Affordable Care Act Reporting 201: Concepts behind the Affordable Care Act's Employer Mandate
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Find more educational content at www.acafluent.com Better understand the concepts that build the Affordable Care Act’s employer mandate. We will explain new concepts such as Shared Responsibility and the Pay-or-Play rules and redefined ones like Applicable Large Employer, hours, and affordability.
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Affordable Care Act Reporting 201: Concepts behind the Affordable Care Act's Employer Mandate
- 1. Affordable Care Act Reporting: 201 The Concepts behind the Affordable Care Act’s Employer Mandate June 2016
- 2. “Large employer”ACA REDEFINITION 2 ALE: APPLICABLE LARGE EMPLOYER An employer with 50 or more full-time employees, including equivalents, in the previous tax year Commonly controlled and affiliated companies are treated as one group when determining ALE status. They must combine head counts. NOT a once-and-done determination – must be calculated annually. If a company was not in existence for all of the previous year, it would have to comply if the average head count of the months it was in business was 50 or more full-time employees and equivalents.
- 3. The ACA employer mandate: two levels of compliance for Applicable Large Employers Comply with the COVERAGE MANDATE Be timely in offering health insurance of a certain quality to full-time employees 3 © Integrity Data 2016. All rights reserved. All year long, on a monthly basis At year-end, in monthly breakdowns Comply with IRS REPORTING REQUIREMENTS Prove the right offer was made to the right employee at the right time
- 4. ACA concept Shared responsibilityACA CONCEPT Individuals need to get health insurance that meets certain standards – and then prove to the IRS that they have it. Employers need to offer health insurance that meets certain standards – and then prove to the IRS that they offered it. When noncompliant, both face penalties – which are significant and keep increasing. © Integrity Data 2016. All rights reserved.
- 5. Pressure is growing for employees to accept employer-sponsored health insurance © Integrity Data 2016. All rights reserved. SOURCE: HealthCare.gov https://www.healthcare.gov/fees/fee-for-not-being-covered/ Penalty for an individual reporting they and their dependents have no health insurance TAX YEAR 2014 TAX YEAR 2015 TAX YEAR 2016 Per person $95 per adult $47.50 per child under 18 $325 per adult $162.50 per child under 18 $695 per adult $347.50 per child under 18 Maximum $285 $975 $2,085 % of household income 1% 2% 2.5% Maximum Total yearly premium for the national average price of a Bronze plan sold through the Marketplace: $2,448 $2,570 $2,699 OR WHICHEVER IS GREATER
- 6. ACA concept “Pay-or-Play” rulesACA CONCEPT PLAY: Offer health insurance, whether it be a fully compliant plan or not. Accept risk of the lower penalty. PAY:Opt to offer no health plan. Accept risk of the higher penalty.* * Thereby, contributing to a fund that helps workers find a plan elsewhere. 6 Section 4980H of the Internal Revenue Code
- 7. ACA concept Monthly checkpointsACA CONCEPT Proof of compliance is in payroll and benefits data broken down monthly. Employee eligibility must be tracked monthly. Affordability of coverage offered must be tested monthly. Penalties – individual and employer – will be assessed monthly. © Integrity Data 2016. All rights reserved.
- 8. “HOURS” means “hours of service” In addition to paid hours that are clocked on the job, this includes situations that are not paid but during which the employee is available to the employer. “FULL-TIME” means 130 hours of service in a month – the monthly equivalent of at least 30 hours of service a week “Hours” and “Full-time employee” ACA REDEFINITIONS 8
- 9. A “qualified” planACA REDEFINITION 9 has MINIMUM VALUE ( MV) At least a bronze level of coverage and is AFFORDABLE To check whether a plan meets MEC and MV standards – which have their own intricacies – consult a knowledgeable insurance broker. Our software shows whether a plan meets affordability tests. MINIMUM ESSENTIAL COVERAGE (MEC) A group health plan that meets basic specifications for care to treat and prevent sickness which also
- 10. From the final regulations, with highlight from December 2015 clarity: “Coverage for an employee under an eligible employer- sponsored plan is affordable if the employee's required contribution (within the meaning of section 5000A(e)(1)(B)) for self-only coverage does not exceed 9.5 (9.66 for 2016) percent of the taxpayer's household income for the taxable year.” ACA REDEFINITION “Affordability” 10
- 11. “Safe harbors” to test affordability 11 Calculations to use based on what you do know – an employee’s compensation: Learn more about each in this blog post: 1095-C reporting: How to use affordability safe harbors W-2 wages safe harbor Rate-of-pay safe harbor Federal Poverty Line safe harbor
- 12. Videos in Integrity Data’s ACA Reporting 101 series • Does your business have to comply with the ACA? Are you an ALE (Using Santa Claus as an example) • How do I comply with the ACA? And when? • What is a 1095-C? • Why comply? What are the penalties for employers? • Is the IRS ready? Downloadable e-book on “Affordable Care Act: Employer Essentials for IRS Reporting” Downloadable ACA checklist for 2016 Blog posts • Think you’re behind in ACA reporting? You’re not alone • ACA Burdened Majority? Employers minding the spirit of the law • Parsing the ACA inkblot for what’s not divisive – IRS Form 1095-C • Determining a company’s ALE status Learn more! Educational resources www.acafluent.com © Integrity Data 2016. All rights reserved. 12
- 13. Q&A 13
- 14. Thank you for your time. To get on the fast and sure track to ACA compliance, please contact us: sales@integrity-data.com 888.786.6162 Integrity Data’s publications and presentations are designed to make employers aware of IRS reporting requirements under the Affordable Care Act, best practices for compliance with those requirements, and the consequences of noncompliance. This material is intended to provide accurate information as of the date posted. It is provided with the understanding that neither Integrity Data, nor the authors and presenters, are rendering legal or accounting advice. With respect to your organization’s decision making for Affordable Care Act compliance, review the information presented with legal counsel specializing in employment law.
Editor's Notes
- NEW The Affordable Care Act has proven to be a confusing piece of legislation for employers and their responsibilities. Our goal of this webinar is to help you understand the new and redefined concepts behind the ACA’s employer mandate.
- NEW First, the ACA employer mandate only applies to US organizations that are an Applicable Large Employer or ALE for short. These are US employers with 50 or more full-time employees and equivalents in the previous tax year. It’s likely you already know you’re an ALE and the mandate applies to you. If you aren’t certain, be sure to watch our 101 educational videos linked in this slide deck, which Lindy will send in a follow up. You will need to be aware of these details when determining classification: ALE status is not a once-and-done determination. This is calculated annually as part of your report to the IRS so they know each year which employers they can expect submissions from in the following year. If your company was not in existence for all of the previous year, you are still required to comply if the average head count of the months you were in business was 50 or more full-time employees and equivalents. The law was written to deter employers from splitting a company into separate entities in order to avoid offering health insurance. Therefore, you will also have to look at IRS rules for controlled and affiliated groups when determining ALE status. These rules are complex and confusion stems from the fact that if you fall into this group, your corporate tax returns may be filed individually. If you have any doubts, we recommend seeking advice from an accountant or ERISA attorney. OLD First – the ACA employer mandate only applies to US organizations that are an Applicable Large Employer (ALE for short), meaning a US employer with 50 or more full-time employees (including equivalents) in the previous tax year. If you’re listening in on this webinar, you probably already know you’re an ALE and the ACA employer mandate applies to you. However, if you’re still in doubt, we have a great 101 educational video on our website that explains how to determine ALE status. Check out the resources list at the end of this webinar to get the link to that. Some points to be aware of in determining this classification: - This is not a once-and-done determination. This calculation is done yearly. It is part of your annual reporting to the IRS, so that this federal agency – which is tasked with ACA enforcement - will know each year which employers they can expect submissions from for the following year. - If a company was not in existence for all of the previous year, it would have to comply if the average head count of the months it was in business was 50 or more full-time employees and equivalents. - Also, because the law was written to deter employers from splitting a company into separate entities in order to avoid offering health insurance, you also have to look at IRS rules for controlled and affiliated groups when determining ALE status. These IRS rules are also complex. Confusion here often stems from the fact that even though you fall into this group, your corporate tax returns may be filed individually. If you have any doubts, we suggest seeking out either a knowledgeable accountant or ERISA attorney.
- Before we dive into more concepts, let’s quickly recap the employer mandate so we can relay the concepts back to this. Employer responsibility under the Affordable Care Act is not just about finding a suitable group-health plan. There are in fact 2 levels of ACA compliance for employers: 1) First level is the coverage mandate: offering the right coverage to the right employees at the right time. This is also referred to as the “pay-or-play rules”. We’ll explain that ACA concept in a few minutes. 2) Second level is IRS reporting requirements: documenting for these employees and the IRS that you did - or did not - offer what you were supposed to offer. Then, that you did so when you were supposed to do so – or not. You may hear this requirement referred to in terms of the IRS form that the ACA created – Form 1095-C.
- NEW Ok, now the second concept. Shared responsibility is an often overlooked in the Affordable Care Act. Architects of the ACA tried to use independent forces assuming that the interplay of two forces working toward their own interests was the fastest way of getting everyone enrolled in health coverage. So, individuals and employers have shared responsibility: Every individual filing a tax return must prove they had health coverage for the entire year for themselves and dependents, or face a penalty. AND Employers who meet the ALE threshold must offer health coverage to all eligible employees, or face a penalty.
- NEW Notice that the individual penalty increased over 700% from 2014 to 2016. This was by design because an intent of the law is to force more employees to accept employer-provided health coverage, thereby easing some of the pressure on the marketplace exchanges to provide this coverage. Although the individual penalty will not rise as drastically as it has from 2014 to 2016, we can expect incremental increases in future years as these penalties are adjusted based on the rise of health year after year. We often receive feedback from our customers that they are worried about the low acceptance of their health insurance offering. Our response is always the same – do not worry about it. Your responsibility is to offer coverage, it is the individual’s responsibility to get coverage whether it’s from you or another source.
- NEW The third concept, “Pay-or-Play rules,” nicknamed for Section 4980H of the Internal Revenue Code, is a term that employers use in sorting through an ACA compliance strategy. This part of the law talks about the coverage mandate we mentioned earlier. It states you should be timely in offering health insurance of a certain quality to full-time employees. But it also notes that this is an option - so you have a choice: you can play along or pay a penalty. If you don’t play – you will definitely pay. You’ll have to pay either the higher sledgehammer penalty for not offering any health coverage or the lower tack hammer penalty for offering substandard health coverage. The fact is, most companies are in the ‘play’ strategy and have been for years. Health coverage is often part of a company’s compensation package that attracts quality candidates and keeps current employees. However, even if you play by offering health insurance, you could face a penalty risk IF the offer is not fully compliant, the lower tack hammer penalty is applied. We have a 101 educational video on our website that goes into more depth around these penalties and is linked at the end of the slide deck. The point is, whatever your coverage mandate compliance choice is, you must meet the IRS obligation to report on what was – or was not – offered.
- NEW All ACA compliance efforts center on monthly checkpoints of data. Your decisions and preparations for ACA compliance require a monthly view of your payroll and benefits data. When enforcing the employer mandate, the IRS will look at what you have documented about your compliance on the 1095-C forms and that documentation must be broken down in monthly detail – and then they will assess penalties on a monthly basis. Please note that regardless of your pay or play strategy, record keeping and reporting requirements are identical. So, for those adopting a ‘pay’ strategy, that decision in no way shields you from the tedious reporting that must be submitted.
- NEW An employee is eligible for health coverage when they are a full-time employee as defined by the ACA. The ACA has redefined “full-time employee”: By abandoning the concept of a 40-hour work week to be classified as a full-time employee and reducing that threshold to 30 hours a week. AND By increasing the hours that need to be tracked when crediting employees with hours of service. To learn more about hours of service, sign up for our 201 webinar on July 21st around guidelines for classifying an employee as full-time. Note that this 30-hour threshold for full-time status is limited to the ACA. Employers do not need to adjust other benefit programs that may have a different work week hour threshold in determining eligibility.
- NEW Here is a high-level view of a qualified plan which is the starting point for a qualifying offer. To understand the breakdown of a qualified plan, let’s remember that as of January 1, 2014, most U.S. citizens and green-card holders and their dependents must be enrolled in a health plan that offers at least Minimum Essential Coverage or pay a penalty as you saw on a previous slide. But, on the employer’s side, just offering Minimum Essential Coverage is not enough for the organization to avoid coverage penalties. An employer must offer coverage that meets minimum value (MV) standards that is affordable in order to avoid ACA penalties. The concept of what constitutes minimum value is something a good insurance broker can explain. We will not spend a lot of time on that aspect. What our clients is what makes an offer affordable.
- NEW That brings us to the concept of “Affordability” as defined by the ACA. This is the exact wording from the final regulation issued by the IRS on 02/12/2014. (Read the quote.) Notice that it ties affordability to the employee’s household income for the taxable year as reported on their individual tax return. Of course, employees do not give you their 1040s to make this determination so you, as their employer, cannot use that information to determine affordability. The law has provided a means of establishing safe harbors. This allows the employer to determine what is affordable based on the information they do have: their employee’s compensation. Using those safe harbors to determine affordability is critical in minimizing penalty risk if you have lower-wage workers.
- NEW You know each of your full-time employee’s compensation. Now, you can choose from three safe harbors when applying the affordability percentage. The affordability percentage is 9.66% for tax year 2016. Safe harbors establish maximums – not to exceed. Safe harbors can differ by employee type, job function, department or physical location. Once a safe harbor is established for the year it cannot be changed until the plan renewal of the following year.
- NEW This is just one of many webinars that cover the Affordable Care Act. We want you to have access to our other educational resources, which are available at www.ACAFluent.com. Watch our 101 educational videos that cover whether you have to comply, how to comply, and penalty details. Each video from the 201 educational series will be available for on-demand viewing. Download our eBook, “Employer Essentials for IRS Reporting” and our printable infographic, “ACA checklist for 2016 reporting.” Quickly link to IRS resources from our site and hear it straight from the source. Access our blog feed as it continually updates with new hot topics.
- Thank you for joining us. We hope you found this presentation informative. And do let us know how else we can help you.