June 30, 2105.  Such “employer payment plans” fail to comply with certain ACA market reforms and therefore are subject to an excise tax of $100 per day for each affected employee. This is significant because that amounts to $36,500 per year for each affected employee.    

Jamie M. Hasty is VP of SESCO Management Consultants, a full-service human resource consulting firm, providing human resource consulting services to valued clients, in all industries throughout the country. SESCO’s consulting services and special “retainer” relationships include a free “hotline” to discuss day-to-day employment issues such as policy development, employee challenges such as disciplinary actions, terminations, or workers’ compensation issues, compliance to federal and state employment regulations, and many other management and human resource matters. For more information, contact Jamie. Hasty at 804/931-6281 or via email [email protected].

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