Employers and the Affordable Care Act

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Sep 01, 2016

By Cathy Johnson, CPA, CGMA Chief Administrative Officer and CFO Terry Lockridge & Dunn/World Trend Financial

It is important to revisit the rules applying to applicable large employers (ALEs) regarding the health coverage they are providing to employees.

First, identify the number of full-time and full-time equivalent employees you have. Whether you are considered an ALE or not is calculated each year. If you have 50 or more full-time (including full-time equivalent) employees in 2016, you will be an ALE for 2017. There are special rules regarding seasonal employees and businesses under common ownership. The calculation for determining full-time equivalents requires quite a bit of data, so if you have a number of part-time workers, and may be close to the total employment number of 50, you may want to get some assistance in making the calculations

Second, affordable minimum essential health coverage to employees (and their dependents) is required for ALEs beginning in 2016. Minimum essential health coverage must be offered to 95% of eligible employees. For 2015, the percentage was just 70%. Where this becomes important is if any of your employees goes to the Health Care Exchange and get a federal tax credit. If you have not offered the proper coverage to 95% of your employees, a penalty of $2,160 per employee (for all full-time employees over 30) is triggered.

The affordable portion of the equation is measured in two ways based on affordability and minimum value. If the lowest cost self-only only health plan is 9.66% or less of your full-time employee’s household income then the coverage is considered affordable. Because employers are not likely to know the household income of their employees, there are three safe harbors that an employer may use to determine affordability for purposes of the employer shared responsibility provisions. In general, under these employer shared responsibility affordability safe harbors, employers are allowed to use Form W-2 wages, an employee’s rate of pay, or the federal poverty line, instead of household income in making the affordability determination. An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. If the employer does not offer coverage that is both affordable and provides minimum value, a penalty is triggered if at least one full-time employee goes to the Health Care Exchange and get a federal tax credit. In this case, the penalty ($3,240 in 2016) is on a per person basis of those who receive the federal tax credit, not the entire workforce.

The various penalty amounts and the income percentage is indexed for inflation and will adjust each year. The Kaiser Family Foundation has developed a flowchart to provide guidance. Click here to see it. Contact your accountant or payroll provider to assist you with the various calculations.