Anita McBurney, Audit Senior Manager
Blake Masters, ABS Manager
Habif, Arogeti & Wynne
With the Affordable Care Act (ACA) requirements already in place, employers must be prepared to navigate the changes that come with providing, or not providing, employees with health insurance. Many are asking “will the changes impact me? And if so, how?” The answer to that question is anything but straightforward.
There are a few things to consider that will determine how your company will be impacted by ACA-related changes.
2. Is your health insurance plan funded by a third party? If the health insurance plan that you provide to your employees is funded by a third-party insurance company, then you must establish how many full-time and full-time equivalent employees you have in order to determine how the ACA will impact you. Why? The ACA Employer Mandate to provide health insurance to employees applies only to entities that have 50 or more full-time or full-time equivalent employees.
It is important, however, that employers understand the definition of a full-time and full-time equivalent employees. Under the rules laid out by the ACA, a full-time employee is an employee that works 120 hours in a month, while full-time equivalent employees are two or more employees whose combined work hours in one week add up to one full-time employee.
a) Fewer than 50 full-time or full-time equivalent employees. If your company doesn’t have 50 full-time or full-time equivalent employees, then you do not need to do any reporting in Jan. 2016 for the Jan. 2015 year.
b) Over 50 full-time or full-time equivalent employees. If your company has over 50 full-time or full-time equivalent employees then you will be required to provide health insurance to all employees. The insurance must meet minimum requirements, or the company will risk penalties. You must also complete Form 1094 and Form 1095 for each employee.
3. What information will you need to fill out Forms 1094 and 1095? The information required to complete Form 1094 and 1095 requires significant coordination of departments, as no one department will likely have all the information required for completion.
a) Form 1094 is a general summary of the Form 1095s and is filed annually. It details the monthly number of employees, monthly number of full-time or full-time equivalent employees and the monthly number of employees that have received an offer of qualified insurance.
b) Form 1095 must be filed annually for each employee and contains information similar to a W-2. However, it also requires details on each month the employee was offered coverage, the employee’s share of the lowest cost monthly premium for self-only minimum value coverage and the applicable safe harbor code.
4. What are the coverage requirements to avoid penalties? Employers with over 50 full-time or full-time equivalent employees must offer health insurance coverage to at least 95 percent of full-time employees. In addition, the coverage must cover at least 60 percent of covered health care expenses, and coverage premiums for the lowest cost employee-only coverage must be less than 9.5 percent of W-2 income - or in other words, affordable for all employees.
5. What are the penalties for not meeting coverage requirements? The penalties vary by requirement. For employers who fail to cover at least 95 percent of full-time employees, they are penalized $2,000 times the total of full-time employees less 30. For example, a company of 50 full-time employees would have a penalty calculated as: (50-30) * $2,000 = $40,000. Depending on the size of the company, this penalty can be significant to the company’s bottom line.
Those employers who fail to offer coverage that covers at least 60 percent of covered health care expenses and those that offer plans that are not affordable to all employees are subject to a penalty of $3,000 times the number of full-time employees who purchased coverage on the federal or state exchange and received a premium tax credit, rather than obtaining the health insurance coverage offered by the company.
Compliance with the ACA Employer Mandate is not a sprint, but rather a marathon that will require every employer to get ready for the new reporting requirements. You should start preparing your systems and employees today so that you’re ready to complete the required filings.
Unsure how to get ready for the ACA? Contact Tommy Lee, partner at Habif, Arogeti & Wynne, LLP, at firstname.lastname@example.org.