ACA Checkup: What Large Employers Need to Know about the Affordable Care Act

By George Tzinas, Chief Experience Officer, Benefitalign

Benefitalign can support your organization with robust eligibility and enrollment solutions to manage employee tracking, enrollment and reporting.

Benefitalign can support your organization with robust eligibility and enrollment solutions to manage employee tracking, enrollment and reporting.

Welcome to the second edition of The ACA Checkup – this series outlines a summary of key points of the ACA and how it can impact you, your business and your employees. This edition will continue to focus on the definitions of and regulations for employers.

The Affordable Care Act is very specific in outlining employer responsibilities for small and large employers. The size and structure of your workforce determines what taxes, subsidies and penalties apply to you. The Affordable Care Act is very specific in outlining employer responsibilities; the size and structure of your workforce determines what taxes, subsidies and penalties apply to you. The first edition focused on ACA provisions for small groups, this edition will focus on the impacts to large groups, which is much more complex and includes penalties for non-compliance.

The definition of a large employer under the ACA

Generally speaking, if an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is a large employer (also known as an Applicable Large Employer or ALE) for the current calendar year, and is therefore subject to two important provisions of the ACA: the employer shared responsibility provisions and the employer information reporting provisions.

These provisions require large employers to offer qualified health coverage to their employees and provide a wide range of reports to support compliance with ACA mandates. The first step to compliance begins with determining you are a large employer as defined by the ACA rules.

Tracking

To determine the workforce size for a year, start with this formula:

The total number of Full-Time employees for each month of the prior calendar year

Plus

The total number of full-time equivalent employees (this is the sum of all your Part-Time employees) for each calendar month of the prior calendar year

Divide

The total number by 12.

 

These regulations can be a little confusing, so let’s review an example.

An employer that employs 40 full-time employees (that is, employees employed 30 or more hours per week on average) and 20 employees employed 15 hours per week on average has the equivalent of 50 full-time employees, and would be an applicable large employer (40 FT + 20 PT = 50 FTE).

Seasonal Employees

Seasonal workers are workers who perform labor or services on a seasonal basis as defined by the Secretary of Labor, and retail workers employed exclusively during holiday seasons.  For this purpose, employers may apply a reasonable, good faith interpretation of the term “seasonal worker”. Seasonal workers are taken into account in determining the number of full-time employees, with one caveat – if your seasonal workers worked 120 days or less during the calendar year, they do not count towards your employee total.

Employers will determine each year, based on their current number of employees, whether they will be considered an applicable large employer for the next year. For example, if an employer has at least 50 full-time employees (including full-time equivalents) for 2015, it will be considered an applicable large employer for 2016.

Averaging

Employers average their number of employees across the months in the year to see whether they will be an applicable large employer for the next year. This averaging can take account of fluctuations that many employers may experience in their work force across the year. The final regulations provide additional information about how to determine the average number of employees for a year, including information about how to take account of salaried employees who may not clock their hours.

You need to track this information because you could be subject to a penalty if your organization falls into either of these circumstances:

  • You offered coverage to fewer than 70 percent of your full-time employees and their dependents in 2015 and at least one full-time employee enrolled in coverage through the Health Insurance Marketplace receives a premium tax credit. The 70 percent threshold is for 2015, after 2015 this increases to 95 percent.
  • You offered coverage to at least 70 percent of your full-time employees and their dependents in 2015, but at least one full-time employee receives a premium tax credit because coverage offered was not affordable, did not provide minimum value or the full-time employee was not offered coverage. After 2015, this threshold increases to 95 percent.

Reporting

Two provisions of the Affordable Care Act that apply only to applicable large employers (ALEs) are now in effect: the employer shared responsibility provision and the employer information reporting provision for offers of minimum essential coverage.

Two 2015 forms and the related instructions that employers and insurers will send to the IRS and individuals this winter to report health care coverage they offered or provided. The new information reporting system is similar to the current Form W-2 reporting system with information about each employee. Each applicable large employer group member is required to file Forms 1095-C and 1094-C for its own employees, even if it participates in a health plan with other employers (e.g., when the parent company sponsors a plan in which all subsidies participate). Special rules apply to governmental entities and to multi-employer plans for collectively-bargained employees.

The 2015 version of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and instructions used by employers with 50 or more full-time employees are now available on IRS.gov. These forms will be required if the employer offers an insured or self-insured health plan, or does not offer any group health plan.

Employers must file these returns annually by Feb. 28 (March 31 if filed electronically). Therefore, employers will be filing these forms for the 2015 calendar year by Feb. 28 or March 31, 2016. A copy of the Form 1095, or a substitute statement, must be given to the employee by Jan. 31 and can be provided electronically with the employee’s consent. Employers will be subject to penalties of up to $500 per return for failing to timely file the returns or furnish statements to employees. In 2016, applicable large employers must also file an annual information return and provide a statement to each full-time employee.

If you plan to file 250 or more information returns for 2015, you must file the returns electronically through the ACA Information Reports system.  The Guide for Electronically Filing Affordable Care Act (ACA) Information Returns, includes information on the communication procedures, transmission formats, business rules and validation procedures for returns that you must transmit in 2016.

If you are a self-insured ALE (employer who sponsor self-insured group health plans), there are additional provider information reporting requirements in addition to the reporting requirements for fully insured organizations. Self-insured employers – are subject to the information reporting requirements for providers of minimum essential coverage whether or not they are applicable large employers under the employer shared responsibility provisions. This means employers of any workforce size that self-insure must comply with these information reporting requirements.

Penalties

Under the Employer Shared Responsibility provisions, if Large Employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on the Health Insurance Marketplace (Marketplace). Health coverage is affordable if the amount that the employer charges an employee for self-only coverage does not exceed 9.5 percent of the employee’s Form W-2 wages, rate of pay, or the federal poverty level for the year. A health plan provides minimum value if the plan is designed to pay at least 60 percent of the total cost of medical services for a standard population.

If an Employer Fails to offer Minimum Essential Coverage, the penalties are calculated using this formula:

For any month it does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents), and if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace, the Employer is subject to a penalty of equal to the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000. The amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,000.

If the Large Employer includes multiple members, the 30 reduction is distributed ratably across the controlled group based on each member’s number of full-time employees.

For employers with 100 or more employees, the rules are a little different: For any calendar month in 2015 or any calendar month in 2016 that falls within an employer’s non-calendar 2015 plan year, if an applicable large employer with at least 100 full-time employees (including full-time equivalents) does not offer coverage to at least 70% of its full-time employees (and their dependents), it owes an Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit for that month.

If a large employer fails to comply with the information reporting requirements, they may be subject to the general reporting penalty provisions as outlined below:

  • The penalty for failure to file an information return generally is $100 for each return for which such failure occurs.  The total penalty imposed for all failures during a calendar year cannot exceed $1,500,000.
  • For returns required to be filed after December 31, 2015, the penalty for failure to file an information return generally is increased from $100 to $250 for each return for which such failure occurs.  The total penalty imposed for all failures during a calendar year after December 15, 2015 cannot exceed $3,000,000.
  • The penalty for failure to provide a correct payee statement is $100 for each statement with respect to which such failure occurs, with the total penalty for a calendar year not to exceed $1,500,000.
  • The penalty for failure to provide a correct payee statement is increased from $100 to $250 for each statement for which such failure occurs, with the total penalty for a calendar year not to exceed $3,000,000.  The increased penalty amount applies to statements required to be provided after December 31, 2015.
  • Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement.

If you plan to file 250 or more information returns for 2015, you must file the returns electronically through the ACA Information Reports system.  The Guide for Electronically Filing Affordable Care Act (ACA) Information Returns, includes information on the communication procedures, transmission formats, business rules and validation procedures for returns that you must transmit in 2016.

If you are a self-insured ALE (employer who sponsor self-insured group health plans), there are additional provider information reporting requirements in addition to the reporting requirements for fully insured organizations. Self-insured employers – are subject to the information reporting requirements for providers of minimum essential coverage whether or not they are applicable large employers under the employer shared responsibility provisions. This means employers of any workforce size that self-insure must comply with these information reporting requirements.

 

What’s Next

The first step is understanding the regulations and requirements. To help you get started, the IRS published a quick start guide to help businesses understand the basics of ACA tracking and reporting:  https://www.irs.gov/pub/irs-pdf/p5196.pdf. There are also multiple additional resources at the end of this publication that answer many common questions about ACA regulations for large employers.

Large Employers face many requirements to stay compliant with ACA regulations, it’s best to work with compliance professionals to keep up with changing rules and regulations. Benefitalign can support your organization with robust eligibility and enrollment solutions to manage employee tracking, enrollment and reporting. Our systems can take the hassle out of ensuring your organization stays compliant without impacting your competitiveness. Find out what we can do for you by scheduling a demo today.