The Affordable Care Act often referred to as “Obamacare,” has caused a great deal of confusion since enacted on March 23, 2010. We have put together the following information in an effort to relieve some of the uncertainty surrounding this health care reform, and to hopefully ease the inevitable anxiety many of our clients will face in the coming months.
What is the purpose of the Affordable Care Act?
The main objective of the Affordable Care Act was to expand health insurance coverage to over 30 million more American citizens by the year 2022, as well as increase benefits and lower overall costs for all consumers, provide new funding for public health and prevention, strengthen the country’s health care and public health workforce and infrastructure, foster innovation and quality in our system and standardize available insurance, amongst other objectives.
Who is required to participate?
“Large Employers” or employers with fifty (50) or more full-time equivalent employees are required to participate and offer affordable coverage to their full-time employees.
I own two different businesses with a combined total of over 50 employees, am I required to provide affordable coverage to my full-time employees?
Yes, common ownership of companies may trigger the need for compliance and you would be considered a large employer. Please note, related employers are also combined. There are no exceptions for non-profit, church, or government employers.
How is a full-time employee defined?
An employee is considered fill time when employed for an average of at least 30 hours per week (this includes paid time off). 40 hours a week is assumed for salaried employees.
Full-time equivalent employees are calculated pro-rata (calculated by taking the total hours worked by part-time employees in a given month and dividing by 120)
How do you calculate the total number of employees for your business?
The number of full-time employees is not necessarily based on how many employees are on your payroll but is based upon how many hours are worked across the board, including full-time and full-time equivalent employees, during the proceeding calendar year or at least six (6) month consecutive period for 2013:
- Full-time employees counted as one employee, based upon a 30-hour work week or more.
- Part-time employees are pro-rated (calculated by taking the total hours worked by part-time employees and dividing by 120)
*Please note that seasonal employees do not count if they work less than 120 days per year.
Add the number of all full-time and full-time equivalent employees together for each month in the year and divide by twelve (12). If this number is larger than fifty (50) employees, you are considered a large employer.
What is required for compliant participation?
Large employers are required to provide a minimum quality of coverage to its full-time employees or risk paying a penalty. Employers are not required to provide health care coverage to part-time or seasonal employees.
How do you calculate affordable coverage?
Employer’s coverage is considered unaffordable if greater than 9.5% of income (W-2 income) or not of minimum value (covers less than 60% of the cost of benefits). In other words, an employer must offer at least one option where an employee’s contribution for single coverage does not exceed 9.5% of the employee’s household income.
The safe harbor options to determine an employee’s household income is based upon either W-2 income, rate of pay, or the federal poverty line.
What are the penalties?
Employers that fail to offer coverage to all full-time employees will be penalized at a rate of $2,000.00 per full-time employee, excluding the first thirty (30) employees.
- Penalty will only be imposed if your employee seeks coverage in the exchange and qualifies for premium tax credit or cost-sharing subsidy.
Employers that offer unaffordable coverage can still be penalized at a rate of $3,000.00 per employee that receives subsidized coverage through an exchange, accepts a premium tax credit or cost-sharing reduction, but this amount will be capped at an amount equal to $2,000.00 per full-time employee, excluding the first 30 employees.
I am an employer with over 50 employees, what are my options?
- Provide coverage as you do now;
- Do not offer coverage, employees can go to the exchange but you may be charged a penalty;
- Use a private exchange.