FAQs: Large Employer Responsibility Under the Affordable Care Act

FAQs: Large Employer Responsibility Under the Affordable Care Act https://wahospitality.org/wp-content/uploads/2013/01/Healthcare-reform400-424x198.jpg

Beginning in 2014, federal law will require all employers with 50 or more full-time equivalent employees (FTEs) to either provide health care coverage for their full-time employees or pay an IRS penalty each year they do not provide coverage.  It is important to note the decisions an employer makes this year regarding staffing will determine their obligations under the law in 2014.  The following are frequently asked questions regarding this new requirement.

Which employers will face penalties for not providing health care coverage?

Employers with more than 50 full-time equivalent employees will pay an IRS penalty if:

  • The employer chooses not to provide health care coverage to full-time employees; and
  • A full-time employee applies for and receives a federal subsidy to purchase health care coverage in a state health exchange

How much is the penalty?

Employers not providing coverage will be assessed a penalty of $2,000 per full-time employee after the first 30 full-time employees.

EX 1: An employer with 112 FTEs, but only 67 full-time employees, chooses not to provide coverage and one of their full-time employees applies for and receives a federal subsidy to purchase coverage in the exchange.  The employer will pay $2,000(67-30) = $74,000 in 2014

EX 2: An employer with 72 FTEs but only 26 full-time employees, chooses not to provide coverage and one of their full-time employees applies for and receives a federal subsidy to purchase coverage in the exchange.  The employer will pay $2,000(26-30) = $0.  This employer even though they are an applicable large employer based on size, will not pay a penalty given the allowable set-aside for the first 30 full-time employees.

When will penalties begin?

Eligible employers will be subject to the potential penalties beginning in 2014.  The IRS has not yet issued rules identifying whether the penalty will be applied immediately upon notification that an eligible employee has accessed a federal subsidy or whether it will be payable along with quarterly or annual taxes.  Additional rules will be released in the next few months addressing this issue.

Who is considered a full-time employee?

Full-time employees include those employees working 30 or more hours per week.

How do I know whether I may be required to either provide health care coverage or pay the penalty?  How do I determine my employer size?

Size matters.  Any employer that has 50 or more FTEs (full-time equivalencies, not just full-time employees) will be subject to this requirement.  Take the following steps to determine your overall employer size:

  1. Total the number of employees working 30 or more hours per week
  2. Total the number of hours worked by all other employees in a four-week month, and divide the total hours by 120
  3. Add the total from step 2 to the total in step 1 above – this will equal the total number of FTEs you employ

What if I have more than one business?

It is possible you will have to aggregate employees from all of your businesses in order to determine your employer size.  Common control provisions, not individual business identification numbers, determine whether you must aggregate all employees.  Common control will apply when an individual or group of up to five individuals – owns more than 80% of two or more businesses.   If common control  applies, follow the steps identified above including all employees in the commonly controlled businesses in the calculations.

For which of my employees must I provide health care coverage?

Coverage must be provided to all full-time employees and their dependents regardless of their job category.  Dependents are limited to children up to age 26.  There is currently no requirement to offer coverage for spouses or other extended dependents.  Coverage packages and/or premium contributions may vary by job category, but may not be different within a job category.

What if I have employees who have varying work schedules and I do not know for sure whether they will qualify for coverage in 2014?

The rules allow an employer to utilize a “lookback” period during which they can evaluate and calculate hours worked for each employee with a varying work schedule.  Employers may establish lookback periods of 3-12 months.  The lookback period is connected to the number of months an employee must be offered coverage once they are eligible.  A “stability” period must be established which identifies for how long a variable-hour employee will be guaranteed access to coverage once they are eligible.  This stability period may range from 6-12 months but may be no less than the lookback period (employers are allowed to establish lookback periods that are less than the stability period but not vice versa).

Because the mandate requirement begins in 2014, the lookback period begins this year.  It is imperative for employers to begin evaluating employee schedules now to determine eligible employees prior to either health plan renewal dates or purchasing health care coverage in order to ensure compliance with the law.   Employer lookback and stability periods will be ongoing processes for employers from this point forward.

What happens if a variable hour employee experiences a reduction in hours after coverage is offered and accepted, must I continue to offer them coverage?

This relates to the stability period identified above.  Once an employee is eligible and begins coverage, they must have access to coverage for the stability period determined by the employer.

EX:  Employer chooses a lookback period of six months and a stability period of six months.  An employee with a variable work schedule is determined eligible after evaluation of their schedule during the lookback period.  The employee is offered and accepts employer coverage.  After three months the employee’s hours are permanently reduced by half.  Even though the employee is no longer considered a full-time employee, the employer must continue offering the employee coverage through the end of the full six month stability period.

EX:  Employer chooses a lookback period of 3 months and a stability period of 12 months.  An employee with a variable work schedule is determined eligible after evaluation of their schedule during the lookback period. The employee is offered and accepts employer coverage.  After two months the employee requests a reduction in their hours to return to school.  Even though the employee is voluntarily reducing their hours, the employer must continue to provide coverage through the end of the 12 month stability period.

What if a full-time employee refuses the coverage I provide, will I still be subject to the penalty?

Employers must offer coverage but employees are not required to accept it.  Employers should document that an offer of coverage was made and the reason the employee does not accept the coverage in case the employee then applies for a federal subsidy.

What happens if my employee stops paying their portion of the premiums, must I still continue to provide coverage?

No.  An employer may stop providing coverage for any employee that is not making their premium contributions.  Employers should carefully document the situation in case the employee applies for a federal subsidy.

Categories: Archive