What’s the Affordable Care Act?
The Affordable Care Act (ACA), also known as Obamacare, is a health care reform law that was enacted nine years ago in March 2010. The goal of this act was to make affordable health insurance available to more people, expand the Medicaid program, and support medical care delivery methods to lower the cost of health care generally. For employers, it contains many responsibilities and benefits depending on the size and structure of your workforce. The size of your workforce depends on how many full-time employees, including full-time equivalents, you employ at your business. According to the IRS, two provisions of the Affordable Care Act that apply only to Applicable Large Employers (ALEs) are:
- The employer shared responsibility provisions.
- The employer information reporting provisions for offers of minimum essential coverage.
To determine whether a business is an ALE, the business must look back at the prior calendar year to see if they had 50 or more full-time employees, including full-time equivalents (FTEs). The number of FTEs can be calculated by aggregate hours worked by part-time employees (typically work less 30 hours per week) and divide by the number of hours to be considered FT (120 per month).
Example: Consider an employer with 40 full-time employees and 20 part-time employees who each work 60 hours total per month.
Full-Time Employee Count Calculation:
- Full-time employees = 40
- 20 part-time employees X 60 hours worked per employee/month = 1200 aggregate hours
- 1200/120 = 10 full-time equivalent employees.
- 40 FT + 10 FTE = 50 full-time employee count, so the employer is an ALE.
The ACA has many different terms that you may not yet be familiar with yet as a small business owner. However, we put together a list of key terms you should become familiar with.
Key Terms to Know
The full list of every word and definition would take up quite a bit of this article and your memory. To make it easy, we put together a list of the most common terms. Be sure to familiarize yourself with any terms you don’t know the definition of.
- Accountable Care Organizations
- Applicable Large Employer (ALE)
- Benchmark Plan
- Bundled Payment
- Cadillac Tax
- Cafeteria Plan
- Community Rating
- Death Spiral
- Defined Contribution (DC) Plans
- Employer Mandate
- Full-Time Employee (according to the ACA)
- Guaranteed Issue
- Insurance Exchanges
- Individual Mandate
- Individual Membership Associations
- Patient-Centered Outcomes Research Institute
- Preventive Services
- SHOP Exchanges
- Tax Credit
- Waiting Period
- Variable Hour Employees
The history of the Affordable Care Act and where it is today.
Now that you have familiarized yourself with some of the ACA’s most common terms, it is important to know how the Affordable Care Act started.
The promise of health care reform came quickly once President Obama was elected into office. In January 2009, he announced his vision of Health Care for America Plan. Just over a year later on March 23, 2010, he signed the Affordable Care Act into law. Now over nine years old, lets take a look back at the history of the ACA.
July – Under the Obama administration, the White House announces Health Care Reform.
March 11 – Senate Democrats realized they were lacking final votes to pass the original bill, so they decide to utilize budget reconciliation to get one bill approved. This method only requires 51 Senators to vote in favor to go to the President for his signature.
March 23 – President Barack Obama signs the Affordable Care Act into law.
June 23 – The date when all required changes had to be made by. This included small business tax credits, access to federal high risk-pool for the uninsured with pre-existing conditions and reinsurance for retiree health benefit plans.
January – Medical Loss Ratio goes into effect. This was for coverage purchased in 2011 where health plans must report where the amount of premium dollars were spent. If an insurer spends less than 80% (or 85% for large groups) on medical care, they must refund the premium that exceeds the limit.
March 23 – Grants begin to be awarded to states planning for health exchanges. This facilitates purchase of insurance by individuals and small business.
September – The Justice department petitioned the Supreme Court to decide if the ACA was constitutional. The 11th Circuit Court of Appeals ruled that the individual mandate did not fall within Congress’ power to regulate interstate commerce, but that the rest of the Act was fine.
June 1 – National Federation of Independent Business v. Sebelius: The Supreme Court held that the individual mandate was a proper exercise of Congress’s taxing power, upholding the constitutionality of the ACA.
August 1 – Beginning on/after this date, plans must provide preventative health benefits without a copay or deductible in most plans.
January 1 – Law provides new funding to state Medicaid to cover preventative services for little to no cost.
October 1 – Open enrollment in the Health Insurance Marketplace begins.
January 1 – This date marks the beginning of the Individual Mandate. This requires most U.S. citizens and legal residents have health insurance coverage or be forced to pay a penalty. State health insurance exchanges begin issuing insurance to small business and individual customers. Insurance carriers can no longer charge higher insurance premiums for those with pre-existing conditions.
January 1 – The Employer Mandate becomes effective. This requires employers with 50 or more full-time and full-time equivalent employees (EEs) to provide health insurance or be subject to a penalty.
June 2015 – King v. Burwell: The Supreme Court ruled 6-3 that the federal government has the right to offer subsidies in states that did not set up their exchanges. The ACA specifically mentions subsidies should only go to exchanges “established by the State,” even though the writers said that was not their intention. The Supreme Court stuck with the intent, not the wording, of the law. King v. Burwell, challenged Treasury regulations issued under the ACA. King argues that the ACA only allows subsidies to be distributed through state-run exchanges, and that regulations implemented by the IRS exceed the authority granted to it by Congress.
February 2018 – Texas vs. Azar was filed by 20 Republican state attorneys general and governors. The plaintiffs challenge the constitutionality of the individual mandate in the Affordable Care Act (ACA) and argue that since the individual mandate has been repealed, or more technically zeroed out, the rest of the ACA must be struck down. Case is ongoing (see more information below).
Does your business have to comply with the ACA?
Not all businesses have to comply with the ACA. If your business sponsors group health plans, look at the general checklist below to review your compliance with key provisions from the ACA.
Grandfathered status of group health plan.
Is your group health plan grandfathered? A grandfathered plan is one that existed as of March 23, 2010 and has not changed to substantially cut benefits or increase costs since that date. Grandfathered plans are exempt from certain ACA rules.
Review plan documents.
Be sure to review plan documents for required changes to plan benefits. Certain requirements pertain to particular plan designs.
Analyze tax-favored arrangements.
Confirm that any cafeteria plans, HRAs and Health FSAs that you maintain comply with the ACA changes that took effect in 2014.
Provide required notices.
You must provide a written notice to each new employee at time of hire with information about the Health Insurance Exchange. Also, be sure to confirm contractual arrangements with the carrier or third-party administrator to prepare and provide the Summery of Benefits and Coverage (SBC).
Are you subject to Pay or Play responsibilities?
Applicable large employers (those with 50 or more full-time employees, including full-time equivalents) are subject to the employer shared responsibility (pay or play) requirements.
Is your business a reporting entity?
Prepare for compliance with information reporting requirements by determining if your business is a reporting entity (and what type). This information is used to determine ACA compliance with the individual responsibility and pay or play provisions.
Are you responsible for PCORI Fees?
Employers that sponsor self-insured plans (such as health FSAs and HRAs) are potentially subject to PCORI fees. These fees are due by July 31 following the end of the plan year. The PCORI fee is expiring in 2019, so plans that end on or after October 1, 2019 will no longer be subject. PCORI fees are due for plans ending before that date, including calendar year plans that ended December 31, 2018.
Once you’ve determined that you’re an ALE, and the employer mandate applies, you have to determine which employees qualify as full-time so you can make an offer of coverage. It can be tough to tell which employees qualify as full-time when you’re a business that employs variable-hour employees (cannot be determined whether they are expected to work over 30 hours per week as of their date of hire).
Luckily, the IRS has outlined several measurement methodologies that can be used to determine whether a variable hour employee [VHE] meets the definition of full-time and must be offered coverage:
- Month to month – measure the hours worked by VHEs during the month and offer them coverage the following month based on their hours worked in the previous month; or
- Lookback Methodology – utilizes the measurement periods, stability periods and admin periods described below.
Initial Measurement Period
This would be the time frame beginning with the VHE’s date of hire. The initial measurement period must be at least 3 and not more than 12 calendar months.
This is only used for variable hour employees. If the employee is expected to work full-time, then they must be offered coverage (after the waiting period) and you don’t need to measure hours.
Standard Measurement Period
The employer may choose the months (3-12 months) to start and end the Standard Measurement Period, provided that the determination is made on a uniform basis for all employees in the same category.
This period, a maximum of 90 days, follows the measurement period and comes before the stability period. This is where employers determine which employees are eligible for coverage and notify and enroll employees.
Employees who averaged 30 hours or more per week during the measurement period must be offered medical coverage during the stability period. If an ALE fails to comply, they could be subject to penalties. The stability period must be at least six months and no shorter than the Standard Measurement Period. This period should be the same length for both new and ongoing employees.
Coverage Requirements and Penalties of the Affordable Care Act
The employer mandate requires ALEs to offer coverage that is affordable and provides minimum value. If an ALE provides coverage, be sure that the coverage provides minimum value (cover 60% of costs) and that the plan is affordable (EE contribution is <9.56% of income for 2018 and <9.86% for 2019).
There are two amounts for the subsection (a) and (b) penalties:
- §4980H(a) – If the employer fails to offer minimum essential coverage (MEC) to at least 95% of (or all but 5, if greater) full-time employees and their dependent children in any given month, a penalty will apply if any full-time employee enrolls through a public Exchange and qualifies for a tax subsidy. The penalty is multiplied by the total full-time employee count minus the first 30, regardless of how many employees were offered coverage.
- Penalty calculation = (full-time employee count – 30) X §4980H(a) penalty
- §4980H(b) – If the employer satisfies §4980H(a) requirements, the employer may still owe a penalty for any full-time employee who is not offered minimum-value, affordable coverage if that employee enrolls through a public Exchange and qualifies for a tax subsidy. This penalty applies on a per-employee basis rather than against the total full-time employee count.
- Penalty calculation = §4980H(b) for each full-time employee who is not offered minimum-value, affordable coverage who enrolls through a public Exchange and qualifies for a tax subsidy.
Penalties apply on a monthly basis. In other words, penalties will constitute 1/12 of the annual penalty for each month that the employer fails to satisfy §4980H requirements and a full-time employee is enrolled through a public Exchange and qualifies for a tax subsidy.
An employer will not be subject to both (a) and (b) penalties in any one month. If the (a) penalty applies, that is the maximum penalty that could be assessed. However, if the employer is in compliance with (a) requirements and fails to satisfy (b) requirements, there may be a penalty under (b).
Form 1094 & Form 1095
Both Form 1094 and Form 1095 are filed to record the employer provided health insurance coverage that is required under the Affordable Care Act. We took a closer look at how to differentiate between forms 1094 and 1095 here.
Forms 1094 & 1095 Tips
Reporting of Minimum Essential Coverage (Insurance Carriers and Small Employers that Self-Insure): Code §6055 requires health insurance providers of minimum essential coverage (such as insurance carriers and small employers sponsoring self-insured plans) to an individual during a calendar year to confirm certain coverage information to the IRS and to covered individuals. The health insurance provider provides each covered individual with a Form 1095-B to report the coverage. The health insurance provider must also forward copies of all the individual Forms 1095-B it sent to covered individuals to the IRS. When the insurance provider sends all those Forms 1095-B, it also must send a transmittal form, or cover sheet, which is the Form 1094-B.
Reporting of Employer-Sponsored Coverage (Applicable Large Employers): Code §6056 requires applicable large employers (ALEs) to report to the IRS whether they offer their full-time employees and their employees’ dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan. ALEs use the Form 1095-C to provide all eligible employees (not just the participating employees) for their group health plan information about the health insurance coverage offered and the months of the year when that coverage was available. The ALE must also send copies of all the individual Forms 1095-C it sent to eligible employees to the IRS. When the ALE sends all those Forms 1095-C, it also must send a transmittal form, or cover sheet, which is the Form 1094-C.
ALEs must prepare separate information returns for individuals, furnish the individuals with copies of the information returns, and use a transmittal form to file the individual information returns with the IRS. The timing of reporting is similar to Form W-2 reporting.
To individuals: For providing statements to employees (Forms 1095), the generally applicable due date is January 31.
To the IRS: The statements provided to individuals must also be filed with the IRS (along with the Form 1094). In general, the IRS filing is due on or before the last day of February (if filing on paper) or March (if filing electronically). ALEs with less than 250 returns can submit to the IRS on paper, ALEs submitting 250 returns or more are required to file electronically.
If an applicable large employer sponsors a fully-insured group health plan:
|Who Files||Which Form|
If an applicable large employer sponsors a self-insured group health plan:
|Who Files||Which Form|
If a small employer (non-applicable large employer) with fully-insured group health plan:
|Who Files||Which Form|
If a small employer (non-applicable large employer) with self-insured group health plan:
|Who Files||Which Form|
Where is the Affordable Care Act today?
In a recent blog article, we explained the current state of the ACA going back to December of 2018, when Texas federal district court judge, Reed O’Connor, issued an opinion in Texas v. Azar, a lawsuit challenging the constitutionality of the individual mandate and the entire Affordable Care Act.
Originally, this lawsuit was filed in Feb. 2018 by 20 Republican state attorney generals and governors to challenge the constitutionality now that the penalty for failure to have health insurance is $0. The Department of Justice refused to defend the constitutionality of the ACA in the lawsuit, leaving the defense to 16 Democratic states and Washington D.C.’s attorney general. The states argued that the mandate remains constitutional and even if it is not, it is entirely different from the ACA.
However, on March 25, 2019, the Trump administration announced that it would reverse its position on the ruling by a federal judge overturning the entire Affordable Care Act. Many legal experts believe this is bound for the United States Supreme Court.
How PrimePay can help ensure compliance.
At PrimePay, we are committed to making your business run more efficiently. Our ACA Compliance Navigator solution helps with variable hour employees, file and provide IRS Forms 1094/1095, and provides penalty exposure warnings, checklists and more.
Please read our disclaimer here.