Employer Shared Responsibility Provision in the Affordable Care Act

Under the Affordable Care Act, federal government, state government, insurers, employers, and individuals are all given roles to improve the availability, quality, and affordability of health insurance coverage in the United States. 

Applicable Large Employers (ALEs) must adhere to the employer shared responsibility provision, known as the “employer mandate.”  Small businesses that have fewer than 50 workers are exempt from the employer responsibility provisions. As of January 1, 2015, employers with 100 or more full-time employees are ALEs and must offer minimum essential coverage to those employees and their dependants to age 26, or pay a penalty tax.  Beginning in January of 2016, the employee requirement is reduced to 50.  In addition, the coverage offered must be affordable and provide a minimum value of coverage to full-time employees and their dependents to age 26.  Employers must offer the coverage to 70% of their full-time employees in 2015 and 95% in 2016 and beyond.

A full-time employee is an individual employed 30 or more hours per week on average.  Employers will determine yearly whether they will be considered an ALE by using the values from the prior year.  For example, an ALE determination for 2015 is based on 2014 employee numbers.  Coverage must be offered to employees and their dependents, and there is no requirement for spouses of employees to be offered coverage.

Minimum Essential Coverage

Minimum essential coverage is defined as most employer-sponsored coverage, including self-insured plans, or health coverage provided by the government.  Coverage that only provides limited benefits is not minimum essential coverage.  For example, Medicaid providing only family planning services, or coverage consisting solely of excepted benefits like worker’s compensation, is not minimum essential coverage.

Affordability

The coverage is considered affordable when the employee’s share of the premium for the employer-provided coverage for a single plan is less than 9.5% of that employee’s annual household income.  Because employers will not know their employees’ household incomes, three affordability safe harbors can be used to determine affordability.  If the employer meets the requirements of any of the following three safe harbors, the offer of coverage is considered affordable.

1. Form W-2 wages – share of premium is less than 9.5% of employee’s W-2 wages
2. Rate of pay – share of premium is less than 9.5% of employee’s monthly wages (lowest hourly rate multiplied by 130 hours per month)
3. Federal poverty line – share of premium is less than 9.5% of the Federal Poverty Level for a single individual

Minimum Value

The coverage provides minimum value if it pays at least 60 percent of the total allowed cost of health care benefits provided to eligible plan participants.  The Department of Health and Human Services and the IRS created a minimum value calculator to determine minimum value.  An employer could also engage an actuary to determine this value.

Penalties

There are two prongs to the penalties associated with not complying with the employer mandate.

• In 2015 if the employer fails to offer coverage to 70% (95% in 2016 and going forward) of their full-time employees and their dependents, and at least one full-time employee obtains Exchange coverage and receives a subsidy, the penalty is equal:
  1. $2,000 x the number of full-time employees minus 80 (minus 30 in 2016 and going forward).
• In 2015, if the employer fails to offer compliant coverage to 70% (95% in 2016 and going forward) of their full-time employees and their dependents, and at least one full-time employee obtains Exchange coverage and receives a subsidy the penalty equals the lesser of:
  1. $3,000 x the number of full-time employees receiving coverage from the Exchange and receiving a subsidy, or
  2. $2,000 x the number of full-time employees minus 80 (minus 30 in 2016 and going forward).

Reporting

Beginning in 2016, ALEs are required to file information returns with the IRS and give statements to employees to report information about offers of health coverage for calendar year 2015.

If you have any questions about the above material please contact Tiveron Law, Attorneys at Law at 716 636-7600 or visit www.tiveronlaw.com.  Tiveron Law’s main office is located at 2410 North Forest Road in Amherst, New York with additional offices in Lockport, Lancaster, and Buffalo.