image of a government building with pillars

The Affordable Care Act

The Affordable Care Act (ACA) regulations and requirements for staying compliant are complicated, and will continue to change. But not staying on the right side of new Affordable Care Act requirements can cost you BIG!

 

Under the Affordable Care Act Employer Shared Responsibility Mandate, any “Large Employer” in 2015 with 100 or more full-time and full-time equivalent employees must offer at least 70% of eligible employees (and dependents) qualifying coverage that meets certain Affordable Care Act requirements, or face paying substantial penalties.

 

Avoiding Affordable Care Act penalties in 2016 will become even more difficult, when Employers with 50 or more full-time and full-time equivalent employees will be required to offer qualifying coverage to at least 95% of eligible employees (and dependents). In addition to the higher standard, the penalty amount will also increase.

What is Minimum Essential Coverage (MEC)?
An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan—this means that a plan would pay for at least 60% of medical expenses on average, for a standard population.

Image of circle 60 percent full
image of a hand holding dollar bills

What is Affordable Coverage?
The affordability test looks at each employee individually to check for affordability. It compares what employees pay for coverage to each employee’s wages. The employee’s contribution for self-only coverage for the lowest cost health plan cannot be more than 9.5% of an employee’s household income. If it does, the plan is considered not affordable and the employer has failed to offer minimum essential coverage to that employee.

 

Since employers do not know an employee’s household income, the Affordable Care Act provides for three safe harbor options for this calculation: Box 1 of Form W-2, rate of pay, or using the federal poverty level. An employer may use one or more of the safe harbors only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value for the self-only coverage offered to the employee. An employer may choose to use one or more of the safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category

Affordability Safe Harbors
Form W-2 Safe Harbor
The Form W-2 wages safe harbor generally is based on the amount of wages paid to the employee that are reported in Box 1 of that employee’s Form W-2.

Rate of Pay Safe Harbor
The rate of pay safe harbor generally is based on the employee’s rate of pay at the beginning of the coverage period, with adjustments permitted, for an hourly employee, if the rate of pay is decreased (but not if the rate of pay is increased).

To use the rate of pay safe harbor: 
Hourly rate x 130 = Monthly wages
Employee’s monthly wages x 9.5% = Maximum monthly employee contribution

Federal Poverty Level Safe Harbor
The federal poverty line safe harbor generally treats coverage as affordable if the employee contribution for the year does not exceed 9.5% of the federal poverty line for a single individual for the applicable calendar year.

image of a square with a lock in the middle

The Employer Shared Responsibility Mandate (Pay-or-Play)
What if employers don’t offer coverage? Or what if the coverage is too costly for eligible employees? Under the Affordable Care Act, there are two penalties large employers face if they fail to meet the Affordable Care Act Pay-or-Play requirements.

image of a circle 95 percent full

The 95% Rule Penalty
Large employers must offer minimum essential coverage to 95% of their eligible full-time employees and dependents. The penalty for not offering coverage to substantially all full-time employees (and dependents) is equal to the number of all full-time employees (minus 30 full-time employees) multiplied by one-twelfth of $2,000 for each calendar month.

If the employer excludes a particular group of employees that comprises 6% or more of the full-time eligible employees, the employer will be assessed a penalty against the entire workforce. The penalty applies if one or more employees goes to the Health Insurance Exchange and receives a subsidy. The IRS allows employers a 5% margin to accommodate administrative errors.

$2,000 x (Number of employees – 30) = 95% Rule annual penalty

Transition Relief for Employers with > 100
For 2015 only, to avoid a payment for failing to offer health coverage in 2015, applicable large employers will need to offer coverage to 70% (95% in 2016) of their eligible full-time employees and dependents. Employers with 100 or more full-time and FTE employees in 2015 who owe a penalty will see some relief in the penalty. For 2015 only, the penalty calculation will forgive the first 80 employees (instead of 30).

The Minimum Essential Coverage (MEC) Penalty
The MEC penalty applies if a large employer offers coverage but it is either unaffordable or does not provide minimum value (cover 60% of services on average). The penalty for not offering coverage that is affordable or that provides minimum value is generally equal to the number of full-time employees receiving subsidized coverage through an exchange for that month multiplied by 1/12 of $3,000.00. However, the penalty will not be greater than the penalty that would apply if the employer offered no coverage at all.

 

Employers are still subject to this penalty even if they are eligible for transition relief for the pay-or-play penalty.

$3,000 x Number of employees receiving federal subsidy = MEC annual penalty

Image of man with dollar sign
image of a government building with pillars

The Affordable Care Act

The Affordable Care Act (ACA) regulations and requirements for staying compliant are complicated, and will continue to change. But not staying on the right side of new ACA requirements can cost you BIG!

 

Under the ACA’s Employer Shared Responsibility Mandate, any “Large Employer” in 2015 with 100 or more full-time and full-time equivalent employees must offer at least 70% of eligible employees (and dependents) qualifying coverage that meets certain ACA requirements, or face paying substantial penalties.

 

Avoiding ACA penalties in 2016 will become even more difficult, when Employers with 50 or more full-time and full-time equivalent employees will be required to offer qualifying coverage to at least 95% of eligible employees (and dependents). In addition to the higher standard, the penalty amount will also increase.

What is Minimum Essential Coverage (MEC)?
An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan—this means that a plan would pay for at least 60% of medical expenses on average, for a standard population.

Image of circle 60 percent full

What is Affordable Coverage?
The affordability test looks at each employee individually to check for affordability. It compares what employees pay for coverage to each employee’s wages. The employee’s contribution for self-only coverage for the lowest cost health plan cannot be more than 9.5% of an employee’s household income. If it does, the plan is considered not affordable and the employer has failed to offer minimum essential coverage to that employee.

 

Since employers do not know an employee’s household income, the ACA provides for three safe harbor options for this calculation: Box 1 of Form W-2, rate of pay, or using the federal poverty level. An employer may use one or more of the safe harbors only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value for the self-only coverage offered to the employee. An employer may choose to use one or more of the safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category

image of a hand holding dollar bills

Affordability Safe Harbors
Form W-2 Safe Harbor
The Form W-2 wages safe harbor generally is based on the amount of wages paid to the employee that are reported in Box 1 of that employee’s Form W-2.

 

Rate of Pay Safe Harbor
The rate of pay safe harbor generally is based on the employee’s rate of pay at the beginning of the coverage period, with adjustments permitted, for an hourly employee, if the rate of pay is decreased (but not if the rate of pay is increased).

To use the rate of pay safe harbor: 
Hourly rate x 130 = Monthly wages
Employee’s monthly wages x 9.5% = Maximum monthly employee contribution

 

Federal Poverty Level Safe Harbor
The federal poverty line safe harbor generally treats coverage as affordable if the employee contribution for the year does not exceed 9.5% of the federal poverty line for a single individual for the applicable calendar year.

image of a square with a lock in the middle

The Employer Shared Responsibility Mandate (Pay-or-Play)
What if employers don’t offer coverage? Or what if the coverage is too costly for eligible employees? Under the ACA, there are two penalties large employers face if they fail to meet the ACA’s Pay-or-Play requirements.

image of a circle 95 percent full

The 95% Rule Penalty
Large employers must offer minimum essential coverage to 95% of their eligible full-time employees and dependents. The penalty for not offering coverage to substantially all full-time employees (and dependents) is equal to the number of all full-time employees (minus 30 full-time employees) multiplied by one-twelfth of $2,000 for each calendar month.

 

If the employer excludes a particular group of employees that comprises 6% or more of the full-time eligible employees, the employer will be assessed a penalty against the entire workforce. The penalty applies if one or more employees goes to the Health Insurance Exchange and receives a subsidy. The IRS allows employers a 5% margin to accommodate administrative errors.

$2,000 x (Number of employees – 30) = 95% Rule annual penalty

 

Transition Relief for Employers with > 100
For 2015 only, to avoid a payment for failing to offer health coverage in 2015, applicable large employers will need to offer coverage to 70% (95% in 2016) of their eligible full-time employees and dependents. Employers with 100 or more full-time and FTE employees in 2015 who owe a penalty will see some relief in the penalty. For 2015 only, the penalty calculation will forgive the first 80 employees (instead of 30).

The Minimum Essential Coverage (MEC) Penalty
The MEC penalty applies if a large employer offers coverage but it is either unaffordable or does not provide minimum value (cover 60% of services on average). The penalty for not offering coverage that is affordable or that provides minimum value is generally equal to the number of full-time employees receiving subsidized coverage through an exchange for that month multiplied by 1/12 of $3,000.00. However, the penalty will not be greater than the penalty that would apply if the employer offered no coverage at all.

 

Employers are still subject to this penalty even if they are eligible for transition relief for the pay-or-play penalty.

$3,000 x Number of employees receiving federal subsidy = MEC annual penalty

Image of man with dollar sign