The Employer Mandate is one of the most complex, feared, and expensive aspects of the Affordable Care Act (ACA). With this year coming to end, now is the perfect time for a refresher on ACA compliance for the new year.
Under the Employer Mandate, employers with 50+ full-time employees or full-time equivalents must offer a certain level of health coverage at an affordable rate to full-time employees or face penalties. The penalties are activated when a full-time employee obtains a federal subsidy for the purchase of individual coverage from the Health Insurance Marketplace. As an employer, whether the Employer Mandate applies to you depends on your number of full-time equivalent (FTE) employees. FTEs are employees who regularly work 30+ hours per week. Yet, when calculating your eligibility, you must also include part-time employees as a fraction of full-time employees.
To determine if it applies to you, calculate your number of FTEs each month in the previous calendar year. Then, find the average of these 12 amounts to determine your average number of FTEs for the year. With this number, you can now determine if you must comply to the Employer Mandate for the next calendar year.
It is important for organizations that are somewhat borderline to perform this calculation. There is no need for an employer to perform this calculation if they know they will be over the 50 FTE threshold. It is also important to note that if an owner has more than one business, they must be considered a “controlled group” under the IRS code. This means that the multiple employers would be considered in aggregate, and the number of FTEs in all the related organizations will be totalled and included to determine if the organization is a covered employer for the Employer Mandate.
There are a few key elements in making sure you are complying with the mandate. You can make sure you are offering a health plan that meets the “Minimum Value” requirement. This is usually a plan that has an actuarial value of 60% or higher. Because of the risk of miscalculation, it is not recommended that employers attempt to determine whether their plan meets the requirements themselves. Instead, it is recommended to check with your health plan broker or carrier, who will be able to confirm if your plan meets the minimum value requirements. You should also ensure that your coverage is affordable. In 2019, this means that the employee does not have to contribute more than 9.86% of their total household income on the premium for employee-only health insurance coverage. This requirement only applies to the least expensive plan offered by the employer. Because this information is occasionally not known by the employer, there are three safe harbors in place you can use to determine affordability.
1. The W-2 Safe Harbor - the employee does not have to contribute more than 9.86% of their W-2 wages on the premium. 2. The Rate of Pay Safe Harbor - the employee does not have to contribute more than 9.86% of their monthly wages on the premium. 3. The Federal Poverty Level Safe Harbor - the employee does not have to contribute more than 9.86% of the federal poverty level for the year on the premium. Employer contribution is not required toward dependent health coverage. These affordability calculations are based on the employee-only cost of the health plan. Another key is offering the plan to all full-time employees and their dependent children. Under the Employee Mandate, an organization need not extend coverage to spouses or domestic partners.
There are two different variable hour employees under the IRS guidelines, Ongoing Variable Hour Employees and New Variable Hour Employees. Ongoing Variable Hour Employees have worked for the company for more than one complete standard measurement period. With New Variable Hour Employees, just as with Ongoing Variable Hour Employees, the employer may set an initial measurement period of 3-12 months. The employer may also opt to use an administrative period. The company must transition the employee to the standard measurement period for ongoing employees following the one-time initial measurement period. The Employer Mandate does not generally consider seasonal employees who work six months or less as full-time employees, although the organization may opt to apply the initial measurement period to seasonal employees.
There are two penalties for Employer Mandate non-compliance. The “A” penalty is assessed if the employer is subject to the Employer Mandate but fails to offer health insurance to at least 95% of its full-time employees. The “A” penalty is $2,320 annually for each full-time employee, excluding the first 30 employees. It is calculated monthly but paid annually. The “B” penalty applies if the employer’s health plan fails to meet the minimum value or affordability requirements. This penalty is the lesser of $3,480 per employee receiving a subsidy or the “A” calculation above. It is also calculated monthly and paid annually.
Should you have any questions about any of the ACA Employer Mandate guidelines, please reach out to your health insurance agent for guidance.