Previously, this mandate had only applied to businesses with over employees but will now apply to employers who have between 50 and full-time employees.
Under PPACA, some employers are required to first provide healthcare coverage to their employees, and second to ensure this coverage meets a certain standard. The employer mandates only apply to full-time employees.
Employers are not obligated to provide health care coverage to part-time employees, seasonal employees, or unlawfully present individuals. Note that future healthcare non-discrimination rules may affect employer obligations towards these types of employees.
This penalty applies to applicable large employers, not small employers. These penalties are assessed against applicable large employers who fail to offer mandate 1 minimum essential coverage, as well as mandate 2 affordability and minimum value.
Employers may prevent this subsidy access by offering a plan with affordability and minimum value. Affordability means roughly that the premium for the plan costs the employee no more than 9. Most plans meet this test, but employers are encouraged to have minimum value certified by any plan designer they may utilize. Note that employers can only meet mandate 2 by denying subsidy access to employees. Great care must be taken by employers to sufficiently educate employees on the necessity of subsidy access denial.
Even if employers offer a compliant plan, they may still face excise tax liability due to the method by which exchange subsidies are granted. Subsidies are granted based on the application of the employee only. Once pre-qualified, the employer will be notified that unless an appeal is filed, subsidy access will be granted and the employer will be excise taxed. Employers are encouraged to keep all necessary documents in place and at the ready, as these appeals will likely be necessary exercises for most employers this fall.
The penalty is an excise tax and is thus not deductible as an ordinary and necessary business expense. Applicable large employers employ at least 50 full-time employee equivalents, while small employers do not. The penalty is only assessed for each full-time employee who qualifies for an exchange subsidy. Qualified and affordable coverage is a higher standard of health care coverage than minimum essential coverage.
Affordable coverage is health care coverage which costs an employee no more than 9. Note that any individual must also satisfy an income test to qualify for an exchange subsidy. Penalties were not assessed in as well. Due to the delay, the employer mandates went into effect on January 1, Other forms of transitional relief are no longer applicable, as they applied only to Exchange subsidies are granted when an individual applies for a state exchange plan.
According to current regulations, full-time employees who apply for and are eligible to receive exchange subsidies will be granted the subsidies on a pre-qualified basis. Employers will have a small window of time to appeal this status and dispute excise tax liability. To prevent excise taxes, excess costs, and the interference of appealing exchange subsidies, employers have a couple of solutions available: deny and design.
Denial may be achieved through management of look-back and stability periods. Design — to efficiently create a health plan such that offering coverage is still less expensive than paying an excise tax under the opt-out penalty. If an employer must offer a plan, the least expensive plan should at least be considered by the employer for certain employees or classes of employees.
These issues include state exchange plans attracting a smaller number of insurance companies than desired, the main enrollment hub www. While certain issues will likely be resolved over time, some outstanding matters, such as the potential for adverse selection on state exchange plans, may threaten the viability or economic efficiency of PPACA, which could have lasting effects. They can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.
Recent Updates. The case is likely to be appealed to the U. Supreme Court. The judge sided with 20 states that argued that eliminating a penalty for not having health insurance invalidated the ACA. Once the tax penalty was eliminated, he concluded the law was no longer constitutional. History of ACA. About 8 million of those people receive subsidies through federal exchanges.
Changes include expanding the definition of a small employer, from employees, to full-time equivalent employees, allowing businesses with employees to use the Small Business Health Options Program SHOP , increasing the out-of-pocket maximum for employees, and increasing the dreaded penalties for failing to provided individual statements to full-time employees, or worse, failing to enroll for health insurance at all.
Individual Mandate The highest-level challenge to PPACA questioned, among other things, the constitutionality of the individual mandate. PEO to the Rescue. Employers are using various strategies to achieve the affordability level. Some are implementing high-deductible health plans which offer lower premiums as an option for all employees. Some employers have designed employee premium contributions based on employees' wages or level in the organization the more they make, the more they pay in premium contributions.
Determine if the plans offered meet standards of essential health coverage and minimum value. Employers that have 50 or more FTEs must offer all full-time employees health coverage that not only is affordable but also provides essential care. The requirements for affordability were outlined in the previous section; in this section, the focus is on essential health coverage and related concepts such as actuarial value.
Essential health coverage. Essential health coverage under the health care reform law includes the following items:. Actuarial value. Actuarial value refers to a health plan's average reimbursement level—that is, the percentage of covered expenses that the plan is expected to pay. The minimum permissible value for an eligible employer-sponsored health plan is 60 percent. To avoid penalties for the employer, the plan must pay at least 60 percent of the total expected covered expenses for the year, and thus no more than 40 percent would be paid by the participant in the form of deductibles, co-payments and co-insurance but not the participant's premium contribution.
A tool for determining minimum actuarial value is the minimum value calculator provided by the HHS. Employer contributions to a health reimbursement account or a health savings account HSA will affect the minimum actuarial value of the health plan. The ACA created four benefit-level tiers of coverage for health plans available in state exchanges. The tiers, defined by the assigned actuarial value based on expected reimbursement levels, are commonly referred to as the "metals" because of the descriptions provided in the law; each of the percentages below is to be read as plus or minus 2 percent:.
Annual deductibles and out-of-pocket maximums. The annual deductible is the amount a covered individual pays for health services before any insurance coverage is applied. Once the deductible is met, the individual shares the cost of health services co-insurance with the insurance plan until the out-of-pocket maximum is met. After the out-of-pocket maximum is met, the insurance plan will cover all costs of covered health services for the remainder of the plan year.
Under the ACA's employer mandate, employers that decide to offer affordable essential health coverage to full-time employees must do so for all employees who are regularly scheduled to work an average of 30 or more hours per week and for their dependents.
Employers are not required to offer coverage to employees' spouses, but it is common for employers to do so. The determination to offer coverage is straightforward regarding employees who are hired with the expectation that they will work 30 or more hours per week. The calculation is more complicated, however, regarding current employees who work "variable hours" or for new employees whose expected hours per week have not been determined or are variable.
The final regulations under the employer shared responsibility provisions provide employers with two options for identifying a full-time employee when an employee's hours vary or when it cannot be reasonably determined if an employee will average full-time hours 30 hours per week :. Monthly measurement method. The employer determines each employee's status as a full-time employee by counting the employee's hours of service at the end of each calendar month.
Under this method, any employee with at least hours of service during the calendar month will be considered a full-time employee for that month. Look-back measurement method. This method is an optional alternative approach in which an employer may determine the full-time status of an employee during a future period referred to as the stability period , based on the employee's hours of service in a prior period referred to as the measurement period.
Under this method, an employer looks back over a defined period of time measurement period to determine if the employee averaged at least 30 hours per week. This option is available only when it cannot be determined that the employee will be employed on average at least 30 hours per week; an employer may not use the look-back method for employees who are hired to work full time and who are reasonably expected to work full time 30 or more hours per week.
The look-back measurement method involves the following three periods, which are defined in guidance from the IRS :.
Measurement period for ongoing employees. Most employers will likely choose a month measurement period for ongoing employees and will coordinate it with their benefits plan year.
This provides a relatively straightforward administrative process for the employer, and it provides an accurate picture of hours worked over a longer period of time.
The longer measurement period also provides the employer with the flexibility to avoid providing coverage to variable-hour employees who may leave the employer within the year. Initial measurement period for variable-hour and new employees.
For an ongoing variable-hour employee, the process described above is repeated year after year, following the same measurement, administrative and stability periods. New employees who work variable hours are also subject to a measurement period, administrative period and stability period, but the initial periods are based on the employees' dates of hire before transitioning to the standard periods.
Emilio's hire date at XYZ Corp. The employer has a calendar-year benefits plan, and the company's standard measurement and stability periods are based on that month calendar year and plan year. Emilio's initial measurement period is 12 months from his date of hire. His hours during that period are recorded. On May 22, , Emilio's month measurement period expires; his actual hours are averaged, and on May 23, , Emilio's administrative period begins.
Emilio is found to have worked 30 or more hours per week during the initial measurement period. Emilio now begins the calendar-day eligibility period called for in the plan, and on Aug.
He remains eligible for benefits for the remainder of XYZ's stability period—until the end of If it had not been determined that Emilio worked 30 or more hours per week during the initial measurement period, he would enter the standard measurement period, counting the hours going back to Jan. Once a new employee has completed an initial measurement period, he or she must be tested for full-time status under the ongoing employee rules for the employer's standard measurement period, regardless of whether the employee was full time during the initial measurement period.
During the measurement periods, the employer captures and records the actual hours worked by each variable-hour employee. This can be accomplished through timesheets, time and attendance systems, or a payroll system.
For salaried employees, it can be accomplished by choosing a standard number of hours for each day worked. Administrative period. Once the actual hours worked have been captured and recorded during the measurement period, the administrative period allows an employer up to 90 days to calculate the average hours worked during the measurement period.
For most employers, however, this period will probably be much shorter—from one day to one week. It may be coordinated with the employer's open enrollment period as well.
For employees who are found to be full time averaged 30 or more hours per week during the measurement period , the standard eligibility period begins. After the eligibility period, the employee is eligible for coverage for the remainder of the stability period. If it is determined that the employee was not full time during the measurement period, then the process begins again.
See below for more details on initial and ongoing variable-hour employees. Stability period. In the stability period, employees found to be full time must remain eligible for health coverage. This period cannot be less than six months and not more than 12, and it cannot be longer than the measurement period.
For many employers, the stability period will be the standard annual benefits plan year. In practice, this means that an employer will measure hours in one plan year, calculate the hours to determine full-time eligibility during open enrollment and then offer coverage during the following plan year.
There are myriad variations on the balance of these periods, but many employers choose this combination for administrative ease. Waiting periods.
Under a final rule , after an employee is determined to be otherwise eligible for coverage under the terms of the group health plan, any waiting period may not extend beyond 90 days, and all calendar days are counted beginning on the enrollment date, including weekends and holidays. In addition to their professional obligations to be informed—and to be able to inform others in their organization—on important provisions of the ACA, human resource professionals are often involved with several reporting requirements under the law.
Employee notification. Employees must be informed about the employer's health coverage or lack of it and about the exchanges—the marketplaces in each state where individuals can buy health insurance. Such notification must also include information on how individuals can use the exchanges. Summary of benefits and coverage. Organizations must provide a summary of benefits and coverage SBC to participants each year. The purpose of the SBC, not to be confused with a summary plan description, is to make it easy for employees and their family members to compare plans so they can choose among them.
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