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Affordable Care Act frequently asked questions

1.  Is there a distinction between the definition of a “Large Employer” for purposes under the PPACA and under Oregon law? How do the differing definitions apply?

PPACA large employer penalties apply to employers with 50 or more FTEs. However in Oregon, for the purpose of acquiring insured products from a carrier, employers with 50 or fewer employees can buy from the small group market that is subject to the PPACA market reforms. As required by PPACA in 2016, the insured small group market size in Oregon increases to employers with 100 or fewer employees, but employers continue to be subject to large employer penalties based on 50 FTEs

2.  Are districts required by law to offer health insurance coverage to its employees?

No.  Employers are not required to offer health insurance coverage to their employees. However, beginning in 2015, large employers (100 or more full-time equivalent employees) that do not offer a minimum essential coverage will be subject to penalties if any of their employees receive government subsidies for health insurance coverage through the exchange. Also, these large employers will be subject to penalties if they do not offer the minimum level of coverage and any employee still receives subsidized coverage through the exchange. The preceding penalties will apply in January 2016 to those large employers with between 50 and 100 full-time equivalent employees.  The penalties do not apply to small employers, those that have fewer than 50 full-time equivalent employees in the prior calendar year.  However, this does not alleviate your collective bargaining duties.

3.  What is meant by the Affordability Safe Harbor?

For purposes of the employer penalty, affordability is determined based on the employee’s Form W-2 wages (i.e., the employer will not owe a penalty if the cost to the employee does not exceed 9.5% of the employee’s Form W-2 wages and the plan provides minimum value (i.e., the plan’s share of costs of benefits is at least 60%).  Because this safe harbor is based on individual income, it has the effect of further lowering the percentage of household income that can be used to calculate affordability.

Example: If an employee is part of a two-income family and the employee and his or her spouse earns $20,000 each, the law would consider a plan to be unaffordable if it required an annual contribution in excess of $3,800 (9.5% of $40,000) for self-only coverage. The problem is, the law does not afford an employer any right to know what the employee’s household income actually is, leaving the employer to rely on the affordability safe harbor to ensure against a penalty. In doing so, however, an employer would have to ensure that the employee’s contribution for self-only coverage is no more than $1,900 (9.5% of $20,000). 

This “safe” harbor has the effect of requiring an employer to substantially increase its annual contribution for health insurance coverage beyond what is required by the law, if it wants to be certain to avoid a penalty for failing to provide “affordable” coverage. With the Congressional Budget Office estimating the annual cost of coverage under the “Bronze Plan” (which is specifically structured to provide for 60% of the benefits cost) to be $5,000 annually, an employer using the affordability safe harbor would have to make an annual contribution for health insurance coverage in the following illustrative amounts for full-time employees compensated in the noted amounts below:

Employee Hourly Wage Annual Salary at 6 hours a day, 5 days a week, 187 days per year 9.5% of the employee's yearly wages Bronze Coverage Cost Employer's contribution amount needed to avoid a $3,000 penalty for each applicable employee
$9.10 $10,210.20 $969.97 $5,000.00 $4,030.03
$10.00 $11,220.00 $1,065.90 $5,000.00 $3,934.10
$12.00 $13,464.00 $1,279.08 $5,000.00 $3,720.92
$15.00 $16,830.00 $1,598.85 $5,000.00 $3,401.15
$18.00 $20,196.00 $1,918.62 $5,000.00 $3,081.38
$18.76 $21,052.63 $2,000.00 $5,000.00 $3,000.00
$20.00 $22,440.00 $2,131.80 $5,000.00 $2,868.20

Under the OEBB offered “Bronze Plan” (using OEBB Plan H for 2014) at a composite rate of $9,275.76 annually, an employer using the affordability safe harbor would have to make an annual contribution for health insurance coverage in the following illustrative amounts for full-time employees compensated in the noted amounts below:

Employee Hourly Wage Annual Salary at 6 hours a day, 5 days a week, 187 days per year 9.5% of the employee's  yearly wages 2014 OEBB Bronze  Coverage Cost (Plan H employee only-composite rate Employer's contribution amount needed to avoid a $3,000 penalty for each applicable employee
$9.10 $10,210.20 $969.97 $9,275.76 $8,305.79
$10.00 $11,220.00 $1,065.90 $9,275.76 $8,209.86
$12.00 $13,464.00 $1,279.08 $9,275.76 $7,996.68
$15.00 $16,830.00 $1,598.85 $9,275.76 $7,676.91
$18.00 $20,196.00 $1,918.62 $9,275.76 $7,357.14
$18.76 $21,052.63 $2,000.00 $9,275.76 $7,275.76
$20.00 $22,440.00 $2,131.80 $9,275.76 $7,143.96

Under the OEBB offered “Bronze Plan” (using OEBB Plan H for 2014) at a tiered or step rate of $3,897.48 annually, an employer using the affordability safe harbor would have to make an annual contribution for health insurance coverage in the following illustrative amounts for full-time employees compensated in the noted amounts below:

Employee Hourly Wage Annual Salary at 6 hours a day, 5 days a week, 187 days per year 9.5% of the employee's yearly wages 2014 OEBB Bronze Coverage Cost (Plan H employee only-tiered rate Employer's contribution amount needed to avoid a $3,000 penalty for each applicable employee
$9.10 $10,210.20 $969.97 $3,897.48 $2,927.51
$10.00 $11,220.00 $1,065.90 $3,897.48 $2,831.58
$12.00 $13,464.00 $1,279.08 $3,897.48 $2,618.40
$15.00 $16,830.00 $1,598.85 $3,897.48 $2,298.63
$18.00 $20,196.00 $1,918.62 $3,897.48 $1,978.86
$18.76 $21,052.63 $2,000.00 $3,897.48 $1,897.48
$20.00 $22,440.00 $2,131.80 $3,897.48 $1,855.68

Using the estimates of the Congressional Budget Office, the “break even” point using the affordability safe harbor, where the employer’s contribution would be no more than the penalty, would be for anyone making $21,052.63 per year or more. For those districts buying insurance through OEBB and using a composite rate the “break even” point using the affordability safe harbor, where the employer’s contribution would be no more than the penalty, would be for anyone making $66,000 per year or more.  For those districts buying insurance through OEBB and using a tiered rate, the “break even” point using the affordability safe harbor, where the employer’s contribution would be no more than the penalty, would be for anyone making $9,447.16 per year or more.  The bottom line is the most affordable (least costly) option will probably be to move to tiered rates and then no longer offer insurance or provide insurance contributions to employees making $9,447.16 or less per year and then budget a $3,000 penalty for those employees.

 4.  What is a “large employer” for purposes of the penalties under the PPACA?

 A large employer is one who employs at least 50 full-time employees or an equivalent combination of full-time and part-time employees during the preceding calendar year.

5.  How does a district determine whether or not it is a “large employer?”

Included in the calculation of 50 full-time equivalent employees are:

  • Both full-time and part-time employees;
  • Full-time employees are defined as those working 30 or more hours per week.
  • Part-time employees are defined as those working less than 30 hours per week and are calculated by taking their total number of monthly hours worked divided by 120;
  • Full-time seasonal workers who work less than 120 days during the year.

A potentially easier way for school districts to determine if it is a “large employer” is to determine if the total hours worked of all employees for a year is 56,100 hours or greater (i.e., 187 days in a school year x 6 hours a day x 50 employees = 56,100 aggregate annual hours).  If the district’s aggregate annual hours are 56,100 or greater it is a “large employer” for purposes of the PPACA.

The next step is to determine how many actual full-time employees the district employs (i.e., any employees actually working an average of 30 or more hours per week during the academic year) and then determine the penalties accrued with regard to those full-time employees. 

Example:  A district who employs 40 employees who work an average of 30 or more hours per week and another 20 employees who work an average of 15 hours per week, will be right at the 50 employee large employer threshold (40 full time plus another 10 full time equivalent derived from the 20 employees working an average of 15 hours per week). The district will only incur a penalty if it fails to provide affordable coverage for the 40 employees actually working an average of 30 or more hours.

6.  Will the 50 full-time equivalent employee threshold be modified to reflect that many school employees only “work” 9-10 months out of the year?

No.  According to the latest proposed regulations issued by the Treasury Department and the Internal Revenue Service, it appears as though 9-10 month employees for a school district will be treated as full-time employees for purposes of the PPACA.

7.  What are the penalties for school districts not considered large employers?

The only penalty imposed will take effect in 2018 and that is the tax applied to the insurance providers.  The insurance providers are expected to pass on the cost of that tax to employers, who then would pass the cost on to its employees.

8.  How does a district determine which types of employees could trigger a penalty if the employee receives a premium credit?

The Table below helps districts determine the potential application of the employer penalty for certain categories of employees.

Table 1:  Determination and Potential Application of Employer Penalty for Categories of Employees

Employee Category How is this category of employee used to determine “large employer”? Once a district is determined to be a “large employer”, could the district be subject to a penalty if this type of employee receives a premium tax credit
Full-time Counted as 1 employee based on a 30 or more hour work week Yes
Part-time Prorated (calculated by taking the hours worked in a month by these employees divided by 120 No
Seasonal Not counted, for those working less than 120 days in a year Yes, for the month in which a seasonal worker is full-time

Source: Congressional Research Service, Summary of Potential Employer Penalties Under the Patient Protection and Affordable Care Act (PPPPACA); CRS Analysis of P.L. 111-148 and P.L. 111-152

9.   What are the penalties for large employers NOT OFFERING health insurance coverage to the greater of 5% of its full time employees (and their dependents) or at least 5 of its full-time employees (and their dependents)?

Beginning in 2015, a large employer NOT OFFERING health insurance in accordance with the 5%/5 standard in this question will be subject to a penalty if any of its full-time employees receives a premium credit toward their exchange plan. In 2015, the monthly penalty assessed to employers who do NOT OFFER coverage will be equal to the number of full-time employees minus 30 multiplied by 1/12th of $2,000 for any applicable month.  If no full-time employees receive credits for exchange coverage, no penalty is assessed. After 2014, the penalty payment will be increased.

Example 1: If a school district has 50 full-time employees (those working 30+ hours per week) and does not offer health insurance coverage to its employees under the 5%/5 standard and if 1 or more employees received premium credit from the exchange, the school district’s annual penalty in 2014 would be (50-30) x $2,000 or $40,000.

Example 2: If a school district had 100 part-time employees (15 hours per week) and 30 full-time workers (30+ hours per week), constituting 80 full-time equivalent employees, and does not offer health insurance coverage to its employees under the 5%/5 standard, if 1 or more employees received a premium credit from the exchange, the penalty is assessed against the number of full-time employees only, i.e., (30-30) x $2,000 = 0.

10.  What are the penalties for large employers OFFERING health insurance coverage to their employees?

If your district offers coverage and none of your full-time employees receive a credit for exchange coverage, no penalty is assessed.

If your school district offers health insurance coverage and at least 1 full-time employee obtains a premium credit in an exchange because either or both of the conditions exist, the school district will be subjected to penalties:

The plan offered by the school district pays for less than 60% of covered expenses;

and/or

The employee’s required contribution for self-only coverage exceeds 9.5% of the employee’s household income (note the affordability safe harbor requires reference to the employee’s W-2 Box 1 – see question 4 above for details).

In 2015, the monthly penalty assessed to the school district for each full-time employee who receives a premium credit will be 1/12th of $3,000 for any applicable month. However, the total penalty for an employer would be limited to the total number of the school district’s full-time employees minus 30, multiplied by 1/2th of $2,000 for any applicable month. After 2015, the penalty payment will be increased. The annual penalty for a school district is the lesser of the following:

  • The number of full-time employees minus 30 x $2,000; or
  •  The number of full-time employees who actually receive credits for exchange coverage multiplied by $3,000.

Example 1: If a school district has 50 full-time employees and offers coverage and 10 full-time employees receive a premium credit, the annual penalty would be $30,000.  (50-30) x $3,000.

Example 2: If a school district has 50 full-time employees and offers coverage and 30 full-time employees receive a premium credit, the annual penalty would be $40,000 because you would take the lesser of:

(50-30) x $2,000 = $40,000  or

30 x $3,000 = $90,000

Those school districts with more than 200 full-time equivalent employees that offer coverage must automatically enroll new full-time employees in a plan and continue enrollment of current employees. Automatic enrollment programs will be required to include adequate notice and the opportunity for an employee to opt out.

Table 2, Applicable to Questions 9 and 10:  Potential Annual Penalties Beginning in 2015 for Large Employers

No Coverage Offered to the greater of 5% or 5 full-time employees and their dependents Coverage Offered
No full-time employees receive credits for exchange coverage 1 or more full-time employees receive credits for exchange coverage No full-time employees receive credits for exchange coverage 1 or more full-time employees receive credits for exchange coverage
No penalty

# of full-time employees – 30 x $2000

Note: Penalty is 0 if employer has 30 or fewer full-time employees.

No penalty

Lesser of:

  1. # of full-time employees -30 x $2,000;
  2. # of full-time employees who receive credits for exchange coverage x $3,000

Note: Penalty is 0 if employer has 30 or fewer full-time employees

Source: Congressional Research Service, Summary of Potential Employer Penalties Under the Patient Protection and Affordable Care Act (PPPPACA); CRS Analysis of P.L. 111-148 and P.L.111-152

11.  What are the reporting requirements for school districts in 2013 and 2014?

Although the PPACA provides for the following written notice to current employees (and each newly hired employee thereafter) no later than March 1, 2013, the U.S. Department of Labor has delayed this notification date.

  • The existence of an exchange, including services and contact information;
  • The employee’s potential eligibility for premium credits and cost-sharing subsidies if the employer plan’s share of covered health care expenses is less than 60%; and
  • The employee’s potential loss of any employer contribution if the employee purchases a plan through the exchange and is not eligible for a free choice voucher. PPACA §1512.

It is our understanding that model notices are being developed at this time and further guidance will be available in the near future.

Starting in 2015, large employers and “offering employer” (defined as an employer who offers minimum essential coverage through an employer sponsored plan and pays for a portion of the costs. Reporting requirements apply to these employers, regardless of size, only if the required contribution for self-only coverage by any employee exceeds 8% of wages) will be required to comply with certain reporting requirements with respect to their full-time employees. These reporting requirements will include:

  • Providing a return including the name, address and employer identification number;
  • Certification as to whether the employer offers its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan;
  • Length in any waiting period;
  • Months coverage was available;
  • Monthly premiums for the lowest-cost option;
  • The employer plan’s share of covered health care expenses;
  • The number of full-time employees;
  • The Tax identification number of each full-time employee;
  • Information about the plan for which the employer pays the largest portion of the costs (and the amount for each enrollment category);
  • Contact information for the person required to make the return; and
  • Specific information included in the return for that individual. PPACA§1502.

It is our understanding that model notices are being developed at this time.

12.  What is Transition Relief and under what circumstances is it available?

Transition relief was available for a school district that as of December 27, 2012, already offered health insurance coverage through a plan that operates on a fiscal basis.  It is still unknown whether or not the government will provide this transitional relief for employers in 2015.  The following transitional relief had applied:

  • Starting in 2014, you will not be subject to potential penalties until the first day of the fiscal year plan;
  • If the fiscal year plan was offered to at least 1/3 of the employees (both full-time and part-time) at the most recent open season or OR the fiscal year plan covered at least ¼ of the employees (using any day between October 31, 2012 and December 27, 2012), the school district will not be subject to penalties with respect to any full- time employee until the 1st day of the fiscal plan year starting in 2014, provided the full-time employees are offered affordable coverage that provides minimum value no later than that first day.
  • Example: If, during the most recent open season preceding December 27, 2012, your school district offered coverage under a fiscal year plan with a plan year starting on July 1, 2013 to at least 1/3 of your employees, the school district will avoid liability for a payment if, by July 1, 2014, it expands the plan to offer coverage satisfying the Employer Shared Responsibility provisions (discussed above) to the full-time employees who had not been offered coverage.

13.  Is Transition Relief available to help employers to determine their options for 2015?

Not at this time.

14.  How does PPACA impact health insurance plans that are collectively bargained?

Special rules apply to health insurance offered under plans maintained pursuant to a collective bargaining agreement. If health insurance coverage is provided pursuant to a collective bargaining agreement ratified before March 23, 2010, the coverage is grandfathered until the last agreement relating to the coverage that was in effect on March 23, 2010 terminates. Although collective bargaining agreements for public schools vary in length in Oregon (usually 1-3 years), most of the collective bargaining agreements that were in place on or before March 23, 2010, have been renegotiated and therefore the special rules are not applicable.

15.  What are the market choices for small school districts (i.e., those school districts with 50 or less full-time equivalent employees in 2015 (100 or less full-time equivalent employees in 2016)?

Beginning in 2014, insurance carriers are required to establish a single pool for all small groups and can only rate for family size, age, geography and tobacco. Also, insurance carriers can no longer offer small group insurance products through an association. Self-funded trusts can continue to offer health benefit plans that are not subject to these new small group market rules.

The primary sources used for the FAQ is the 12/28/2012 IRS “Questions and Answers on Employer Shared Responsibility Provisions under the Affordable Care Act” and the 5/14/2010 Congressional Research Service’s “Summary of Potential Employer Penalties Under the Patient Protection and Affordable Care Act (PPACA).”  

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