Complying with the ACA

One of the biggest concerns of businesses these days is meeting the requirements of the Affordable Care Act.

This is because the legislation is huge, more than 20,000 pages and growing, complex and ever changing.

Among the most notable reforms effective in 2015 is the shared-responsibility mandate and reporting requirements for large employers. Here’s an overview of this and other significant reporting requirements for this year.

Section 4980H of the Internal Revenue Code requires “applicable large employers” with 50 or more full-time employees (including full-time equivalent, or FTE, employees) to offer health coverage to full-time employees and their children or pay a penalty. The effective date of the employer shared-responsibility mandate – often referred to as the “play-or-pay mandate” – was Jan. 1, 2015. (It was originally scheduled to take effect in 2014 but the IRS postponed that start date.)

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Because the penalty is only applicable to full-time employees, the determination of FTE status is critical to compliance with the employer play-or-pay mandate. For the purposes of ACA, an FTE is defined as someone who works “30 hours per week, averaged over the course of a month” – not the traditional definition of 40 hours worked per week. The IRS also specifies: “the monthly equivalency of 30 hours per week is 130 hours.”

According to the IRS, an employee’s hours of service include:

n Each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer.

n Each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

At this point the statute mandates that for coverage to be considered affordable for employees with low incomes – defined as those between 100-400 percent of federal poverty level – the employee’s portion of the premium for individual coverage “cannot exceed 9.5 percent of his/her household income.” In addition, “the plan must pay, on average, at least 60 percent of the costs of covered services” – which include a variety of health benefits such as prescriptions and maternity care – in order to meet the ACA’s “minimum value” requirement.

Employers that offer some coverage still may incur a penalty if that coverage is not considered affordable or does not provide minimum value to plan participants.

For employers offering coverage – but coverage that does not meet minimum value requirements – penalties may apply if “at least one full-time employee qualifies for a premium tax credit and uses it to purchase coverage in the health insurance exchange.” That penalty is $2,000 for each FTE beyond 30 employees (indexed to inflation). Note that for 2015, the penalty exempts the first 80 FTEs rather than 30. The penalty is $3,000 for each FTE who receives a premium tax credit to enable him/her to buy coverage through a health insurance exchange. (Employers with between 50 and 99 FTEs have until 2016 to comply.)

Specifically, employers will pay a penalty under Section 4980H(b) if “a full-time employee receives a premium tax credit to purchase health insurance on an exchange because:

n The employer health coverage offered did not provide minimum value, that is the plan’s share of the total allowed costs of benefits provided under the plan is not at least 60 percent of those costs.

n The employer health coverage offered was ‘unaffordable,’ or the employee was not among the 95 percent (70 percent in 2015) of full-time employees offered coverage.” •

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