By: Reva Nelson
Does your small and growing business have a handle on the Patient Protection and Affordable Care Act (ACA) requirements? The Employer Shared Responsibility, aka “pay or play” rules, kicked in on Jan. 1, 2015 for employers with 100 or more full-time employees; 2016 ACA requirementslaunched January 1st, 2016 for employers with 50-99 employees.This primer will help you navigate ACA guidelines and avoid some common pitfalls.
Who Does the ACA Impact?
Is your business on the line for providing workers with healthcare benefits? The best way to tell is to carefully assess your workforce.
Under the ACA, businesses with 50 or more full-time employees (FTEs) are responsible to provide affordable health insurance to workers.
The ACA defines a full time employee as someone who works:
- A minimum of 30 hours per week
- 130 hours per month, or
- A total of 1,560 hours in a year
If your company falls into this category, under the ACA it is considered an “applicable large employer” or ALE (more about this below.).
To avoid unpleasant surprises, confirm that your count of full-time employees aligns with the ACA count. (You can also use thiscalculator.)
Experts recommend carefully scrutinizing your worker tally to avoid misclassifying employees in your count.
“Employers should make sure they are appropriately following IRS guidelines when it comes classifying workers as 1099s or W-2s, and making the appropriate subsequent offers of coverage to those classified as employees,” cautions Michael Worsman, director of strategy and business development with Marsh & McLennan Agency.
In fact, there is a fair amount of misunderstanding among small businesses about their ACA employee count, says Sue Wakamoto-Lee, senior benefits advisor at Zenefits. “We have clients that that thought they were small groups, only to find out they are ALEs subject to the ACA rules,” she says.
Also keep in mind: If you own or have a significant stake in multiple small businesses, roll up provisions apply. Under the ACA, these businesses are grouped together when calculating the number of employees.
ALEs Have a Few Options:
If your company qualifies as an ALE (see above), there are four options to choose from to meet your ACA obligations.
1. Select a plan through the Small Business Health Options Program (SHOP) exchange in your state. To enroll in SHOP, go to the SHOP Marketplace on Healthcare.gov, and select your state. Enrollment is open all year, unlike purchasing individual coverage, which needs to happen during the open enrollment period, with some exceptions. Brokers registered with the SHOP marketplace can also help small groups select and purchase SHOP plans.
Keep in mind that if you plan to take advantage of the Small Business Health Care Tax Credit, which is worth up to 50% of your contribution toward your employees' premium costs, you will need to apply within the SHOP market. To qualify for the credit, your business must have fewer than 25 FTEs and average wages per worker of less than $50,000. You can use the Small Business Health Care Tax Credit Estimator to assess your eligibility and estimate how much you might receive.
2. Alternately, look around for plans that meet ACA requirements in the private market. “This has been the approach pursued by most small businesses,” says Chuck Kiskaden, president and CEO of Health Benefits Advisors.
To find a private plan, you can choose to work with 1) a broker, who typically sells plans for multiple companies and usually gets paid on commission by the insurance companies; 2) an agent, who works for a specific carrier; online health insurance sellers; 3) work directly with an insurer.
If you choose to go with a private plan, you are required to sign up during the open enrollment period. This period has been extended for the past few years but is expected to run from Oct. 1 to Dec. 15 until 2017 and until further notice from the Federal government.
In choosing a private plan, be aware that plans vary substantially from state to state and region to region. “There are a number of plan offerings out there that meet various needs. Seek guidance to ensure your plan offering is ACA compliant,” says Worsman.
He also advises companies to understand the participation requirements of the plans and to design a contribution strategy that ensures they can meet the minimum requirements the insurance carrier or plan necessitates.
Also, make sure that the plan provides minimum essential coverage (MEC) to employees. Check the plan’s summary of benefits for MEC information. See more on essential coverage requirements below.
3. You have the option to keep your existing “grandmother” plan. The ACA has allowed companies with “grandmother” plans -- plans that existed before the law was enacted – to keep these in place until Dec. 31, 2017.
4. If you choose to not provide your workers with healthcare coverage, you must pay a per-worker assessment.
Meeting ACA Coverage Standards
Whether you purchase a plan in the SHOP exchange or from the private market, your healthcare plan must meet certainminimum essential coverage standards. These range from outpatient care to mental health treatment and pediatric services.
Your healthcare plan must also be consider the affordability of your healthcare plan. In 2016, this means the lowest-cost plans for self-only coverage must cost less than 9.66% of W-2 wages (9.69% in 2017). Employees must report this information on Line 16 of IRS Form 1095-C, which the IRS uses to assess your plan’s affordability.
Wakamoto-Lee says that her greatest challenge is helping her clients understand that their plans aren’t affordable by ACA definitions.
Lee was stunned at “how little the employee contribution amounts had to be in order to comply.” This is particularly an issue for “groups that were offering rich plans and employees had declined coverage in the past because it was too costly,” explains Wakamoto-Lee. “Now, companies have liability if their employees can’t afford their benefits.”
In order to make plans affordable, in many cases, employers have had to contribute a higher percentage to the premiums and/or introduce new lower-cost plan designs, such as high deductible plans paired with Health Savings Accounts, says Kiskaden.
Reporting, Penalties and Enforcement
According to HealthCare.gov, plans that fail to meet affordability and provide essential coverage may expose your company to liability for penalties. This IRS notice provides more detail.
ALEs are required to file reports on their plans for the first time in 2016 using Form 1094-C and Form 1095-C. (Here are forminstructions.) Initial reports were due May 31, 2016, for paper filings; the deadline for electronic filing is June 30, 2016.
ACA reporting and tracking of coverage has been a challenge for small businesses and businesses that are new to offering benefits. Many of these companies lack a dedicated HR department, says Worsman. Some are administering benefits for the first time as they grapple with the reporting process.
Despite these reporting headaches -- and the ACA’s complexities and costs -- there is an undeniable benefit for employers that offer workers healthcare coverage: Providing health insurance to employees can help make it easier to attract and retain the talent you need.
“Employees value good health insurance,” says Kiskaden.
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