Health Insurance in the workplace has continued to become more and more popular. In part, this is due to the mandate via the Affordable Care Act that requires employers with more than 50 full-time employees to either provide a plan to the employees or pay a fine. Providing health insurance is also a very common benefit that helps employers attract and retain quality employees.
How Do I Know if I am a Small Group or Large Group Employer? Why Does it Matter?
An employer’s size is determined by the number of its employees. Generally, an employer with 50 or more full-time employees or equivalents will be determined to be an Applicable Large Employer (ALE).
Full-time Employee Defined
A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month.
Full-Time-Equivalent Employees Defined
An employer determines its number of full-time-equivalent employees for a month in the two steps that follow:
- Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and
- Divide the total by 120.
An employer’s number of full-time equivalent employees (or part-time employees) is only relevant to determining whether an employer is an ALE. An ALE need not offer minimum essential coverage to its part-time employees to avoid an employer shared responsibility payment.
How Do I Know if I am Considered a Controlled Group?
Employer Aggregation Rules
Companies with a common owner or that are otherwise related under certain rules of section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determining ALE status. If the combined number of full-time employees and full-time-equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE and is subject to the employer shared responsibility provisions, even if separately the employer would not be an ALE.
A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners own directly or indirectly a controlling interest of each group and has “effective control”.
Employer Shared Responsibility Provisions
Under the Affordable Care Act’s employer shared responsibility provisions, employers determined to be an ALE must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), OR potentially make an employer shared responsibility payment to the IRS. The employer shared responsibility provisions are sometimes referred to as “the employer mandate” or “the pay or play provisions.”
How Are the Employer Shared Responsibility Payments Calculated?
An ALE member may be subject to one of two employer shared responsibility payments
- In general, an ALE member that does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) will be liable for the first type of employer shared responsibility payment. This payment is equal to $2,000 (indexed for future years) for each full-time employee, with the first 30 employees excluded from the calculation.
- In general, an ALE member that does offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents) will be liable for the second type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace. Generally, a full-time employee will receive the premium tax credit because the minimum essential coverage offered was not affordable, did not provide minimum value, or because the employee was not one of the at least 95 percent of full-time employees offered minimum essential coverage. On an annual basis, this payment is equal to $3,000 (indexed for future years) but only for each full-time employee who receives the premium tax credit. The total payment in this instance cannot exceed the amount the employer would have owed had the employer not offered minimum essential coverage to at least 95 percent of its full-time employees (and their dependents).
How Does an Employer Know Whether the Coverage it Offers is Affordable?
If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. Given that there is no way that an employer can know household income, most employer base the 9.5% on the employee’s W-2 income.
Example: Joe is considered a full-time employee and makes $2000 per month. In order for the plan to be compliant with the ACA, his monthly contribution for health insurance cannot exceed $190.00 ($2000 * .095).
What if an Employer Offers “Affordable, Minimum Essential Coverage” but an Employee Refuses the Coverage?
The ACA does not penalize an employer for an employee who declines adequate coverage — only an employer who fails to offer adequate coverage. Employees are not required to accept employer-sponsored health coverage. As long as the employer is compliant in the coverage offered, the onus of compliance falls on the employee who declines coverage, in two ways:
- An employee who declines employer coverage and does not obtain individual coverage will be subject to a penalty.
- An employee who declines affordable, minimum value employer coverage and will not qualify for subsidy payments on the individual Health Insurance Exchange.
What is the Next Step If You Decide to Offer Employees an ACA Compliant Plan?
- Contact Sheley Benefits, LLC so you can get the required census form to obtain quotes.
- Provide census information to Sheley Benefits, LLC that contains certain information about full-time employees.
- Determine the premium contribution that the group is willing to make for full-time employee only coverage in order for the plan to be “affordable.”
- Set future appointment (about 7-10 business days) with Sheley Benefits, LLC to review plans offered by various insurance companies.
- Make decision on the plan you want to offer.
- Begin enrollment with full assistance from Sheley Benefits, LLC.