Employer Compliance With the ACA: Myth-Busting

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Six years after its passage, the ACA continues to be a hot-button HR item. With the level of regulatory attention required to run through the ACA compliance gauntlet, it's easy to fall prey to the inaccuracies and myths associated with it. Some are half-truths, others are based on aspects of the law that have since been changed and some are completely unfounded.

Here are a few of the ACA myths surrounding employer-sponsored health insurance and ACA compliance:

All Employers Are Required to Provide Health Insurance to Their Workers

The penalty for not offering coverage only applies to mid-sized and large employers, who overwhelmingly already offered health insurance before the ACA was implemented. There's no requirement at all for employers with 49 or fewer full-time and full-time equivalent (FTE) employees to offer coverage. The ACA's penalty applies to employers with 50 or more full-time and FTE employees if their full-time (30+ hours per week) employees aren't offered affordable, minimum value health insurance and any of them end up getting subsidized coverage in the exchange. But if workers are paid so well that they don't qualify for subsidies in the exchange, for example, no penalty would be triggered, even if the employer doesn't offer coverage.

Employers Are Required to Pay for Coverage for Employees' Spouses

The ACA requires large employers to offer coverage (but not necessarily pay for it) to employees' dependents, but spouses are not considered dependents. Most large employers do offer coverage for spouses, but they are not required to do so, and if they do, they're not required to pay for it. Employers are also within their rights to add surcharges for spouses who have access to their own plan elsewhere, but choose to be added to their spouse's plan instead.

The ACA Requires Employers to Pay a Larger Share of Their Employees' Premiums

Depending on how much the employer was paying in the past, and how many employees there are, this may or may not be true. There are several factors involved:

  • If your business has fewer than 25 FTE employees and is eligible to receive the small business health insurance tax credit, you have to pay at least 50 percent of your employees' premiums in order to get the tax credit. This is based on the premiums for just the employees, not necessarily their family members who may be covered under the plan, as well. Note that employers of this size are not required to offer coverage at all under the ACA.
  • If you have at least 50 FTE employees and are thus required by the ACA to offer coverage to your employees, you must ensure that the coverage you're offering is considered affordable under the law's definitions. For 2016, that means the employee's share of premiums cannot exceed 9.66 percent of their household income (increasing to 9.69 percent in 2017), according to the IRS. Since employers don't typically have access to employees' household income, the safe harbor calculation involves making sure that the employee's portion of the premium doesn't exceed 9.66 percent of the employee's income. So the percentage of premiums that the employer must pay to avoid triggering the penalty depends on how much the coverage costs, and how much an employee earns.
  • Your health insurance carrier or plan administrator likely has a requirement that the employer pay at least a certain percentage (say 50 or 75 percent) of employees' premiums in order to ensure plan participation, but this type of requirement predates the ACA.

ACA Health Plans Are Government Run

The government plays a more significant role in regulating health insurance than it did prior to the ACA; health insurers and employers must ensure that they're in compliance with all applicable regulations. But the health plans themselves continue to be operated privately, and the ACA did not add any new government-run health plans. The ACA has built upon prior laws (including ERISA, COBRA and HIPAA) to enhance regulatory oversight and legal requirements for health insurers and employers. But health coverage continues to be privately issued or provided by a self-insured employer.

These are just a few of the ACA myths circulating out there. By learning as much as possible about how the law works, and its lesser-known quirks, you will be well positioned to separate fact from fiction.