Affordable Care Act (ACA)
Is Your Business Ready?
Affordable Care Act – The Patient Protection and Affordable Care Act (PPACA) is complex and it has powerful impacts on your business. Businesses should develop a plan that will prepare them for federal agency audits so they can prevent the possibility of fines and taxes.
I. Employer Mandate
Health care reform legislation requires all employers with 50 or more full-time employees to provide minimum affordable health coverage. Businesses must understand the evolving complexities of this mandate as well as company size requirements. There are varying ACA requirements for companies of different sizes (50-99 employees versus 100+ employees) They must also remain aware of changing ACA requirements over time. Businesses should take note of special employment categories such as volunteers, educational, seasonal, student work study, and adjunct faculty.
II. Shared Responsibility
Affordable and Minimum Value
A. Affordable: Coverage that would cost an employee more than 9.5 percent of their annual household income is considered unaffordable. Three optional safe harbors exist to assist the employer in determining affordability: Form W-2 wages safe harbor, rate of pay safe harbor and federal poverty line safe harbor.
B. Minimum Value: A plan that covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan is considered to provide minimum value. The HHS and the IRS have published various methods that may be utilized to determine minimum value.
C. Penalty: A 4980(H) penalty may be triggered if at least one of an applicable large employer’s full-time employees receives a premium tax credit through the marketplace. If no full-time employee receives a premium tax credit, the employer will not be subject to an employer shared responsibility payment.
III. ACA Reporting
Not only is there ACA compliance, but also ACA reporting. Your employee benefits plan can be fully compliant, but you’ll need to produce the right IRS forms to prove that you are compliant. Under IRS 6056 employers are required to file 1094 B&C and 1095 B&C series forms. Completing these requirements can be easier with the right technology solution that automates 1094-series and 1095-series documents. GWHR offers a clear and concise grid on these required forms, due dates, etc. in our ACA Compliance Toolkit.
IV. Variable Employee Classifications
Many businesses rely on variable hour employees or seasonal workers. The Affordable Care Act contains provisions for these employees and requirements that employers must meet under the Shared Responsibility mandate.
The terms “seasonal worker” and “seasonal employee” are both used in the Employer Shared Responsibility provisions but in two different contexts.
The term “seasonal worker” is relevant for determining whether an employer is an applicable large employer. An employer will not be considered to employ more than 50 full-time employees if: a) its workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and b) the employees in excess of 50 employed during the 120-day period were seasonal workers. Seasonal workers are workers who perform labor or services on a seasonal basis, as defined by the Secretary of Labor. Employers may apply a reasonable, good faith interpretation of the term “seasonal worker.”
The term “seasonal employee” is relevant for determining an employee’s status as a full-time employee under one of the methods for determining full-time employee status – the look-back measurement method. A seasonal employee means an employee in a position for which the customary annual employment is six months or less and for which the period of employment begins yearly in approximately the same part of the year.
V. Full Time Equivalent (FTE)
The FTE is calculated to find a company’s total number of Full Time Employees for compliance to the employer mandate only. For a company to have to abide by the Affordable Care Act, it must have 50 or more full time employees or FTEs. The FTE is not used in calculating penalties.
A full-time employee is one who works an average of at least 30 hours per week (or 130 hours of service in a calendar month).
A “look-back measurement method” may be used to determine an employee’s full-time status during a future period. This method is for determining liability only.
Different approaches can be used for other circumstances such as employees who work variable hour schedules, seasonal employees and employees of educational organizations
Full-time equivalent employees (those working less than 30 hours per week) are used to determine an employer’s status as an applicable large employer. An employer’s number of full-time equivalents is determined by adding the hours that are worked by each full-time equivalent employee for the month (but no more than 120 hours per employee) and then dividing by 120.
VI. Cadillac Tax : Still Pending
In 2020, you could face a 40% excise tax on Cadillac benefits plans. Though there is talk that the Cadillac tax may not take place, we do not believe this is the case. The tax was created to help fund the expense side of the Affordable Care Act. Best Practices tells us to get ready for the tax no matter what rumors are out there.
The Cadillac Tax is a penalty tax for which liability measurements will apply as early as January 1, 2020, for some “high value” health plans. The Tax applies regardless of company size. The tax is designed to essentially cap the amount of the tax-free benefit for employer-based health insurance. An employer has been able to offer health insurance coverage without treating employees as having received any additional income. This has been a pre-tax or tax-favored benefit. The tax applies to the increment of value (total annual premium or premium equivalency) over two thresholds in dollar amounts. These dollar amounts are $10,200 for single coverage and $27,500 for family coverage. A plan might trigger a tax based on the single tier, the family tier, or both. These amounts are indexed, but not at the rate of medical inflation experienced by group health plan cost increases. Special additional tiers apply for some industries, and a host of implementation regulations are pending at this time. Pay careful attention to new developments. Proper planning could help your business minimize and delay the impact of the Cadillac Tax. Businesses should use the threshold amounts in their strategic planning if they choose to continue offering Cadillac Benefit Plans. Affordable Care Act