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Employer shared responsibility under the Affordable Care Act

The Employer Shared Responsibility Payment applies to some large employers who don't offer insurance that meets certain minimum standards. The payment is scheduled to begin in 2015 for those large employers who employ 100 or more full-time employees.

If you have 50 or more full-time equivalent (FTE) employees, you may have to make this payment if:

At least 1 of your employees qualifies to save money on monthly premiums in the Marketplace/Exchange.

Your employees will not be able to save money on monthly premiums through an exchangeif the coverage you offer your full-time employees in 2015 is affordable and meets minimum value.  OSBA offers a toolkit which includes a spreadsheet to help you determine if you are a large employer.

How to know if your coverage is affordable

If an employee's share of the premium costs for employee-only coverage is more than 9.5% of their yearly household income, the coverage is not considered affordable.  Since you typically won't know your employee's household income, you can generally avoid a Shared Responsibility Payment for an employee if the employee's share of the premium for employee-only coverage doesn't exceed 9.5% of their wages for that year as reported on the employee’s W-2 form.

For additional information about this and other safe harbors see IRS.gov/aca

How to know if your coverage provides minimum value

A health plan meets minimum value if the plan's share of the total costs of covered services is at least 60%.  All plans offered through OEBB meet minimum value, so any coverage offered through OEBB qualifies.

To determine whether other coverage meets minimum value, you can use the minimum value calculator provided by the U.S. Department of Health and Human Services. When you input certain information about the plan into the calculator, such as deductibles and copayments, it will help you determine if the plan covers at least 60% of the total allowed costs of benefits provided under the plan.

Amount of the Employer Shared Responsibility Payment

The amount of the annual Employer Shared Responsibility Payment is based partly on whether you offer insurance.

  • If you don't offer insurance, the annual payment is $2,000 per full-time employee (excluding the first 30 employees) should any one employee go to the exchange and receive a subsidy.
  • If you do offer insurance, but the insurance doesn't meet the minimum requirements, the annual payment is $3,000 per full-time employee who goes to the exchange and receives a subsidy.
  • OSBA offers a toolkit which includes a spreadsheet to help you estimate your potential penalties.

Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.

Employer penalties Q&A

Employer penalties for providing unaffordable coverage or not offering coverage to full-time employees.

Certain employers are subject to the employer responsibility provision under the ACA.  Under this provision, those employers may be penalized for (1) not providing minimum essential coverage to their full-time employees and dependents, or (2) not providing coverage that is affordable and that provides minimum value. 

When does the employer responsibility provision take effect?

It was to be effective beginning January 1, 2014. However, this provision has been delayed and will now take effect January 1, 2015, or October 1, 2015, for those large employers who employ 100 or more full-time employees.  There has been no decision yet if any transitional time will be granted to those large employers who employ between 50 and 100 full-time employees whose insurance year begins after January 1, 2016.

What is an employer for purposes of these penalties?

An employer subject to the employer responsibility provisions is an “applicable large employer”.  An applicable large employer employs on average at least 50 full-time equivalent employees during the preceding calendar year.  The determination of whether an employer is an applicable large employer is determined across an employer’s controlled group.

Under the proposed rules, transitional relief had been provided for purposes of the applicable large employer determination for the 2015 calendar year allowing employers the option to determine their status by reference to a period of at least 6 consecutive calendar months in the 2014 calendar year. Final rules or further guidance may clarify whether the regulators intend to continue this transition relief due to the delay in the implementation until January 1, 2015.

Are there special rules for determining an employer’s status as an applicable large employer if the employer employs seasonal employees?

An employer will not be considered to employ more than 50 full-time employees if (a) its workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year, and (b) the employees in excess of 50 employed during the 120-day period were seasonal workers.

Who is counted as a full-time employee and a full-time equivalent employee?

A full-time employee is one who works an average of at least 30 hours per week.

All employees who were not full-time employees for any month in the preceding calendar year are included in calculating the employer’s full time employees for that month (including part-time employees, and seasonal employees except seasonal employees are excluded if the special rule discussed above is met).  To determine the total number of full-time equivalent employees, the employer must add together the hours of service for employees who were not full-time employees (but not more than 120 hours of service for any employee) and divide the total number of hours of service by 120. 

The proposed rules detail the rules for determination of “full-time” employee status and how employers must count hours of service.

Do these penalties apply to employers employing part-time employees?

Part-time employees (those that work on average less than 30 hours per week) are counted as full-time equivalent employees for purposes of determining whether an employer is a large employer subject to these penalties.  However, part-time employees are not counted for purposes of calculating the actual penalty amount. An employer will not pay a penalty for a part-time employee, even if that employee receives subsidized coverage through an Exchange.

What is the penalty for not offering minimum essential coverage? 

If an applicable large employer does not offer minimum essential coverage to its full-time employees (and their dependents), the employer will be subject to a monthly penalty if any full-time employee receives subsidized coverage through an exchange. Generally, an employee may qualify for subsidized coverage through an exchange if his or her household income is less than 400 percent of the Federal Poverty Level (currently, that level is set at $88,200 per year for a family of four and $43,320 for an individual).

The penalty for not offering coverage is generally equal to $2,000 for each full-time employee, not counting the first 30 full-time employees. Only full-time employees (not full-time equivalents) are counted for purposes of calculating the penalty. After 2014, the penalty amount may be indexed.

The proposed rule allows an employer to satisfy the requirement to offer minimum essential coverage if the employer offers coverage to “substantially all” of its full-time employees (and their dependents), meaning it has offered coverage to 95 percent of its full-time employees and their dependents (or, if greater, to five employees). This does not alleviate the potential liability under the affordability prong, discussed below, to the extent one of the 5 percent not offered coverage receives subsidized coverage on the exchange.

What is the penalty for providing minimum essential coverage that is not affordable?

If an applicable large employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, the employer may be subject to a penalty if the employer-sponsored coverage does not provide “minimum value” or is “unaffordable” and one or more full-time employees receive subsidized coverage through an exchange.

Generally, employees who are eligible for employer-sponsored coverage are not eligible to receive subsidized coverage through an exchange. However, an employee may qualify for subsidized coverage through an exchange if his or her household income is less than 400 percent of the Federal Poverty Level (currently, that level is set at $88,200 per year for a family of four and $43,320 for an individual) and (a) the employer does not pay at least 60 percent of the allowed costs under the employer-sponsored plan (the coverage does not provide “minimum value), or (b) the employee’s required contribution for coverage exceeds 9.5 percent of the employee’s household income (the coverage is “unaffordable”).

The penalty for not offering coverage that is affordable or that provides minimum value is generally equal to $3,000 for each full-time employee receiving subsidized coverage through an exchange. However, the penalty will not be greater than the penalty that would apply if the employer offered no coverage at all. Only full-time employees (not full-time equivalents) are counted for purposes of calculating the penalty. After 2014, the penalty amount may be indexed.

How are dependents defined for purposes of the employer responsibility provision?

Under the proposed rule on employer responsibility, the term “dependent” is defined to mean a child of an employee who is under age 26.

Are there transitional rules related to the offer of dependent coverage?

Yes, under the proposed rules, if an employer does not offer dependent coverage currently, it will not be liable under the employer responsibility provision in 2014 so long as the employer takes steps during 2014 to begin offering such coverage. Final rules or further guidance may clarify whether the regulators intend to continue this transition relief.

Who is considered a “highly compensated” for purposes of the non-discrimination provision?

The PPACA does not define who is considered a higher wage employee for purposes of this provision. However, in the self-funded context, the IRS code defines a highly compensated individual generally as: (1) one of the five highest paid officers; (2) a shareholder who owns more than 10 percent of the stock of the employer; or (3) among the highest paid 25 percent of all employees. (See §105(h)(5) of the Internal Revenue Code).  The government is expected to provide further clarification regarding the non-discrimination provision.

Essential Health Benefit Package requirements Q&A

As of 2014, the PPACA requires that non-grandfathered health insurance coverage offered in the individual and small group markets, both on and off of the health insurance exchanges, offer a standard package of coverage known as “essential health benefits.” The PPACA requires the following categories of essential health benefits to be included: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance abuse services; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services (including oral and vision care). In addition, the benefit plan for non-grandfathered individual and small group health insurance policies must adhere to other benefit requirements, including cost-sharing requirements and actuarial value requirements, as discussed below.

Do plans have to include the essential health benefit package?

Yes, non-grandfathered individual and small group insured plans will be required to include the essential health benefit package as part of the mandate to provide comprehensive coverage. This requirement applies to plans offered on or off of the exchange.

What is the essential health benefit package?

Coverage that 1) provides for the essential health benefits; 2) limits cost-sharing; and 3) provides either the bronze, silver, gold, or platinum levels of coverage (also known as the metal levels of coverage). More information on each of these requirements can be found below.

What is an essential versus a non-essential health benefit?

The regulators have allowed a good faith compliance standard, requiring a reasonable and consistent interpretation to apply until regulations further defining essential health benefits were issued.

Essential health benefits include the following 10 broad categories of benefits: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance abuse services; prescription  drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services (including oral and vision care).

What happens if the state benchmark plan does not include all 10 essential health benefit categories, as required under the ACA?

The final regulation on essential health benefits specifies special rules for certain benefits that may not be included in a benchmark plan. In these cases, the benchmark plan will be supplemented to ensure coverage for the essential health benefit category. Special rules are included for habilitative benefits as well as pediatric vision and pediatric dental benefits.

What are the cost sharing requirements under the essential health benefit package requirements? There are two requirements:

  1. Out-of-pocket maximum: The cost sharing for plan and policy years beginning in 2014 cannot exceed the annual dollar limit that is in effect for high deductible health plans (HDHPs) under the Internal Revenue Code and in place for 2014. For 2014, the limit is $6,350 (self only coverage)/$12,700 (non-self only coverage). This amount may change annually based on a premium adjustment percentage. (Note: this requirement also applies to non-grandfathered large group policies and self-funded plans, as well) 
  2. Deductible limitation on small group policies: The annual deductible for small group policies cannot generally exceed $2,000 (self-only coverage)/$4,000 (non-self only coverage).

What are the actuarial value requirements?

Actuarial value is the percentage of cost of benefits that a plan is expected to cover. Non-grandfathered individual and small group policies are required to offer coverage that meets an actuarial value of 60 percent (bronze), 70 percent (silver), 80 percent (gold), 90 percent (platinum). These levels are referred to as metallic levels of coverage.

When does the mandate to include the essential health benefit package take effect?

These requirements are effective for non-grandfathered policies beginning or renewing on or after January 1, 2014.

Affodable Care Act summary

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  1. Affordable Care Act
  2. Large Employer