The Affordable Care Act (ACA) has brought about significant changes for employer-sponsored health insurance plans over the last few years, and there are even more changes in the pipeline. While the ACA has been in place for years, getting back to basics and understanding the ACA terms that apply to employer-sponsored health plans will make it easier to know how the law impacts your business and your employees' benefits.
Here are some key terms to get you started:
Full-Time Equivalent (FTE)
This is used to determine whether an employer is subject to the ACA's requirement to offer health insurance to full-time workers. All employees who work at least 30 hours a week are considered full-time. But the full-time equivalent calculation ensures that employers don't just bump a majority of their workers down to under 30 hours per week in order to avoid the mandate altogether.
Luckily, there are a number of online calculators you can use to determine how many FTE workers you have. Essentially, it's just the total number of hours all your part-time employees work in a month, divided by 120. You add the number of FTE employees to the number of employees who work 30 or more hours a week (considered full-time employees under the ACA), and if the total is at least 50, you're required to offer health insurance to your full-time (30+ hours per week) employees or risk a penalty.
A plan that provides minimum value will cover at least 60 percent of average health care costs for a standard population and will provide substantial coverage for hospitalization and physician services. If your business is subject to the employer shared responsibility provision (employer mandate), you have to offer coverage that provides minimum value in order to avoid triggering a penalty.
Employer Shared Responsibility Provision
This is also known as the employer mandate. It's the requirement in the ACA that employers with 50 or more FTE employees must offer affordable, minimum value (or greater) health insurance to their full-time workers or face a penalty, according to the IRS. Businesses with fewer than 50 FTEs are not subject to the employer mandate. In most cases, businesses with 50 or more employees were already providing health insurance coverage to their employees prior to the ACA's implementation.
If your business is subject to the employer mandate, the coverage it offers to full-time employees must be considered affordable. In 2016, that's defined as not costing the employee more than 9.66 percent of household income (for 2017, that will increase slightly, to 9.69 percent of household income). But that's calculated based on just the employee's coverage. The cost to add family members is not taken into consideration (known as the "family glitch"). Because employers don't typically have access to their employees' household income, they can use safe harbor calculations that simply compare the employee's cost of coverage with the employee's pay.
Grandfathered Health Plan
These are health plans that were already in place as of March 23, 2010, and have not made any substantial changes since then. They are allowed to remain in force indefinitely — without complying with most of the ACA's provisions — as long as they don't change substantially. But even grandfathered plans have to comply with some aspects of the ACA: Grandfathered group plans cannot have lifetime or annual dollar limits on essential health benefits (they don't have to cover essential health benefits, but if they do, they can't put dollar limits on the coverage). Grandfathered plans must also comply with the ACA's medical loss ratio and must allow young adults to remain on their parents' health plan until they turn 26.
Forms 1095-B and 1095-C
These are the tax forms that employers and health insurers use to report coverage to their employees and to the IRS. If you're a large employer (50 or more FTEs) subject to the employer shared responsibility provision, you'll use Form 1095-C. If you're not subject to the employer shared responsibility provision but you're a self-insured employer, you'll use Form 1095-B. If you're not subject to the employer shared responsibility provision and you either don't offer coverage or you purchase coverage from a health insurer for your employees (as opposed to self-insuring), you don't need to complete either form.
A lack of comprehension of terminology should never stand between you and compliance. You should, therefore, make a concerted effort to know the above terms and how they affect could affect your organization's compliance process.
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