January 1, 2015 is the beginning of the new era of the Affordable Care Act, aka the “ACA”, aka “Obamacare”. From this date, many employers will be subject to new reporting and tracking requirements, and many will become subject to penalties and fines that are defined in the law which was passed on March 23, 2010.
Many businesses will be turning to their accountants and lawyers to work through their exposure and new requirements. Below are the top 10 questions that need to be asked and addressed as soon as possible in 2015:
- Are You Under or Over 50 FTEs? If you are over 50 FTEs, then you will now be known as an Applicable Large Employer (ALE). ALEs are subject to the reporting requirements under the ACA and they might be subject to penalties if they do not offer minimum essential coverage to enough employees, at the right price.Since the ACA defines full time status as those who work 30 hours or more on average per week, you will need to use the ACA formula of adding total number of employees currently statused as Full Time, with the FTE equivalent of part time employees. The ACA provides several formulas for this. It’s not as simple as it looks.
- What if You are under 50 FTEs? Then you are lucky. You can continue to offer health insurance plans if you already do, or you don’t have to do so. Either way, you will not be subject to ACA penalties or reporting mandates.
- What if You are OVER 50 FTEs? Congratulations, you are an ALE. However, the government added Transition Relief for employers who are ALEs with fewer than 100 FTEs in 2015. They are not subject to penalties in 2015, but they are required to do the reporting and tax forms.Employers who are aver 100 FTEs in 2015 must provide Affordable Minimum Essential Coverage in 2015 to at least 70% of all employees who are designated as Full Time or who work 30 hours average or more per week (130 hours per month). If they do not exceed 70%, or if the employee is charged more than 9.5% his/her household income then they will need to pay a penalty.
In 2016, ALL ALEs (50 FTEs and above) will need to provide Affordable, Minimum Essential Coverage to at least 95% of all Full Time Employees working 30 hours or more on average, or else they will owe penalties.
- What is your No-Offer Penalty exposure? This is also known as the “A” Penalty or the Big Penalty because it could be applied to each and every employee who works Full Time Status. Due to Transition Relief, this penalty works this way:
- In 2015: Employers with 100 or more employees, who do not offer Minimum Essential Coverage to at least 70% of all employees who work 30 hours/week (130 hours per month), will be liable for a pro-rated annual fine of $2000 x ALL Full time employees who worked Full Time in a given month, less the first 80. ( Example: An employer with 200 employees fails the 70% test, they would pay $2,000 x (200 – 80) = $240,000)
- In 2016 and Beyond: Employers with 50 or more employees, who do not offer Minimum Essential Coverage to at least 95% of all employees who work 30 hours/week (130 hours per month), will be liable for a pro-rated annual fine of $2000 x ALL Full time employees who worked Full Time in a given month, less the first 30. ( Example: An employer with 200 employees fails the 95% test, they would pay $2,000 x (200 – 30) = $340,000)
- How many hours per week do you currently require for an employee to qualify for employer group health insurance? If it is over 30 hours per week, you will really need to know how many employees work between 30 hours, and your current eligibility requirement. For example, if an employer’s current eligibility number is 40 hours per week, we would need to know how many employees regularly work more than 30 hours, but fewer than 40. Some employers will only have one or two people in this gap. If the gap is small, and there is no chance that the number of people in this gap can exceed 5% of all eligible employees, then those employers will not make changes in eligibility. However, most employers will lower their eligible hours threshold to 30 hours in order to assure that they do not trigger the No-Offer Penalty. Many employers will put in a Variable Hour status and tracking process in order to reduce exposure to penalties.
- What Percentage of Full Time Employees are currently eligible for health insurance? For 2015, employers with 100 FTEs or more will need to exceed 70% of Full Timers in order to avoid penalties. For 2016 employers with 50 or more FTEs need to be able to demonstrate 95% of Full Time employees. If the numbers are below those thresholds, the employer will want to do a Pay or Play analysis to see whether it is better to extend coverage, or whether it is better to pay the penalties.
- Is Your coverage Affordable as defined by the ACA? The ACA defines coverage as Affordable if the employee’s contribution/payroll deduction for SINGLE coverage for the lowest cost medical plan, is less than 9.5% of the employee’s household income. Household income includes all wage owners in a given household.
- What is Your Unaffordable Coverage Penalty? This is known as the “B” Penalty. The amount is $3,000 pro-rated on a monthly basis. It is assessed by the IRS to an employer for each and every employee who 1) is deemed to have not been offered Affordable coverage, (9.5% of Household Income as explained in #7 above) 2) goes to a government health exchange, purchases a policy, and receives taxpayer subsidy due to the fact that they make less than 400% of Federal Poverty. 3) Enrolls in an exchange plan and keeps the policy for at least a month.This penalty is not as severe as the “A” penalty since it only applies to the specific employees who meet all the criteria, not the entire full timer list. (Example: Employer has 200 employees offering coverage to 100% of Full Time Employees. However, 20 employees are deemed that their offer is Unaffordable as defined by the ACA. Of those 20, 5 people go to healthcare.gov and purchase a subsidized health plan that they purchase for the entire year. Penalty = $3,000 x 5 Employees = $15,000)
- Should you install a Variable Hour Employee Program that uses the Look-back Method for measuring Part Time Hours? Most employers, who are ALEs, who have utilize part time employees who work under 30 hours on a consistent basis will implement a Variable Hour System that allows them to assure that Part Time workers, who have hours that flex from time to time, are not held against the employer’s compliance percentage for the No-Offer Penalty. With this program, an employer designates all employees who are reasonably expected to work under 30 hours per week as Variable Hour. All Variable Hour employees are tracked on a 12 month calendar during a defined Measurement Period. If their average hours during the Measurement Period exceed 130 hours / month, the employee will be given up to 60 days to be offered enrollment in the company medical plan (this period is called the Administrative Period). Once the Administrative Period is complete, the employee enters a Stability Period of 12 months where his/her hours are then accumulated and averaged. At the end of the Stability period, the process repeats itself.Employees who are listed as Variable Hour employees are not listed as Full Time Employees and therefore do not count against an employer’s No-Offer Penalty status.
- Are you prepared to Track and Report Relevant Health Plan and employee statistics to the IRS for 2015 data and beyond? ALEs need to do some very extensive reporting using brand new IRS Tax Forms 1094-C and 1095-C. These forms are due by February 28 of 2016 or by March 1 if filing electronically.
- 1094-C: This is a transmittal form, and one of these forms needs to be completed for every ALE who has any employees. The form requires the employer to track on a month-by-month basis whether the employer offers Minimum Essential Coverage, Total Full Time Employees, and Total Employees, as well as any Transition Relief Indicators and affiliated Companies.
- 1095-C: The ALE employer must create one form for each employee who works at any time during the month. The form has the normal demographic identifiers which are common to W-2s and 1099s. The form requires the employer to designate on a monthly basis the following for employee: His/Her job status (FT, PT, Variable, Other), whether Minimum Essential Coverage was offered, the lowest cost monthly premium that would be required for the employee to purchase single coverage in the employers group medical plan and whether that employee ever qualified for any of the safe harbors that are available through the ACA.Self-Funded ALEs must complete a third section which shows Name, and Social Security number of the employee, and each member of their family, checking boxes for each month of the year that each member was provided Minimum Essential Coverage through the employer.
There are surely dozens of other questions and actions can be taken, but the 10 listed above should expose the major risks that the ACA has to any business of any size.
Dave Petno is an Employee Benefits Consultant with Accelerated Benefits. He can be reached at email@example.com
More about Dave: https://davepetno.com/about/