ACA. Affordable Care Act. Obamacare. It’s frequently a hot topic of discussion for political pundits, but for all that everyone seems to have heard of it and have differing views on the matter, there’s little public awareness or understanding of what the ACA actually means for employers.
This leaves businesses—especially smaller ones without robust HR departments—scrambling for information about how to remain in compliance with a complex set of rules that can have a major impact on how businesses operate.
Passed in 2010 with the general goal of making healthcare more broadly available and affordable, the ACA includes a broad range of regulations and protections that impact healthcare providers, insurers, employers, and individual patients. Most of these have little to no impact on employers, including things like
The extension of parental insurance to young adults up to the age of 26
Protections for individuals with pre-existing medical conditions
Requiring insurance policies to completely cover preventative care such as cholesterol and depression screenings, vaccines, and smoking cessation programs
Ending yearly and lifetime limits on health benefits
Employers come into the ACA in several ways, but primarily in their role as providers of health benefits to their employees. At the most basic level, businesses with 50 or more full-time equivalent employees must offer appropriate health coverage to their employees and report this coverage or face a penalty. (We’ll talk about these requirements in detail in a bit.)
Since 2017, a number of changes have been made to the Affordable Care Act, and it is likely that changes will continue to be made in the coming years. Some parts of the act (such as protections for those with pre-existing conditions) enjoy bipartisan support, and are unlikely to change.
Other, less popular parts (such as the individual mandate) are already out the door. Keeping an eye on ACA changes will be key to staying in compliance in a constantly shifting political climate.
The Affordable Care Act has two major provisions that fall on many, but not all employers. These include the shared responsibility provisions and the employer information reporting provisions for offers of minimum essential coverage. These make up the bulk of employers’ responsibilities regarding the ACA. So how do you know whether they apply to you?
The ACA term for a business that must be in compliance is an Applicable Large Employer, or ALE. ALEs have 50 or more full time equivalent employees. If you have well over 50 employees working full time and have for some time, this is easily translated: yes, you’re an ALE. If not, you’re not necessarily off the hook, as you’ll need to look more closely at what full-time “equivalence” means.
Know who NOT to count in these calculations:
Any employees who work from another country or a US territory do not count in this calculation, regardless of their citizenship status. ALE status is determined by looking only at the hours employees work in the 50 states or the District of Columbia.
Any employees who receive their healthcare through the military, whether that’s TRICARE or the VA, during the months that healthcare coverage is in effect
Any seasonal workers who are employed fewer than 120 days a year, if the employer qualifies for the Seasonal Worker Exception
Any volunteer employees working at nonprofit or governmental organizations
Work-study student employees. This specifically relates to those participating in federal or state work-study programs. Paid interns, on the other hand, do count as employees so must be included in these calculations.
Do the math:
Excepting those employees you’ve now removed from the question,
How many full-time employees do you have in a month? Full-time in this case means employees being paid for on average 30 or more hours a week or 130 or more hours a month. Each of these individuals counts as one FTE employee that month. Hang on to this number.
Taking into account all your employees who are paid for on average fewer than 30 hours a week (or 130 hours a month), total the number of hours these part-time employees were paid for that month, up to 120 hours each employee, then divide by 120. If the answer isn’t a whole number, round appropriately.
Add these two numbers together and you have your number of full-time equivalent employees that month.
But you’re not quite finished yet. Because businesses change sizes over time, ALE status is determined annually, based on the organization’s average size over the previous calendar year. So you’ll need to calculate your FTE for each month of the last year and divide by 12 (or the number of months you were in business last year). This is the number that you will use.
If this number is 50 or greater, you are considered an Applicable Large Employer. If not, you are currently exempt from these provisions of the Affordable Care Act. (If you’re getting close, though, it’s a good idea to start getting your ducks in a row now. The last thing you want is to pay a penalty because you procrastinated, or have to hold off hiring much-needed staff because you’re unprepared to provide appropriate benefits.)
If your business didn’t exist last year? You’ll need to make your best guess about how many people you reasonably plan to employ. More uncertainty, but less algebra. The IRS doesn’t seem to be interested in penalizing new businesses that make a good-faith effort to estimate hiring in their first year of operation.
There are some circumstances where these calculations may be different. If multiple businesses have the same ownership, for example, those business’ FTE employees should be combined when calculating whether they are an ALE.
If you’re an ALE, you’re on the hook for the ACA’s employer shared responsibility provisions. This means a few things:
You must offer minimum essential coverage for at least 95% of your full time employees
This coverage must be affordable for your employees
It must provide at least minimum value to your employees and their dependents.
Alternately, you can pay a shared responsibility payment to the IRS (AKA a penalty tax). It’s not the best idea, but it’s legal and technically an available option.
Each of these has a specific legal meaning, so you shouldn’t ever be left wondering whether or not your coverage meets these requirements.
A plan is said to provide minimum value if it covers at least 60% of the allowed cost of benefits that are expected to occur. This gets into a lot of complicated actuarial math, but for plans with standard features, the The Center for Consumer Information and Insurance Oversight has an online calculator to determine whether it meets the minimum value requirements. Unusual plans with nonstandard features require actuarial certification to show that those features meet minimum value requirements.
Affordability is formally defined as being no more than 9.5% of family income, adjusted for inflation. Luckily, you’re not expected to poll each of your employees about their household income and expenses to determine whether the health benefits you offer are affordable. There are three “safe harbors” that rely on information employers have readily available. Using any one of these to calculate affordability is acceptable. These are:
W-2 wages: If an employee’s required annual premium contribution is no more than 9.86% of their pay in 2019 (up from 9.56% in 2018) as reported in Box 1 of their current W-2, the coverage is considered affordable.
Rate of pay: Multiply an employee’s lowest hourly wage in a month by 130. If their required monthly premium contribution is no more than 9.86% of this number in 2019 (up from 9.56% in 2018), the coverage is affordable that month. (This method can’t be used for employees who work solely on commission.)
Federal poverty line: If the required employee monthly premium contribution for a month is no more than 9.86% in 2019 (up from 9.56% in 2018) of the federal poverty line for a single individual divided by 12, it is automatically considered affordable that month.
You know that you need to offer coverage, but you can’t just send out a text message stating that anyone who wants coverage should sign up tomorrow. There are rules regarding the offers themselves as well. These rules are pretty common-sense for anyone making a good-faith effort to allow their employees to enroll, but you should be aware of them nevertheless.
Eligible employees need to be offered coverage that begins within 90 days of their start date.
A plain language summary of benefits must be provided before enrollment.
Employees cannot be threatened with firing or disciplinary action for signing up for coverage. (Yes, that’s obvious. Unfortunately, it still needed to be said.)
What happens if you aren’t in compliance? That’s where the shared responsibility payment comes in. The payment depends on the type of issue.
If you do not offer minimum essential coverage to 95% of your full time employees: In this case, the penalty is $2000 per full-time employee, minus your first 30 employees. So if you have 50 full time employees, the payment would be $2000 x (50-30), or $40,000. As you can see, this can get costly very quickly for larger organizations.
If you DO offer coverage to 95% of your full time employees, but one or more employees still gets a premium tax credit on the Marketplace: This might happen either because the coverage is unaffordable or because they’re one of the <5% of your full time employees who weren’t offered coverage. In these cases the penalty is $3000 per employee who receives the tax credit.
Either of these payments is prorated per month the employees were not offered affordable coverage, so it’s better to get started late than to not offer the appropriate coverage all year.
Reporting is the second major responsibility that ALEs have under the Affordable Care Act. As an ALE, you must provide information to the IRS about the coverage offered (or not offered) to full-time employees, and also provide information to your covered employees. There are two forms for this purpose. (The IRS loves its forms.)
Form 1094-C is used to report your offers of coverage as a whole. It includes information about your business, whether your business is part of a larger ALE group, the number of employees in each month of the year, and whether minimum essential coverage was offered during that time.
Form 1095-C, on the other hand, is completed for each full-time employee and must also be furnished directly to them, in addition to being filed with the IRS. This is required regardless of whether the employee used the coverage and even when coverage was never offered.
Forms 1094-B and 1095-B are the employer’s responsibility only if self-insuring, meaning the company itself is covering the cost of healthcare for its employees, rather than using an outside insurer. In that case, though, the employer could still use the 1094-C and 1095-C as long as they include additional information regarding covered individuals.
If you are filing 250 or more information returns, you must do so electronically using the ACA Information Return system, or AIR. This is separate from the system used to file non-ACA documents such as 1099s, so don’t put it off, assuming that you already know how to e-file.
The general deadline for furnishing 1095-C to employees is January 31. In 2018, this was extended to March 2. As of this writing, there has been no indication whether deadlines will again be extended again in 2019.
Both 1094-C and 1095-C must be either postmarked by February 28 if using paper, or filed by March 31 electronically.
Not an ALE? This doesn’t mean the ACA doesn’t apply to you. In fact, some provisions of the Affordable Care Act apply specifically to businesses with fewer than 50 full time equivalent employees.
Unlike larger businesses, you’re not required to provide health coverage for your employees. If you choose to, though, you have some additional options. The Small Business Health Options Program (SHOP) is intended to help small businesses provide health insurance to their employees. Your organization can qualify for SHOP if you:
Have a primary business address in the state where you’re buying coverage
Have at least one employee enrolling who isn’t an owner or business partner or spouse of the owner. (Owners etc. can also enroll, provided that at least one employee does as well.)
Have between 1 and 50 FTE employees
Offer SHOP coverage to all of your full time employees
Enroll with your insurance company
Find an agent or broker who is authorized to sell SHOP insurance
If you’re a small employer that offers health coverage to employees, you may qualify for a tax credit. Qualifying businesses are those that:
Have fewer than 25 FTE employees
Pay wages of less than $50,000 per FTE employee, adjusted for inflation. (This was $53,000 in 2017.)
Offer full time employees a qualified plan through SHOP
Pay at least 50% of the cost of employee health coverage. (This doesn’t include spouses or dependents.)
The maximum credit is 50% of premiums paid for small business employers or 35% of premiums paid for small tax-exempt employers. The credit is available for two consecutive taxable years.
The amount of the credit itself is dependent on the size of the business. Generally speaking, the smaller the business, the more generous the credit. Form 8941 is used to determine the precise amount.
The purpose of the Affordable Care Act is to help Americans access healthcare. It’s true that the IRS can fine you for noncompliance, but they’d much rather you were successful in meeting the requirements. They’ve assembled YouTube videos and podcasts and multiple websites to help you do so.
Can it be overwhelming anyhow? Absolutely. But that doesn’t mean you have to do it alone. Sometimes bringing an expert in can give you just enough peace of mind to let you focus on the other important parts of keeping your business up and running smoothly. Does that sound like exactly what you’re looking for? Then get in touch with our ACA experts. Yes, it’s complicated. Let us make it easy.