Affordable Care ActEmployer Mandate

Employer Mandate – Play or PayCompanies with 50 or more full-time employees (or equivalent) are required to offer “affordable” health insurance coverage to at least 95 percent of their full-time employees beginning January 1, 2015 or face a penalty. These companies are known as Applicable Large Employers.

Counting EmployeesTo determine if the employer is an Applicable Large Employer, the employee count is calculated monthly; the total is then divided by 12. If the result is a fraction, it will be rounded down to the next whole number.

Definition of Full-Time EmployeeA full-time employee is defined as an employee who is employed an average of at least 30 hours per week. An employee working 130 hours in a calendar month satisfies the 30 hours of work-per-week requirement.

For non-hourly employees there are three different methods available to determine their hours:

1. Counting actual hours of service.

2. Using a days-worked equivalency, in which eight hours of service counts as a day.

3. Using a weeks-worked equivalency, in which 40 hours of service per week counts as a week.

Companies that have different classifications of non-hourly employees can apply different methods to the classifications. If this approach is used it must be done consistently and cannot understate hours of service so as to disqualify employees from health coverage.

Calculating Employee HoursThe calculation for number of hours is not limited to hours worked. It also includes:

• Hours paid by the employer

• Hours entitled to payment for performance of duties for the employer as well as duties not performed for the employer

Transition Rule Companies with 100 or more full-time employees (or equivalent) will be required to offer “affordable” health insurance coverage to at least 70 percent of their full-time employees beginning January 1, 2015 or face a penalty.

Beginning January 1, 2016 companies with 50 or more full-time employees (or equivalent) will be required to offer “affordable” health coverage to at least 95 percent of their full-time employees to avoid a penalty.

IMPORTANT: Although the mandate to offer insurance applies only to full-time employees (and their dependents), the calculation includes part-time and full-time hours.

Examples of Hours to Include: • Hours Paid for Work Performed

• Hours Not Paid for Work Performed

• Holiday

• Vacation

• Illness

• Incapacity (Including Disability)

• Layoff

• Jury Duty

• Military Duty

• Leave of Absence

Quick Reference Guide »

Don’t Forget About Part-Time EmployeesPart-time employees are used in the calculation to determine if an employer is considered an Applicable Large Employer. This is known as determining the Full-Time Equivalent (FTE) count. Part-time hours are used for the employee count only; there is no mandate to provide part-time employees with insurance.

Full-Time Equivalent CalculationThe monthly FTE value is calculated as:

Total Hours of Part-Time Employees / 120 Hours

A maximum of 120 hours is used for a part-time employee even if a part-time employee worked more than 120 hours.

The result of the FTE calculation is added to the number of full-time employees to determine if the employer averaged at least 100 full-time employees (50 full-time employees in 2016) during the preceding calendar year.

Safe Harbor for Temporary Workforce (Seasonal Workers)All employees, including seasonal workers, are part of the calculation when determining the number of full-time employees (or equivalents).

Seasonal workers are not limited to agriculture or retail. Employers must apply a reasonable, good faith interpretation of the term.

4 months can be considered 120 days and the 120 days are not required to be consecutive.

How Often Do You Calculate Applicable Large Employer Status?Applicable Large Employer status is determined annually. The number of current employees determines the status for the following year.

Example: If an employer has at least 100 full-time employees (including full-time equivalents) during 2014, it will be considered an Applicable Large Employer for 2015.

See the transition rule for determining 2015 status.

Rounding Rule When calculating the monthly FTE count, it often results in a fraction. When this occurs the fraction is rounded to the nearest one-hundredth (example 35.238 is rounded to 35.24).

Special Rule: Seasonal Workers There is a special rule when the employer’s workforce exceeds 100 (50 in 2016) for 120 days or fewer during a calendar year. If the employees in excess of 100 (50 in 2016) were employed no more than 120 days and were seasonal workers, the employer is not considered an Applicable Large Employer.

Transition Rule To help with the first year FTE calculation, instead of the full 12 months used in 2014, an employer may have chosen to use any consecutive 6-month period in 2014. For example, an employer could have used a period of at least six consecutive months through August 2014 to determine its applicable large employer status and, if it is an applicable large employer, it could have used the period from September through December 2014 to make any adjustments to its plan to ensure compliance as of January 2015.

Who is Considered a Dependent For Health Coverage Purposes? The definition of a Dependent, as it pertains to the Employer Mandate, is not the same as a Dependent for tax purposes. The following are excluded for purposes of the Employer Mandate:

• Stepson/stepdaughter

• Eligible foster child

• A child who is not a U.S. citizen, unless the child is a resident of the U.S., Mexico, or Canada

The child does not have to be a dependent for income tax purposes to be considered a dependent for the Employer Mandate.

What is Affordable Insurance?To be considered affordable insurance, the cost of the employee-paid premium for the lowest cost self-only coverage must not exceed 9.5% of the employee’s household income in 2014 (9.56% in 2015). There are 3 safe harbor methods available to the employer to determine if the insurance is affordable to the employee:

Safe Harbor #1 - Form W-2

• Determined after year-end, employer compares box 1 of the employee W-2s to determine if the cost of the employee-paid premium for the lowest cost of self-only coverage is greater than 9.5% (9.56% in 2015) of the value in box 1.

Safe Harbor #2 - Rate of Pay

• Employer calculates the eligible employee’s monthly income to determine if the cost of the employee-paid premium for the lowest cost of self-only coverage is greater than 9.5% (9.56% in 2015) of the employee’s income.

• The employer must use the eligible employee’s rate of pay on the first day of coverage and multiply it by 130 hours.

• This method can only be used if the employee’s rate of pay remains the same or increases throughout the year; it cannot be used if the rate of pay is reduced.

• If the calculation determines the cost of insurance is greater than 9.5% (9.56% in 2015) and the employee’s wages increase at a later date, the insurance would be considered unaffordable for the entire plan year.

Safe Harbor #3 - Federal Poverty Line

• Employer compares the cost of the employee-paid premium for the lowest cost of self-only coverage to the Federal Poverty Line for a single individual. If the cost of self-only coverage is not greater than 9.5% (9.56% in 2015) of the FPL for the state in which the employee works, the plan is considered affordable.

• The employer will use the most recently published FPL for the calculation.

26For the Health Care law, a

dependent must be under the age of 26. A child is considered a dependent for the entire month

during which he or she turns 26.

Reminder The affordability calculation is based on the cost of self-only coverage, not the cost to the employee for self-only and dependent coverage.

IMPORTANT: If a safe harbor method is used and an employee qualifies for a Premium Tax Credit due to the cost of insurance being greater than 9.5% of the household income, the employer will not incur a penalty.

Spouse = Dependent A spouse is not considered a dependent. Therefore, employers are not required to offer spousal coverage and will not incur a penalty as a result.

Penalty for Not Offering InsuranceIn 2015, an Applicable Large Employer may be subject to a penalty for any month the employer does not offer insurance to at least 70% of their full-time employees. The employer will be penalized when at least one of the eligible employees receives a Premium Tax Credit.

The Employer Shared Responsibility Payment (penalty) is equal to:

Number of full-time employees for the month (minus 80)

x 1/12 of 2,000

x Number of months insurance not offered

What is the Penalty for Not Offering Affordable Insurance?In 2015 an Applicable Large Employer may be subject to a penalty for any month the employer did not offer affordable insurance to its eligible employees. To be considered affordable, the cost of the employee-paid premium for the lowest cost of self-only coverage must not be greater than 9.5% (9.56% in 2015) of the employee’s household income (see safe harbor rules for affordability testing).

The employer will be penalized when an eligible employee receives a Premium Tax Credit. The Employer Shared Responsibility Payment (penalty) is equal to:

Number of full-time employees who receive a Premium Tax Credit for that month

x 1/12 of $3,000

The amount of the payment for any calendar month is capped at:

Number of the employer’s full-time employees for the month (minus up to 80)

x 1/12 of $2,000

In other words, the penalty for not offering affordable insurance will never be greater than not offering insurance at all.

Rule Changes After 2015 • Must offer insurance to at least

95% of full-time employees

• Applicable Large Employer based on 50 full-time employees

• Use “minus 30” in the calculation, instead of “minus 80”

Health Coverage Reporting Forms 1095-B and 1095-C (Required starting January of 2016)

1095-B – Health Coverage 1095-C – Employer-Provided Health Insurance Offer & Coverage

• Required to be sent if the employer sponsors an insured plan, even if the employer is not an Applicable Large Employer.

• Generally sent by the insurance company.

• If the company’s medical coverage is self-insured, the plan sponsor is required to file Form 1095-B.

• If a plan sponsor of a self-insured plan is also required to file Form 1095-C, information for both forms can be combined onto one Form 1095-C filing.

• Reports the name, address, and social security number of all individuals (employees, spouses, dependents, and others) who are covered under an employer’s medical plan and the number of months during which the individual had at least one day of coverage.

• FSAs, HSAs and HRAs are not subject to the Form 1095-B filing requirement because they do not provide Minimum Essential Benefits. Therefore, these accounts by themselves do not relieve the employee from the individual shared responsibility payment.

• Required to be sent if the employer is an Applicable Large Employer.

• Companies that were able to take advantage of the 2015 Transitional Rule (more than 50 full-time em-ployees but fewer than 100 full-time employees) are required to file a Form 1095-C for 2015.

• An employer filing Form 1095-C generally reports the number of full-time employees for each calen-dar month and lists coverage information for each full-time employee. Streamlined reporting methods are available if employers meet certain coverage stan-dards, such as providing coverage to at least 98% of all employees (full-time and part-time).

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