October 14, 2015
The Affordable Care Act will soon be fully in effect. Implementation of a variety of provisions were delayed along the way, but in 2016 several significant elements kick in.
Starting in 2015, “large” employers were required to offer health insurance benefits to full-time employees and their dependents. Employers with fewer than 100 full-time employees were granted some relief until 2016. Failure to offer the required insurance could subject employers to a penalty, known as a “shared responsibility payment”, of up to $2,000 per employee per year. This penalty amount will increase each year.
What Makes an Employer “Large”?
The rules define a “large” employer, specifically an applicable large employer (ALE), as one having 50 or more full-time employees. Full-time employees includes full-time “equivalent” employees, which considers those employees averaging less than 30 hours each week. So while an employer might only have 35 employees regularly working 30 or more hours each week, if it employs a lot of part-time employees, they could add up to 50 or more for purposes of these rules. Note that related companies may need to be aggregated for this determination. Also, special rules exist for considering seasonal employees.
Large employer status is determined each year based on the average employment numbers during the previous year. This means that 2015 is the year that determines whether or not an employer will be categorized as large in 2016; and, if so, will have to offer insurance or be prepared to pay a shared responsibility penalty.
Key Provisions for Large Employers
As you might expect, there are numerous important definitions and criteria that are critical to applying these rules. Some of them include:
Offer – an employer is required to offer insurance, but it does not have to be accepted.
Minimum essential coverage – the insurance offered needs to cover certain basic health insurance benefits, which are delineated.
Affordable – the employer is not obligated to cover the full cost of the insurance offered, but the portion paid by the employee must be affordable, which is specifically defined. Offering unaffordable insurance can subject the employer to a penalty of up to $3,000 per employee per year. This penalty amount will also increase each year.
Coverage for substantially all – for 2015, at least 70% of full-time employees had to be offered coverage. In 2016, that threshold moves up to 95%.
Subsidy trigger – the affordability and shared responsibility penalties only kick in if an employee receives a subsidy from the Marketplace. Also, the affordability penalty only applies based on the number of employees that actually receive a subsidy, while the penalty for not offering coverage applies to the total number of full-time employees, even if only one received a subsidy. Fortunately, the penalty for not offering coverage doesn’t apply to the first 30 employees.
In addition to all these rules, employer reporting is mandatory for the 2015 year. Form 1095-B is required to be filed by small employers that maintain self-insured plans (or through their health insurer if in a fully-insured plan), while Form 1095-C is required to be filed by large employers. Form 1095-C is required even if large employers were not required to offer coverage until 2016 or do not offer any coverage.
These forms report coverage (or lack thereof) by month, by employee. Similar to W-2s, these forms need to be furnished to employees by February 1, 2016 and to the IRS by February 29, 2016. While insurance companies will provide fully-insured employers with certain information regarding coverage (on Form 1095-B), additional employee census information is needed in order to complete Form 1095-C. Certain third-party administrators and payroll companies have expanded their services to include completion of Forms 1095-C. Now is the time to discuss upcoming ACA reporting requirements with your service providers.
If you have questions about the application of ACA to your business, contact one of our JPS professionals.
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