Q.Does the Affordable Care Act (ACA) require all employers to offer health care coverage to their employee, be they fully insured or self-insured?
A. The Affordable Care Act does not require employers to offer health care to their employees, but depending on the size of the group and if a full-time employee obtains a subsidy through the state health exchange, an employer may be subject to a financial penalty. This is known as the employer shared responsibility requirement.
Employer Shared Responsibility Requirement
- Employers Not Offering Coverage – Beginning January 1, 2014, employers with an average of 50 or more full-time equivalent employees in the prior calendar year, who do not offer coverage to at least 95% of their full-time employees and have at least one full-time employee who receives a premium tax credit through a state health exchange, then that employer must pay a penalty for each month they do not offer coverage to their full-time employees. In 2014 the penalty is $166.67 per month up to $2,000 per employee per year for each full time employee to whom coverage is not offered. However, for purposes of calculating the penalty, the first 30 full-time employees are not included. Beginning in 2015 coverage must be offered to all dependents of full-time employees in order to avoid the penalty.
- Employers Offering Coverage – Beginning on January 1, 2014 employers with an average of 50 full-time equivalent employees in the prior calendar year, who offer coverage to at least 95% of their full-time employees and have at least one full-time employee who obtains coverage and a premium tax credit through a state exchange must also pay a penalty for each month a full-time employee obtains coverage and a premium tax credit through the state exchange. This situation could occur is “unaffordable” to the employee. Coverage will be found to be unaffordable if the employee’s share of the premium exceeds 9.5% of the employees household income, or if the plan covers less than 60% of the total cost of benefits. Employers may be liable for up to a $3,000 penalty per year for each full-time employee who receives a premium tax credit. However, the penalty is capped so that the employer would not pay a penalty greater than than that of an employer who does not offer coverage.
- Small Group Employers – Employers with up to but not including 50 full-time equivalent employees are not required to offer health coverage and are not subject to a penalty if one of their employees obtains coverage through the state exchange and also obtains a premium subsidy.
Q. How is a full-time equivalent employee (FTE) defined?
A.Solely for the purpose of determining whether an employer meets the definition of a larger employer, the employer must calculate the number of FTE’s in the previous calendar year and count each FTE as one full-time employee for that year. FTE’s are not included in the count for determining wether an employer is subject to the penalties described above. In general, the number the number of FTE’s is calculated on a month by month basis by taking the total number of hours worked by all employees ( including seasonal employees) who are not full-time employees in any given month and dividing that number by 120 hours. The resulting number is the number of FTE’s for that calendar month.
Q.How is a full time employee defined?
A.The ACA defines a full-time employee as an individual employed on average at least 30 hours a week. The federal government has issued guidance on how to determine if any employee whose hours vary is considered a full-time employee.
Q.How will an employer know what an employee’s household income is for the purpose of estimating whether the coverage the employer offers the employee is ” affordable”?
A.The IRS recognizes that employers will likely not have information on an employee’s household income. The proposed regulation on Shared Responsibility for Employers Regarding Health Coverage offers three affordability safe harbors: one based on the wages reported in Box 1 of the employee’s W-2 form, one based on the employee’s hourly rate of pay, and one based on the federal poverty level for a single individual.
Q.How is affordability determined for family plans?
A.The affordability test is based on the employee’s share of the premium for individual coverage, even if the employee has selected family coverage.
Q.If the employer offers several health plans to its employees, how is affordability determined?
A.If employees have the choice of several health plans offered by their employer, wether or not the cost of the employee’s share exceeds 9.5% of their income is based on the lowest cost plan the employer offers, even if the employee is not enrolled in that plan.
Q.What is the transition relief for employers with a fiscal year that starts in 2013 instead of a calendar year plan that starts on January 1, 2014?
A.Transition relief is available for employers who, as of December 27,2012, offered a health plan that operates on a fiscal year basis. The transition relief translated to real life business situations means that the employer who meets certain criteria will not be subject to a potential payment before the start of their fiscal year in 2014. An employer may seek transition relief because it does not offer coverage to all of its full-time employees and, or coverage offered to some or all of its full-time employees is not affordable.
Q.When does the ACA’s requirement that employers with more than 200 employees must auto-enroll their employees into any coverage the employer offers with the right to choose to opt-out, take effect?
A.The ACA did not specify a firm date for the implementation of this provision and the federal agencies that are implementing the Affordable Care Act have announced that they are delaying the implementation of this provision for the immediate future.
Beginning in 2014 most individuals who can afford to do so will be required to obtain basic health insurance coverage or pay a fee to help offset the cost of caring for uninsured Americans. If affordable coverage is not available to an individual, he or she will be eligible for an exemption.
Q.What is the penalty for individuals who do not obtain at least basic health insurance as required by the ACA?
A.In 2014 the penalty is $95 per adult and $47.50 per child up to a maximum of $285 per family or 1.0% of family income, whichever is greater. In 2015 the penalty will be raised to $325 per adult and $162.50 per child up to a maximum of $975 per family or 2.0% of family income, whichever is greater. The penalty continues to increase each year.
Q.Does the ACA permit any exceptions to the individual mandate?
A.Yes, individuals who meet one of the following exceptions are not required to purchase individual coverage that meet’s the requirements of the ACA. These include:
- Religious conscience ( i.e., the individual belongs to a religious group that does not accept the benefits covered by the health insurance)
- Members of a health care sharing ministry
- Undocumented immigrant
- Incarcerated individual
- Member of an Indian tribe
- Family income below the threshold to file a tax return (in 2013, $10,000 for an individual and $20,000 for a family)
- Health insurance cost exceeds 8% of the individual’s income, after taking into account employer contributions or tax credits.
Q.What type of coverage satisfy the requirement to have health insurance under the ACA and avoid the penalty?
A.The ACA recognizes the following types of coverage as satisfying the requirements for coverage of an individual:
- Medicare ( including Medicare Advantage plans)
- Medicaid or CHIP (Children’s Health Insurance Plan)
- TRICARE ( for military retirees and their families)
- Veteran’s Health Service
- Employer coverage that meets the minimum value (60% of the cost of benefits)
- Individual insurance that meets 60%actuarial value, i.e. the plan provides the 10 categories of essential health benefits and covers 60% of the cost of benefits)
- The plan was in existence prior to March 23, 2010, the date the ACA was enacted , and is a grandfathered plan.
Q.Must a person be covered for each day in a month to avoid the penalty for not having coverage for that month?
A.No, under proposed rules issued by the federal agencies in 2013, if an individual has coverage for at least one day of the month, he or she shall be credited as having coverage for the entire month and will not be subject to a penalty.
Q.What do employers need to be doing to successfully implement the new law at their workplace in 2015?