Summary of ACA’s Employer MandateFebruary 2, 2015
The ACA’s Employer Shared Responsibility (§4980H) provision takes effect this year, along with employer reporting requirements (§6056). If your organization had 50 or more full-time equivalent (FTE) employees last year, please refer to this summary as a reminder of your responsibilities and important effective dates. If you need assistance determining your employer size, please contact your Keller account team.
- Under the Employer Shared Responsibility mandate, employers are required to offer affordable, minimum value medical coverage to full-time (FT) employees and their children or possibly face penalties if a FT employee instead enrolls in a Marketplace plan and receives a tax credit (federal subsidy) towards the cost of coverage.
- Use an available employer safe harbor to determine if medical coverage is “affordable”.
- Most employer group plans sold are “minimum value” because they provide at least 60% actuarial value coverage.
- “Full-time” employees work a minimum of 30 hours per week.
- Employers must report offers of coverage to both FT employees and the IRS. The IRS will use the information to assess any penalties.
- Employers with less than 50 FTE employees in the prior calendar year are not subject to the §4980H mandate or §6056 reporting requirements.
- In general, employers with 100+ FTE employees in 2014 become subject to the Employer Shared Responsibility mandate on the 2015 medical plan renewal date.
- In general, employers with 50+ FTE employees in 2015 become subject to the Employer Shared Responsibility mandate on the 2016 medical plan renewal date.
- Tracking offers of coverage/employment status for reporting purposes (§6056) starts January 1, 2015 for employers with 50+ FTE employees in 2014.
- Reporting is always on a calendar year basis, even if your organization has non-calendar year medical plan year.
- The reports are always due in January to FT employees (Form 1095-C) and in February or March to the IRS (Form 1094-C with copies of Forms 1095-C) following the calendar year.
- The reporting forms are not finalized yet, but Keller’s legislative compliance department will review draft forms with you at this time.
- Please consult with your payroll vendor at this time. The vendors have not finalized reporting products yet, but many are asking for measurement periods and other information in preparation.
Potential Penalties / Affordability:
- Your medical plans are considered minimum value and are in compliance with mandate if they offer “affordable” coverage to most FT employees and their children.
- In 2015, employers must offer to at least 70% of FT employees to avoid the larger §4980H(a) penalty.
- In 2016+, employers must offer coverage to at least 95% of FT employees to avoid the larger §4980H(a) penalty.
- If the above is not met, the §4980H(a) penalty is $167/month x all FT employees (less 80 in 2015; less 30 in 2016+) for each month that a FT employee was not offered affordable coverage and is enrolled in a Marketplace plan with a tax credit (federal subsidy).
- If the above is met, and at least one of the FT employees who was not offered affordable coverage enrolls in a Marketplace plan with a tax credit, the organization will owe the smaller §4980H(b) penalty of $250/month per FT working employee receiving a Marketplace tax credit. Some employers feel this penalty is lower than the cost to provide insurance and do not mind the exposure.
- To determine “affordability”, you can use one of three available employer safe harbors (e.g., employee’s share for lowest cost plan for single coverage is no more than 9.5% of employee’s rate of pay). Please contact your Keller account team if you have not determined if your medical plan contributions are “affordable”.
Determining FT Status / Measurement Methods:
- If an employer reasonably expects the employee to work 30+ hours/week upon hire, the employee is considered FT for purposes of §4980H.
- An employer cannot take into account the expected duration of employment to determine FT status (see exception below for “seasonal” employees).
- Employers must use either a monthly measurement or look-back measurement period to determine FT status and report that employee’s status accordingly, by month. You may not need an actual measurement method to identify FT status, especially if you can easily identify FT employees upon hire.
- The look-back measurement period is available and recommended for variable hour, seasonal and part-time employees. In general, Keller recommends a 12 month measurement period to look-back and review hours. If an employee averaged at least 30 hours/week over the measurement period, the employer would offer coverage for a 12 month stability period that coincides with the plan year.
- The same measurement method must be used for all employees in the same class (e.g., salaried vs hourly, union vs non-union).
Paid FT Interns & Other Short-Term FT Employees:
- Paid interns or other short-term employees hired at the same time each year (e.g., academic semester or summer) for a period of 6 months or less can be classified as “seasonal”. Even if they are hired to work FT, they do not need to be offered benefits upon hire but instead can be measured using the look-back measurement period. They will have typically ended employment before benefits need to be offered. During the initial look-back measurement period, they are not counted as FT employees.
Paid interns or other short-term employees that are hired throughout the year (not seasonal) may need to be offered coverage.
- If not offered coverage, an employer can still avoid the larger §4980H(a) penalty as long as coverage was offered to most employees (at least 70% in 2015 and at least 95% in 2016+).
- The smaller §4980H(b) penalty for not offering affordable coverage to a FT employee is $250/month x each FT employee who was not offered affordable coverage and is enrolled in a Marketplace plan with a tax credit.
- Employers should consider to either offer coverage or continue to exclude paid interns and short-term employees from plan eligibility and pay the §4980H(b) $250/month penalty if applicable.
Variable Hour Employees:
- If upon hire the employer cannot determine if an employee will work FT or not because hours vary, the employee can be considered “variable” and hours measured before offering coverage so that the employer can determine if FT or not. Keller recommends using the look-back measurement period method for variable hour employees.
Temporary Agency Workers:
- The employer could be liable for penalties for temporary employees hired from an agency if the temps are considered the employer’s common-law employees and were not offered affordable, minimum value coverage. See above short-term employee analysis for potential liability.
- If the agency offers affordable, minimum value coverage and charges the employer additional fees for temporary employees who enroll in coverage, the employer cannot be penalized, even if the temps are considered the employer’s common-law employees.
If temporary employees are not the employer’s common-law employees, the temporary agency is the responsible entity for offering affordable, minimum value coverage.
This is just intended to be a quick reference summary. For a review of the common-law employee definition, please read Keller’s white paper on Defining Employees for Health Care Reform. As always, please do not hesitate to call your Keller account team with questions regarding your responsibilities under the ACA employer mandate.