Affordable Care Act (ACA) Frequently Asked Questions
October 2013: Employer Notice of Exchange Availability
Q1: What is the Employer Notice of Exchange Availability?
A1: Employers subject to the Fair Labor Standards Act (FLSA) are responsible for providing to their employees certain information on the Health Insurance Exchanges (“Exchanges”) that are required to be established by the states (or federal government) by January 1, 2014. Employers must provide the Marketplace Notice in writing to all existing employees no later than October 1, 2013, and to each new employee at the time of hire (but no later than within 14 days of an employee’s start date). The notice may be furnished by first-class mail, or electronically in a manner that meets the requirements of the DOL’s electronic disclosure safe harbor rules.
Employers must provide the applicable notice to all employees, regardless of their plan enrollment status or whether they are part-time or full-time. However, notices are not required for dependents or other individuals who are not employees. Required notice information includes: existence of the Marketplace; if plan does not provide minimum value, employee may not be eligible for a premium tax credit for Marketplace coverage; and employee may lose employer contribution (if any) to health coverage if the employee purchases a qualified health plan through the Marketplace.
Q2: Will a model notice be available?
A2: Yes. The Department of Labor has released two model notices for use by employers: one for employers that offer coverage, and one for those that do not. To view, please visit this link: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
Q3: May the notice be delivered to employees electronically?
A3: Yes. The notice may be furnished by first-class mail, or electronically in a manner that meets the requirements of the DOL’s electronic disclosure safe harbor rules.
Q4: If an employee chooses not to enroll in the employer’s health plan and instead enrolls in Exchange coverage, must the employer pay for the employee’s Exchange coverage?
A4: No. An employer is not required to pay for an employee’s Exchange coverage should the employee choose to enroll in an Exchange plan. Note that if the employer’s plan does not meet the “affordability” and “minimum value” requirements and the employee receives a federal premium subsidy for Exchange coverage, the employer could be subject to the Shared Responsibility requirement.
January 2014: Health Insurance Exchanges and Federal Premium Subsidies
Q5: How may an individual qualify for a federal premium subsidy for Exchange coverage?
A5: Generally, an individual will qualify for a federal premium subsidy if he or she is not eligible for Medicare, Medicaid, or an affordable employer-sponsored plan that provides minimum value, and the individual’s income does not exceed 400% of the federal poverty level. Individuals who are not lawfully present in the United States and individuals who are incarcerated are ineligible for a federal premium credit.
Q6: What is the value of the federal premium subsidy an eligible individual may receive?
A6: An employee who qualifies for a federal premium subsidy will receive premium assistance based on the second-lowest cost silver-level Exchange plan in the employee’s geographic area. An employee who purchases such a plan with a federal premium subsidy will have his required contribution limited based on a sliding scale according to where the employee falls on the federal poverty level scale.
Q7: May an employee’s spouse receive a federal premium subsidy if the employee is offered affordable coverage through his or her employer?
A7: No. An employer who offers affordable, minimum value coverage will render an employee’s spouse ineligible for a federal premium subsidy if the employer offers spousal coverage (even if the coverage is only “affordable” based on the employee-only premium). Note that married couples must file a joint tax return in order to receive a federal premium subsidy.
Q8: May employers participate in an Exchange?
A8: Yes, but only small employers at first. The ACA requires each state (or the federal government, if a state declines) to establish an Exchange by January 1, 2014. The ACA requires each state’s Exchange to operate a Small Business Health Option Program (“SHOP”). Employers with up to 100 employees will be eligible to participate in the SHOP Exchange, although States can limit participation to employers with up to 50 employees until 2016. Starting in 2017 and thereafter, states may allow all employers to participate in the SHOP Exchange.
Q9: If an employee enrolls in Exchange coverage, will the employee be able to contribute to the cost of that coverage on a pre-tax basis through a Section 125 cafeteria plan?
A9: Yes, but only through a SHOP Exchange. The employee will remit premiums directly to the Exchange, unless the employer is a small employer that obtains coverage through a SHOP Exchange (an Exchange for individuals and small employers).
January 2015: Employer Shared Responsibility (“Play or Pay”)
Q10: What are the “Shared Responsibility” requirements?
A10: Effective January 1, 2015, employers that employ 50 or more full-time employees including full-time equivalent employees ("FTEs") must offer group health plan coverage to their full-time employees (and their dependent children up to age 26) or potentially be liable for a penalty. A penalty will apply if the employer (A) fails to offer “minimum essential coverage” under an “eligible employer sponsored plan” to at least 95% of full-time employees, or (B) offers coverage that does not meet certain “minimum value” and “affordability” requirements (see Q36 and Q37 below), and at least one full-time employee receives a premium tax credit to help purchase coverage for himself or herself through an Exchange. Different penalties are imposed based on whether the employer is in category (A) or (B) above (see Q34 for details on the Shared Responsibility penalties). Also, a smaller employer (fewer than 100 full-time employees) may satisfy (A) above as long as coverage is offered to all but 5 or fewer full-time employees. Note that full-time employees who are part of the 5% that are not offered coverage may trigger the penalty associated with category (B) above. Certain transition relief applies for 2015 (described in Q11 and Q14 below).
Q11: What if an employer does not offer dependent coverage?
A11: For these purposes, “dependent” means an employee's child under age 26, and includes natural and adopted children. Starting in 2015, an employer subject to Shared Responsibility generally must offer coverage to its full-time employees and their children up to age 26 to satisfy the Shared Responsibility requirements. In general, an employer will not be subject to a penalty for failing to offer children under age 26 coverage for plan years that begin in 2015 if the plan takes steps during its 2014 plan year to add dependent coverage (if certain conditions are met). However, an employer is not required to contribute toward the cost of dependent coverage, as coverage is “affordable” for purposes of the Shared Responsibility requirements based on the cost of employee-only coverage.
Note that employers are not required to offer spousal coverage, and the receipt of a premium tax credit by an employee's spouse or dependent will not result in a penalty on the employer.
Q12: What is “minimum essential coverage”?
A12: Starting in 2014, the ACA mandates that most individuals maintain minimum essential coverage for themselves and their dependents or potentially be subject to an income tax penalty (this requirement is known as the “Individual Mandate”). Minimum essential coverage includes coverage under an employer-sponsored group health plan, coverage in the individual market, coverage under grandfathered health plans, Medicare, Medicaid, and certain other types of coverage.
Q13: What is an “eligible employer-sponsored plan”?
A13: Any health insurance coverage offered by an employer to an employee that is available in the small or large group market, or a governmental plan. The term also includes self-insured group health plans. Note that while an individual must maintain minimum essential coverage to comply with the Individual Mandate, a large employer (see Applicable Large Employers below) must offer coverage under an “eligible employer-sponsored plan” that meets affordability and minimum value requirements to avoid a potential Shared Responsibility penalty.
Q14: When are the Shared Responsibility requirements effective?
A14: Penalties have been delayed entirely for 2014. Penalties will not be imposed in 2015 (and months in 2016 in the 2015 plan year) on employers with 50-99 full-time employees and full-time equivalent employees as long as those employers do not restructure their workforce or change their health coverage in 2014-2015. For employers with 100 or more full-time employees and full-time equivalent employees, transition relief applies for 2015 (and months in 2016 in the 2015 plan year) under which the employer will not be assessed the $2,000 penalty if it offers coverage to at least 70% of its full-time employees. Information reporting requirements apply beginning 1/1/2015.
Applicable Large Employers
A15: The Shared Responsibility requirements apply to what the final regulations refer to as “applicable large employers.” An employer is an applicable large employer for a calendar year if it employed an average of at least 50 full-time employees on the employer's business days during the preceding calendar year. Solely for purposes of determining applicable large employer status (but not for penalty purposes), full-time equivalent employees (i.e., based on the hours of service of part-time employees) are included in the calculation.
The Shared Responsibility requirement applies to all common law employers, including tax exempt entities and government entities (such as Federal, State, local or Indian tribal government entities). For purposes of determining applicable large employer status and for penalty purposes, hours worked outside of the United States are disregarded, provided that the associated compensation constitutes foreign source income.
Q16: How does an employer determine if it is an “applicable large employer”?
A16: The final regulations require employers to look back at prior year to make the determination for the then current year.
The final regulations provide that an employer’s status as an applicable large employer for a calendar year is determined based on full-time employees, including full-time equivalents (“FTEs”) in the prior calendar year. This is determined by taking the sum of the total number of full-time employees (those working 30 hours a week or more) (including any seasonal workers) for each calendar month in the preceding calendar year and the number derived by taking the total hours of all part-time employees (those working less than 30 hours a week) (including any seasonal workers) during each calendar month (not to exceed 120 hours per month for any employee) and dividing by 120, for each month in the preceding calendar year, and then dividing the total number by 12.
The result, if not a whole number, is then rounded to the next lowest whole number. If the result of this calculation for the prior year is less than 50, the employer is not an applicable large employer for the current calendar year. If the result of this calculation is 50 or more, the employer is an applicable large employer for the current calendar year, regardless of how many full-time employees the employer has in the current calendar year, unless the limited exception for seasonal workers applies.
Transition relief for 2015 permits an employer to measure whether it will have 50 or more full-time employees using any consecutive six-month period (as chosen by the employer) during 2014.
Q17: What is the limited exception for seasonal workers?
A17: Under this exception, seasonal workers may be excluded from the determination described in Q16 above if the employer exceeds 50 full-time employees and for no more than 120 days during the preceding calendar year, and the employees causing the employer to exceed the 50 full-time employee threshold are seasonal workers employed no more than 120 days during the preceding calendar year. However, once an employer is an “applicable large employer,” seasonal employees’ hours are measured along with the hours of other employees, and such seasonal employees may be considered “full-time” if they work, on average, at least 30 hours of service per week during a measurement period.
Q18: How do the Shared Responsibility rules apply to entities that are treated as a single employer under the Internal Revenue Code (“tax controlled groups”)?
A18: For purposes of determining whether an employer exceeds the 50 full-time employee and FTE threshold, all members of a tax controlled group are treated as a single employer. However, each member of a controlled group is treated as a separate entity for purposes of determining the liability for, or amount of, a Shared Responsibility penalty. Also note that the 30 full-time employee reduction (see Q34) is allocated across each member company (e.g, on an EIN-by-EIN basis) based on size.
Identifying Full-Time EmployeesQ19: Who are “full-time employees” for purposes of the Shared Responsibility rules?
A19: A full-time employee is an employee who works an average of at least 30 hours of service per week or 130 hours of service per month. Hours of service include paid time off due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. An employee's hours worked outside of the United States are disregarded, provided that the compensation for those hours of service constitutes foreign source income.
Under the ACA, “employee” is defined by the common law standard and, as such, non-employee directors, sole proprietors, partners, 2-percent or more shareholders in an S corporation, and "leased employees” (as defined in Code Section 414(n)(2)) are not treated as employees. However, an employee who provides services as both an employee and non-employee (such as an individual serving as both an employee and a director) is an employee with respect to his or her hours of service as an employee.
Q20: How do employers identify their full-time employees?
A20: To assist employers in identifying full-time employees and to ease the difficulties on employers, employees and the Exchanges that would be created by determining eligibility for coverage on a monthly basis, the Shared Responsibility rules provide an optional look-back measurement method so that an employer can assess its potential for liability under the Shared Responsibility mandate. Under the look-back measurement method, there is an "initial" measurement period for new variable hour, seasonal, and part-time employees and a "standard" measurement period for "ongoing employees" (ongoing employees are employees who have worked for the employer for at least one "standard" measurement period). (Measurement periods are described in Q28 for ongoing employees and Q30 for new employees.) The final regulations also provide a “monthly measurement method” for employers not using the optional look-back measurement method.
Q21: When must a new full-time employee be offered coverage?
A21: If a new employee is reasonably expected to work full-time at date of hire and is not a seasonal employee, then the employer must offer coverage by the first day of the fourth full calendar month of employment (and the coverage must provide minimum value). The ACA’s rules on waiting periods, however, continue to apply. For plan years starting in 2014, a group health plan may not apply a waiting period greater than 90 days once the employee meets the plan's substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan's terms).
Q22: How long does an employer have to determine whether a new hire is a full-time employee?
A22: If, based on the facts and circumstances available at time of hire, an employer cannot reasonably determine whether a new employee will work an average of at least 30 hours of service per week (and therefore be considered a full-time employee), then the employee is considered a “variable hour” employee. In that case, the employer may use a safe harbor method for determining the status of its variable hour employees and designate an initial measurement period (which can be from 3 to 12 months long), plus an administrative period, to determine whether the employee is full-time. The administrative period and the measurement period combined cannot exceed 13 months from the employee’s date of hire, plus the days remaining until the first day of the next calendar month, if the employee’s start date is not the first day of a calendar month. (Measurement periods are described in Q28 for ongoing employees and Q30 for new employees.)
Q23: How are part-time employees treated under the Shared Responsibility rules?
A23: The hours of service for part-time employees (i.e., those who do not work an average of at least 30 hours of service per week) are included for purposes of determining whether the employer is an applicable large employer (i.e., whether the employer employs 50 or more full-time employees and FTEs); however, part-time employees cannot trigger a penalty on the employer if they receive a federal premium subsidy, because they are not “full-time employees.”
Q24: What if an employer does not track its employees’ hours of service?
A24: For employees compensated on an hourly basis, employers must track hours of service for purposes of determining full-time status. With respect to employees whose hours are not tracked because they are not compensated on an hourly basis (e.g., salaried employees), the employer must either start tracking actual hours worked, or use one of two available "equivalency methods" identified in the final regulations to estimate an employee's hours of service. Under the equivalency methods, an employer may either credit 8 hours of service per day if an employee works at least one hour per day, or credit 40 hours of service per week if an employee works at least 1 hour per week, provided that the hours credited generally reflect the actual hours worked and the hours for which payment is made. However, the proposed regulations prohibit use of the days-worked or weeks-worked equivalency methods if the result would be to substantially understate an employee's hours of service in a manner that would cause that employee not to be treated as a full-time employee or if it would understate the hours of service of a substantial number of employees. For example, an employee who worked 12 hours per day for 3 days one week could be credited with 40 hours that week, but could not be credited with only 8 hours of service per day under an equivalency method (because that would make it look like the employee only worked 24 hours during that week).
Q25: How are seasonal employees who work for an “applicable large employer” treated?
A25: Once an employer meets the 50 full-time employee threshold and is an applicable large employer, seasonal employees are generally evaluated under the employer’s measurement/stability periods. (Measurement periods are described in Q28 for ongoing employees and Q30 for new variable-hour, seasonal, and part-time employees.)
Many seasonal employees will not be full-time employees if the employer uses a 12-month measurement period, because the employees will not have worked, on average, 30 or more hours during the 12-month measurement period. However, if an employer uses a shorter measurement period (e.g., 3 months), it is possible that a seasonal employee could be considered a full-time employee based on that measurement period.
Q26: Must employers substantiate that coverage is offered and whether it is affordable?
A26: Yes, starting in 2016 (for the 2015 calendar year), employers subject to the Shared Responsibility requirements will need to report annually to the IRS and to full-time employees certain information regarding their health insurance plan, if offered. The employer's report to the IRS will generally include information identifying the employer, a certification of whether the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (see Q12 and Q13), and information identifying the full-time employees and their coverage status.
Using "Look-Back" Measurement and Stability Periods to Identify Full-Time Employees
Q27: How does the “look-back” measurement period work for ongoing employees?
A27: “Ongoing” employees have worked for their employer for one full standard measurement period. An employer may determine whether an ongoing employee worked an average of at least 30 hours of service per week or 130 hours of service per month by looking back at a defined period of 3 to 12 consecutive calendar months, as chosen by the employer (the "standard measurement period"). If an employee has worked full-time during a standard measurement period, then the employee is treated as full-time during the "standard stability period" so long as he or she remains employed during that period and regardless of the hours actually worked. In general, the standard stability period for such an employee must be at least six consecutive months, but no shorter than the standard measurement period.
Q28: How does the “administrative” period work for ongoing employees?
A28: An administrative period is available to accommodate employers that might need some time between the standard measurement period and the standard stability period in order to determine which employees are eligible for coverage and for other administrative purposes. The administrative safe harbor is a period of not more than 90 days between the end of the standard measurement period and the start of the standard stability period and may neither reduce nor lengthen the measurement period or the stability period.
To prevent an administrative period from creating a potential gap in coverage, it must overlap with the prior stability period, so that ongoing full-time employees will continue to be offered coverage during the administrative period. For example, an employee entitled to coverage for a stability period that is calendar year 2015 will be covered during any administrative period in 2015.
Q29: How does the “look-back” measurement period work for new variable-hour, seasonal, and part-time employees?
A29: A25: “New” variable-hour, seasonal, and part-time employees have not yet worked for their employer for one full standard measurement period. An employer may determine whether such a new employee worked an average of at least 30 hours of service per week or 130 hours of service per month by looking back at period of 3 to 12 consecutive calendar months, as chosen by the employer (the "initial measurement period"). If an employee is determined to work full-time during the initial measurement period, then the employee is treated as full-time during the "initial stability period" so long as he remains employed during that period and regardless of the hours actually worked. In general, the initial stability period must be the same length as the stability period for ongoing employees.
Q30: How does the “administrative” period work for new variable hour and seasonal employees?
A30: As is permitted for ongoing employees, an employer may use an administrative period before the start of the initial stability period following an employee's initial measurement period. The administrative period must not exceed 90 days in total, and includes all periods between the new employee's date of hire and the beginning of the initial measurement period and all periods between the start date and the date the employee is first offered coverage (other than the initial measurement period). Thus, for example, if the employer begins the initial measurement period on the first day of the month following a new variable hour or seasonal employee's date of hire, the period between the employee's start date and the first day of the next month must be taken into account in applying the 90-day limit on the administrative period. Similarly, if there is a period between the end of the initial measurement period and the date the employee is first offered coverage under the plan, that period must be taken into account in applying the 90-day limit on the administrative period.
In addition, the initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's date of hire. For example, if an employer uses a 12-month initial measurement period for a new variable hour employee, and begins that initial measurement period on the first day of the first calendar month following the employee's start date, the period between the end of the initial measurement period and the offer of coverage must not exceed one month (assuming the variable hour employee works full-time during the initial measurement period).
Q31: Will employers be required to enroll employees at different times during the plan year?
A31: Possibly. The frequency with which an employer will need to enroll eligible employees depends on the length of the measurement period selected by the employer. In general, a 12-month measurement period (and a 12-month stability period that corresponds to the plan year) may be easiest administratively for the employer. In addition, ongoing employees (employees who have worked for their employer for at least one standard measurement period) will all be evaluated under the employer’s standard measurement period; however, new variable hour and seasonal employees have “initial” measurement periods that are based on each new employee’s date of hire, which means that new employees may become eligible for coverage at various times during the plan year.
Q32: What relief is there for employers that want to use a 12-month stability period for new employees but are unable to use an administrative period shorter than 2 months?
A32: An employer may use an initial stability period that is one month longer than the initial measurement period, as long as it does not exceed the remainder of the first standard measurement period (plus any associated administrative period) for which the new variable-hour, seasonal, or part-time employee has been employed. This is intended to give additional flexibility to employers that wish to use a 12-month stability period for new variable hour and seasonal employees and an administrative period that exceeds one month. To that end, such an employer could use an 11-month initial measurement period (in lieu of the 12-month initial measurement period that would otherwise be required) and still comply with the general rule that the initial measurement period and administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.
Shared Responsibility Penalties
Q33: What are the Shared Responsibility penalties?
A33: The annual penalty for failing to offer coverage to at least 95% of full-time employees is equal to the number of full-time employees (minus 30 full-time employees (80 full-time employees for 2015)) multiplied by $2,000, if at least one full-time employee receives a federal premium tax credit to help pay for coverage purchased for himself or herself through an Exchange.
The annual penalty for an employer that fails to offer coverage that is “affordable” and that provides “minimum value” is equal to the number of full-time employees who receive a premium tax credit, multiplied by $3,000.
The $3,000 penalty that applies based on each full-time employee who receives a federal premium subsidy cannot exceed the $2,000 penalty. In other words, the payment for an employer that offers coverage can never exceed the payment that employer would owe if it did not offer any coverage. Penalties are calculated on a monthly basis, and will be indexed for inflation in future years.
Q34: If penalties are determined on a monthly basis, do employers need to track their employees’ hours on a monthly basis?
A34: An employer may track an employee’s hours of service on a monthly basis under the monthly measurement method; however, eligibility for health insurance benefits is not required to be determined on a monthly basis. To ease the administrative burden on employees, employers, and the Exchanges of potentially having to determine eligibility on a monthly basis, the proposed regulations permit employers to use “look-back” measurement periods of up to 12 months to determine an employee’s full-time status for purposes of health plan eligibility (see Q28 and Q30 for details on the measurement periods). However, even when using a 12-month measurement period, the penalties are still calculated monthly (e.g., an employee who receives a federal premium subsidy in one month but not another will only trigger a penalty on the employer for the month in which a premium subsidy is received).
Q35: What are the “minimum value” requirements?
A35: An employer’s group health plan provides “minimum value” if its share of the total allowed costs of benefits provided under the plan is at least 60 percent of those costs. Employer contributions to a Health Savings Account (HSA) and amounts newly made available under a Health Reimbursement Arrangement (HRA) (to the extent that HRA contributions may only be used to reduce cost-sharing for covered medical expenses) may be taken into account in determining minimum value. Minimum value is an actuarial determination that cannot be determined based on the proportion of the premium paid by the employer. Generally, for fully-insured group health plans, the insurance carrier will inform the employer as to whether the plan provides “minimum value.”
Q36: What are the “affordability” requirements?
A36: An employer’s group health plan is “affordable” with respect to an employee if the employee's required contribution for the lowest cost employee-only coverage that provides minimum value does not exceed 9.5 percent of the employee's household income for the year (three “safe harbor” alternatives to household income are available to employers, one of which permits an employer to substitute an employee's annual wages, as reported in box 1 of Form W-2, in lieu of household income). Note that even if a full-time employee enrolls in family coverage, coverage “affordability” is based on the employee-only contribution.
Q37: What are the three available “affordability” safe harbors?
A37: The IRS has provided three safe harbors that employers can use instead of household income for purposes of determining whether the cost of employee-only coverage is affordable:
- Form W-2: Coverage is affordable under this safe harbor if the cost of the lowest cost employee-only coverage that provides minimum value does not exceed 9.5% of the employee’s Form W-2 wages, as reflected in box 1 for the current year.
- Rate of Pay: Coverage is affordable under this safe harbor if the required monthly contribution for the lowest cost employee-only coverage that provides minimum value does not exceed 9.5% of an amount equal to 130 hours multiplied by the lower of the employee's hourly rate of pay as of the first day of the coverage period, or the employee’s lowest hourly rate of pay during the month. For salaried employees, monthly salary is used instead of 130 multiplied by the hourly rate of pay. If an employee’s monthly salary is reduced, the safe harbor is not available.
- Federal Poverty Line: Coverage is affordable under this safe harbor if the required monthly contribution for the lowest cost employee-only coverage that provides minimum value does not exceed 9.5% of a monthly amount determined as the federal poverty line (FPL) for a single individual (for the state in which the individual is employed) for the applicable calendar year, divided by 12.
Q38: How will employers be notified of a Shared Responsibility penalty?
A38: The IRS will contact employers after the end of each calendar year to inform them of their potential liability and provide an opportunity for a response. The IRS has indicated that employers will not be notified until after employees’ individual tax returns are due for that year and after the due date for applicable large employers to file information returns as described below.
Q39: What are the employer reporting requirements under the Shared Responsibility rules?
A39: Starting in 2016 (for coverage offered on or after January 1, 2015), applicable large employers will be required to file information returns identifying their full-time employees and describing the coverage offered, if any.
Miscellaneous Shared Responsibility Questions
Q40: Is there an annual open enrollment requirement under the ACA for applicable large employers?
A40: To avoid potential liability for a Shared Responsibility penalty, an employer must permit employees to enroll in coverage, or decline coverage that does not provide minimum value or is not affordable because it requires an employee contribution of more than 9.5 percent of a monthly amount determined as the federal poverty line for a single individual, at least once each plan year. The employer may not render an employee ineligible for a federal premium subsidy by requiring employees to enroll in coverage that is not “affordable.” However, an employer will not be treated as failing to offer coverage if that coverage is terminated due to the employee's failure to timely pay the employee portion of the premium.
Q41: May an employer satisfy its Shared Responsibility obligation by offering to pay for employee’s individual health insurance coverage (e.g., by using a premium reimbursement arrangement)?
A41: An individual health insurance policy is not an “eligible employer-sponsored plan.” [Note: as described in Notice 2013-54, premium reimbursement arrangements like this are generally prohibited under the ACA.] (See Q13 for a definition of “eligible employer-sponsored plan.”
Q42: How are not-for-profit employers treated under the Shared Responsibility rules?
A42: There is no blanket exemption for not-for-profit employers, although the non-tax deductible nature of the Shared Responsibility excise tax penalty may not affect not-for-profit employers.
Q43: How are staffing companies treated under the Shared Responsibility rules?
A43: The final regulations provide generally that the offer of coverage to an employee performing services for an employer that is a client of a staffing firm (that is not the common law employer of the individual) made by the staffing firm on behalf of the client employer is treated as made the client employer under the Shared Responsibility provisions, but only if the fee the client employer would pay to the staffing firm for an employee enrolled in the health coverage is higher than the fee the client employer would pay if the employee did not enroll in the health coverage. There is no blanket exemption for staffing companies – their employees are evaluated similarly to other employers (e.g., a staffing company cannot simply assume that all of its employees are variable hour, as an employee on a long-term assignment might reasonably be expected to work, on average, 30 or more hours per week as of his date of hire).
Q44: How are union employees treated under the Shared Responsibility rules?
A44: The final regulations clarify that an offer of coverage made to an employee on behalf of a contributing employer under a multiemployer or single-employer Taft-Hartley plan is treated as made by the employer. The final regulations also offer transition relief under the Shared Responsibility rules to employers participating in multiemployer plans.
Under the transition relief, employers that make contributions to a multiemployer plan pursuant to a collective bargaining agreement under which coverage is offered to full-time employees who satisfy the plan’s eligibility conditions and their dependents are not liable for a penalty if the coverage satisfies the affordability and minimum value requirements. (See Q36 and Q37 for definitions of “minimum value” and “affordability”.)
Q45: May an employer avoid having to comply with the Shared Responsibility rules by requiring all employees to work less than 30 hours of service per week?
A45: An employer should consult directly with legal counsel before engaging in a workforce realignment, as there are a number of issues to consider.
Other Questions Related to the ACA
Q46: How is COBRA affected by the ACA?
A46: All COBRA rules remain in effect. Employees, spouses and dependents who experience a COBRA qualifying event (such as termination of employment, reduction in hours of service, divorce, etc.) will continue to be eligible for COBRA benefits.
Q47: How are retiree-only plans affected by ACA?
A47: In general, retiree-only plans are exempt from many of the insurance mandates and insurance market reforms created under health care reform. However, some taxes and fees apply to retiree-only plans. For example, retiree-only plans are subject to the “Cadillac” tax on high-value health plans, the Patient-Centered Outcomes Research Institute (PCORI) fee, and the temporary reinsurance program fee, to the extent that the retiree-only coverage is primary to Medicare (this generally includes pre-65 retiree medical plans).
Q48: How should employers handle rebates received under the ACA’s Medical Loss Ratio rules?
A48: Generally, a plan that is subject to ERISA must allocate the rebate based on the employer’s premium contribution rate (e.g., an employer that contributes 80% of the cost of coverage will generally be entitled to 80% of a medical loss ratio rebate, but 20% has to be returned to participants or used on their behalf). Because the rebates may be considered plan assets, and if so, must be allocated to participants within three months of receipt, ERISA counsel should be consulted.
Q49: What are “Simple” Cafeteria Plans under the ACA?
A49: “Simple” cafeteria plans allow employers to pay their portion of health insurance premiums and other eligible benefits, such as contributions to Flexible Spending Accounts, with pre-tax dollars. They are available to businesses with 100 or fewer employees. Employees’ pre-tax contributions are not subject to federal, state or social security taxes. Employers interested in establishing a simple cafeteria plan should consult with benefits counsel or their insurance broker.
Helpful site: http://www.dol.gov/ebsa/faqs/faq-aca.html
The information above is not, is not intended to be, and shall not be construed to be, the provision of legal advice, nor does it necessarily reflect the opinions of ADP or its clients. The information above is intended as a general overview of the subject matter covered. ADP is not obligated to provide updates on the information presented herein. Those viewing this presentation are encouraged to seek direct counsel on legal questions.