A comprehensive breakdown of the Affordable Care Act from an employer's perspective, including who qualifies and what they must do to comply.
ACA. Affordable Care Act. Obamacare. It’s frequently a hot topic of discussion for political pundits, but for all that everyone seems to have heard of it and have differing views on the matter, there’s little public awareness or understanding of what the ACA actually means for employers.
This leaves businesses—especially smaller ones without robust HR departments—scrambling for information about how to remain in compliance with a complex set of rules that can have a major impact on how businesses operate.
Passed in 2010 with the general goal of making healthcare more broadly available and affordable, the ACA includes a broad range of regulations and protections that impact healthcare providers, insurers, employers, and individual patients. Most of these have little to no impact on employers, including things like
Employers come into the ACA in several ways, but primarily in their role as providers of health benefits to their employees. At the most basic level, businesses with 50 or more full-time equivalent employees must offer appropriate health coverage to their employees and report this coverage or face a penalty. (We’ll talk about these requirements in detail in a bit.)
Since 2017, a number of changes have been made to the Affordable Care Act, and it is likely that changes will continue to be made in the coming years. Some parts of the act (such as protections for those with pre-existing conditions) enjoy bipartisan support and are unlikely to change.
Other, less popular parts (such as the individual mandate) are already out the door. Keeping an eye on ACA changes will be key to staying in compliance in a constantly shifting political climate.
The Affordable Care Act has two major provisions that fall on many, but not all employers.
The Affordable Care Act has two major provisions that fall on many, but not all employers. These include the shared responsibility provisions and the employer information reporting provisions for offers of minimum essential coverage. These make up the bulk of employers’ responsibilities regarding the ACA. So how do you know whether they apply to you ?
The ACA term for a business that must be in compliance is an Applicable Large Employer or ALE. ALEs have 50 or more full-time equivalent employees. If you have well over 50 employees working full time and have for some time, this is easily translated: yes, you’re an ALE. If not, you’re not necessarily off the hook, as you’ll need to look more closely at what full-time “equivalence” means.
Know who NOT to count in these calculations:
Do the math:
Excepting those employees you’ve now removed from the question,
If this number is 50 or greater, you are considered an Applicable Large Employer . If not, you are currently exempt from these provisions of the Affordable Care Act. (If you’re getting close, though, it’s a good idea to start getting your ducks in a row now. The last thing you want is to pay a penalty because you procrastinated, or have to hold off hiring much-needed staff because you’re unprepared to provide appropriate benefits.)
If your business didn’t exist last year? You’ll need to make your best guess about how many people you reasonably plan to employ. More uncertainty, but less algebra. The IRS doesn’t seem to be interested in penalizing new businesses that make a good-faith effort to estimate hiring in their first year of operation.
There are some circumstances where these calculations may be different. If multiple businesses have the same ownership, for example, those business’ FTE employees should be combined when calculating whether they are an ALE.
If you’re an ALE, you’re on the hook for the ACA’s employer shared responsibility provisions.
If you’re an ALE, you’re on the hook for the ACA’s employer shared responsibility provisions. This means a few things:
Alternately, you can pay a shared responsibility payment to the IRS (AKA a penalty tax). It’s not the best idea, but it’s legal and technically an available option.
Each of these has a specific legal meaning, so you shouldn’t ever be left wondering whether or not your coverage meets these requirements.
A plan is said to provide minimum value if it covers at least 60% of the allowed cost of benefits that are expected to occur. This gets into a lot of complicated actuarial math, but for plans with standard features, the Center for Consumer Information and Insurance Oversight has an online calculator to determine whether it meets the minimum value requirements. Unusual plans with nonstandard features require actuarial certification to show that those features meet minimum value requirements.
Affordability is formally defined as being no more than 9.5% of family income, adjusted for inflation. Luckily, you’re not expected to poll each of your employees about their household income and expenses to determine whether the health benefits you offer are affordable. There are three “safe harbors” that rely on information employers have readily available. Using any one of these to calculate affordability is acceptable. These are:
You know that you need to offer coverage, but you can’t just send out a text message stating that anyone who wants coverage should sign up tomorrow. There are rules regarding the offers themselves as well. These rules are pretty common-sense for anyone making a good-faith effort to allow their employees to enroll, but you should be aware of them nevertheless.
What happens if you aren’t in compliance? That’s where the shared responsibility payment comes in. The payment depends on the type of issue.
Either of these payments is prorated per month the employees were not offered affordable coverage, so it’s better to get started late than to not offer the appropriate coverage all year.
Reporting is the second major responsibility that ALEs have under the Affordable Care Act.
Reporting is the second major responsibility that ALEs have under the Affordable Care Act. As an ALE, you must provide information to the IRS about the coverage offered (or not offered) to full-time employees, and also provide information to your covered employees. There are two forms for this purpose. (The IRS loves its forms.)
Form 1094-C is used to report your offers of coverage as a whole. It includes information about your business, whether your business is part of a larger ALE group, the number of employees in each month of the year, and whether minimum essential coverage was offered during that time.
Form 1095-C , on the other hand, is completed for each full-time employee and must also be furnished directly to them, in addition to being filed with the IRS. This is required regardless of whether the employee used the coverage and even when coverage was never offered.
Forms 1094-B and 1095-B are the employer’s responsibility only if self-insuring, meaning the company itself is covering the cost of healthcare for its employees, rather than using an outside insurer. In that case, though, the employer could still use the 1094-C and 1095-C as long as they include additional information regarding covered individuals.
If you are filing 250 or more information returns, you must do so electronically using the ACA Information Return system , or AIR. This is separate from the system used to file non-ACA documents such as 1099s, so don’t put it off, assuming that you already know how to e-file.
The general deadline for furnishing 1095-C to employees is January 31. In 2018, this was extended to March 2. As of this writing, there has been no indication whether deadlines will again be extended again in 2019.
Both 1094-C and 1095-C must be either postmarked by February 28 if using paper or filed by March 31 electronically.
