UPDATE: The Obama administration has delayed implementation of the employer mandate (employer shared responsibility) until 2015. Originally scheduled to take effect in 2014, the mandate will require businesses with 50-plus full-time equivalent employees to offer health insurance or pay a penalty.
If one person on the employer group plan buys health insurance through the Exchange (also called Marketplace) and receives a subsidy with it, does the group pay penalties for that one person or everyone on the group?
The proposed Shared Responsibility for Employers regulation states that beginning in 2014, an applicable large employer will pay a penalty tax (i.e., make an assessable payment) for any month that at least one full-time employee has been certified to the employer as having enrolled for that month in a Qualified Health Plan for which health coverage assistance is allowed or paid.
The penalty tax (assessable payment) on large employers not offering coverage is equal to the product of the “applicable payment amount” and the number of individuals employed by the applicable large-employer member (less the 30-employee reduction) as full-time employees during the month. The “applicable payment amount” for 2014 is $166.67 with respect to any month (that is, 1/12 of $2,000). The amount will be adjusted for inflation after 2014.
When does employer shared responsibility begin?
January 1, 2014. However, the latest regulations allow some fiscal year plans (i.e., non-calendar year plans as of Dec. 27, 2012) some transitional relief to employer responsibility requirements. If employees under these fiscal year plans are offered affordable, minimum value coverage no later than the first day of the 2014 plan year, no assessable payment will be due to that employee for the period before the first day of the 2014 plan year.
Additional rules apply to employers with more than one non-calendar plan. More information: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act.
Explain the mandate requiring employers to offer insurance coverage to employees who work more than 30 hours a week—what’s known as the “30-hour threshold”?
The 30-hour threshold is used to determine how many full-time employees an employer has, so the employer can determine if they qualify as an “applicable large employer” for purposes of the Employer Responsibility mandate. An applicable large employer for a calendar year is an employer who employed an average of at least 50 “full-time employees” on business days during the preceding calendar year.
If the employer is an applicable large employer, they will be subject to the penalty tax (or assessable payment) if they do not: (1) offer full-time employees the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan or (2) offer minimum essential coverage under an eligible employer-sponsored plan to full-time employees, but the coverage is not affordable or does not provide minimum value.
Can an employer offer an HSA compatible High Deductible Health Plan with a $5,000 deductible and 100 percent coinsurance considering health care reform’s out-of-pocket maximum is $6,400 for single coverage and $12,800 for family coverage?
Beginning with the first plan year following 1-1-2014, both individual and group policies (including self-funded groups) must include an out-of-pocket maximum limit of $6,400 for self-only coverage and $12,800 for non-self-only coverage. NOTE: There is a one year safe-harbor for groups that utilize multiple service providers (see http://www.dol.gov/ebsa/faqs/faq-aca12.html).There is a separate requirement that employer-sponsored plans provide minimum value in order to avoid the employer shared responsibility penalty. Whether a plan meets the minimum value requirements can be determined by testing the plan using a Minimum Value Calculator provided by the federal government. See http://cciio.cms.gov/resources/regulations/index.html for a copy of the final rule.
If an employer has 85 employees and offers all full-time employees a $1,500 deductible, 80/20 coinsurance plan, with Minimum value and an appropriate out of pocket max, and is under 9.5 percent of wages or household income, what happens to the employer if some people want to waive coverage or join the Exchange for a better plan?
Based on the facts stated, the employer should be able to avoid penalties. The IRS Q&A’s on the topic of employer shared responsibility are very helpful for questions of this sort. They can be found at http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act .
As stated at IRS Q&A #10:
In 2014, if an employer meets the 50 full-time employee threshold, the employer generally will be liable for an Employer Shared Responsibility payment only if:
(a) The employer does not offer health coverage or offers coverage to less than 95% of its full-time employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on an Exchange;
(b) The employer offers health coverage to at least 95% of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on an Exchange, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee (see question 11, below) or did not provide minimum value (see question 12, below). Generally, IRC § 4980H provides that an employer with 50 or more full-time employees is subject to a tax penalty if either:
- The employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan and any full-time employee is certified to the employer as having received an applicable premium tax credit or cost sharing reduction, or
- The employer offers its full-time employees (and their dependents) the opportunity to enroll in MEC under an eligible employer sponsored plan and one or more full-time employees is certified to the employer as having received an applicable premium tax credit or cost sharing reduction.
If the above elements are met (which from the above scenario they appear to be) there would be a penalty for that employer. How will the auto enrollment rules effect my plan?
The answer to this question is unknown at this time. The automatic enrollment regulation has been put on hold with no defined time for release.
Is there a percentage an employer must contribute toward employee coverage, spouse coverage and child coverage—or face a penalty?
Beginning in 2014, an employer with more than 50 full-time equivalent employees will be subject to penalties if it does not offer affordable coverage that provides minimum value to at least 95 percent of its full-time employees and their dependents.
A plan fails to provide minimum value if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.” Thus, while the Affordable Care Act does not mandate a contribution requirement, employers could face penalties if employees must pay more than 40 percent of the costs of benefits under the plan.
Does the 95 percent rule apply to just employees, or employees AND dependents?
Dependents are included in the requirement. The Shared Responsibility for Employers Regarding Health Coverage proposed regulation reads:
If an applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan for any calendar month, and the applicable large employer member has received a Section 1411 Certification with respect to at least one full-time employee, an assessable payment is imposed.
Explain how “affordability” is calculated for employer plans?
The 9.5 percent affordability calculation states that coverage under an employer-sponsored plan is affordable to a particular employee if the employee’s required contribution to the plan does not exceed 9.5 percent of the employee’s household income for the taxable year.
Household income is defined as the modified adjusted gross income of the employee and any members of the employee’s family (which would include any spouse and dependents) who are required to file a federal income tax return.
I’ve heard about the W-2 “Safe Harbor” for employers in the Employer Responsibility regulation. How is that Safe Harbor applied?
Because employers generally will not know their employees’ household incomes, employers can take advantage of one of the affordability safe harbors set forth in the proposed regulations. Under the safe harbors, an employer can avoid a payment if the cost of the coverage to the employee would not exceed 9.5 percent of the wages the employer pays the employee that year, as reported in Box 1 of Form W-2, or if the coverage satisfies either of two other design-based affordability safe harbors.
Do all of the Affordable Care Act taxes and fees apply to both grandfathered and non-grandfathered employer groups?
The following taxes and fees apply to both: Transitional Reinsurance Fee, Health Insurance Industry Fee, Patient-Centered Outcome Research Fee, Tax on High-Cost Insurance plans (i.e. Cadillac Tax)
However, the Risk Adjustment Fee applies only to non-grandfathered groups.
Does the Transitional Reinsurance Fee take the place of an employer buying stop-loss insurance?
No. This is a temporary fee that will diminish each year over its three-year requirement that supports the transition of individual and small group business to the Exchange (also called Marketplace).
What are some IRS FAQs on Employer Shared Responsibility?
In 2014, can an employer that has a group plan continue to offer cash in lieu of coverage to employees who can prove they are covered under an individual plan or under their spouses plan?
As the proposed rules are presently written, it appears this type of payment in lieu of coverage would be allowed assuming the other requirements – benefit plan is offered to at least 95% of the full-time employees and dependents, the plan offered is affordable and the 60% MV is achieved by the plan – are present.
Large group employers (50 or more full-time employees) will be subject to an Employer Shared Responsibility Tax if:
(a) The employer does not offer health coverage or offers coverage to less than 95% of its full-time employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on an Exchange,
(b) The employer offers health coverage to at least 95 percent of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on an Exchange, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.
If an employer offers an affordable benefits package that provides minimum value coverage to 100 percent of eligible employees, is the spouse of an employee (whose family income would qualify them for a subsidy) ineligible for a subsidy because of the availability of spousal coverage?
Spouses are not considered dependents under the employer responsibility regulation and are not taken into consideration under the safe harbor for the determination of affordability.
If the employer offers coverage to 95 percent of its employees but one person from the five percent remaining goes to the Marketplace, would the employer be penalized as long as the plan met the minimum value and did not exceed 9.5 percent of the employee’s income?
Yes, the employer would still be subject to the $3,000 fee multiplied by the number of employees receiving the subsidy who were not offered coverage under this scenario. Offering to at least 95 percent makes the employer compliant with the first requirement (thus avoiding the larger penalty of $2,000 multiplied by the entire full-time workforce).
If a full-time employee is not offered coverage and goes to the Marketplace and receives a subsidy the employer will still owe on the second penalty.
If the employer offers to 100 percent of employees who are eligible and if one person buys from the Marketplace, the employer would not be subject to the penalty, correct?
Correct, offering coverage to 100 percent of the full-time employees will keep the employer from owing a fee, as long as the plans offered qualify as affordable and meet minimum value.
When counting to determine the 50+ mandate, do independent contractors need to be included in any way with this count?
No, independent contractors are not figured into the calculation under the proposed rule.
Some employers have employees who waive their group coverage because they are on their spouse’s plan. If they provide a specified amount of money to employees, since they are not costing the employer any premium dollars, will this still be allowed under the new ACA requirements?
If it is an applicable large employer and the employer wishes to avoid the penalties it will need to offer coverage to at least 95 percent of its full-time work force.
Is it true that the spouse is not considered a dependent under the Employer Shared Responsibility proposed regulation?
Correct. The spouse is not considered a dependent for purposes of determining who must be offered coverage under the proposed Employer Shared Responsibility regulation.
Is an employee going to be able to keep his/her spouse on his/her plan?
The employee will be able to keep the spouse on the plan if the employer’s eligibility rules allow for it.
Or if they have coverage through their own employer, will they be required to be enrolled under their own employer coverage?
This is not a requirement of the Employer Shared Responsibility.
Regarding employers offering insurance coverage that does not exceed 9.5 percent of an employee’s household income, is that based on gross annual income or net?
If an employer is using the W-2 Safe Harbor it is the amount as reported in Box 1 of the W-2 Form, which does not take into consideration deferrals for 401(k) contributions or 403(b) plans or contributions to a section 125 plan.
Will a company with 142 employers, 132 of which are part time, receive a penalty if a part-time employee buys from the Marketplace?
The part-time employees can go to the Marketplace and receive subsidy/tax credits, but that will not trigger a penalty for the large employer. Only full-time employees receiving subsidy/tax credits on the Marketplace will trigger penalties for the employer.
Are employers required to offer seasonal employees insurance coverage?
It depends on the measurement period that the employer uses for the seasonal/part-time employee category of employees.
b) If yes, when does the employer have to offer coverage?
Coverage would be required to begin at the conclusion of their administrative period, which immediately follows the measurement period.
When figuring whether an employer has 50 or more full-time employees, if an employee works 60 hours a week, would they count as 1, 1.5 or 2 employees?
Once the employee is over the 30 hour threshold they count as 1 full-time employee with no calculation needed for the cumulative effect of hours works.
What is the formula for determining a full-time and part-time employee?
Add together all the hours worked in a month for each part-time employee. If a part-time employee’s individual monthly total exceeds 120 hours, and employer only takes into consideration 120 hours. Any hours over 120 are ignored for the calculation. Take that total number and divide it by 120. This gives the total number of full-time equivalents number for that month.
Add each month’s full-time equivalents number together and divide by 12 to get the annual number of full-time equivalents. Add this annual number of full-time equivalents number to the full-time employees number to determine whether the company is over the 50 threshold.