Blog By: Jeanne Hines, SPHR
In my past two blogs, I have discussed some of the up-coming requirements of the Affordable Care Act (ACA). Today’s topic is concerned with how the Act defines affordable coverage and the potential assessments associated with it.
The Employer Shared Responsibility portion of the ACA applies to “large” employers, those who have at least 50 full-time equivalent employees (FTEs). Internal Revenue Service Notice 2012-58 provides information on how to determine full-time employees for the purposes of determining who is eligible for group health insurance in the work place. It also addresses assessments made to the employer if it chooses not to offer health insurance. These choices are often referred to as “Play or Pay.” The regulation is very briefly explained below, with some of the new terminology bolded.
Large employers are subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction in the Exchange. Generally, this may occur where either
- The employer does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan;
- The employer offers full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage that either is unaffordable (the employee portion of the self-only premium for the employer’s lowest cost coverage that provides minimum value must not exceed 9.5% of the employee’s W-2 earnings), or does not provide minimum value (less than 60% of the total cost of benefits).
Minimum essential coverage is outlined in a guidance bulletin issued by the Department of Health and Human Services: 45 CFR Part 156. Required benefits for health plans include hospital care, laboratory services and preventive services. For a complete list, please consult the statute. Self-insured employers are exempt from the essential benefit requirement, but are subject to the Affordable Care Act's prohibition against imposing annual and lifetime dollar limits on benefits that fall within the definition of essential health benefits.
In a nutshell, an “assessable payment” may be made when no minimum essential coverage is offered and an employee enrolls in an Exchange plan and they receive a premium credit. The penalty is $2,000 annually multiplied by the number of full-time employees, less the first 30.
When coverage is offered and is either not affordable or does not meet the minimum value requirement and the employee purchases their plan through an Exchange, the assessment is the lesser of: $3,000 per employee who purchases subsidized coverage, or $2,000 multiplied by the number of full-time employees, less the first 30. The assessment is calculated monthly. For more information, please see the graph below.
Minimum value of a plan is based on the total out-of-pocket expenses an individual pays for his or her health coverage. According to Internal Revenue Service Notice 2012-31, minimum value is provided if, “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of such costs.” Minimum (actuarial) value calculations are explained in detail in the Notice.
Recommended Action Items:
- Employers are advised to read and understand Notice 2012-58, particularly if a large portion of their workforce is part time. They will need to establish a measurement period, an administration period, and a stability period for current and new employees which could begin immediately, depending on the employer’s choice.
- Employers will benefit from utilizing systems that will enable them to track and calculate hours for part-time employees and the number of days and hours seasonal employees work.
- Employers are advised to begin comparing their employees’ W-2 wages (as reported in Box 1) with their health insurance premiums to determine whether the current plans meet affordability guidelines. If the amount an employee pays for single coverage (the employee portion of the self-only premium for the employer’s lowest cost coverage that provides minimum value) is no more than 9.5% of their W-2 earnings, the plan would generally meet affordability guidelines.
Health Care Reform continues to be ever-changing. The information provided herein is as of the most current information available. We encourage you to consult with your trusted advisors, such as your insurance agent, your accountant, or your attorney to determine the best choices for your business. For more information on these and other topics related to Health Care Reform, sign up for our webinar, being held after the elections, on November 14, in which we’ll be discussing health care reform more in depth. There is no charge for the webinar, but registration is required. Registration is available on our webinar page. In addition, you will find information on other topics in the WA University/Health Care Reform section on our website.
This information is provided for general guidance only. Please consult your legal or tax advisor for specific requirements and guidance.