Although the Affordable Care Act was passed in 2010, there has been a timeline of implementation — with some components being immediately implemented, while others have been implemented over time in 2012, 2013, 2014 and 2015.
In addition, some components of the ACA were delayed or deferred. This year is considered an important one because of the “full implementation” of the employer mandate as well as a number of changes, repeals and moratoriums on other sections of the Act. Here are some of the important things to be aware of regarding the ACA during 2016:
No 1: Full implementation of the Employer Mandate
The ACA does not mandate that employers provide health care. But, if they do not, they may be subject to monetary penalties. This section is commonly known as the “Play-or-Pay” Penalty (POP) or Employer Mandate.
Internal Revenue Code section 4980H requires an Applicable Large Employer (ALE) to offer health care coverage to full-time employees (or “Full Time Equivalents” — FTE) or be liable for a substantial “assessable payment” if it fails to offer the opportunity to enroll in “minimum essential coverage under an eligible employer-sponsored plan.”
For individual coverage holders, Rhode Island may be the best state, and Oregon may be the worst.
Under section 4980H, a full-time employee is one who works an average of 30 hours per week or 130 hours per calendar month. In addition, 4980H recognizes FTE employees: a “combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.”
In addition, a plan must meet Minimum Value standards (the plan’s share of the total allowed costs of benefits must be at least 60 percent of those costs) and be considered “affordable.”
Initially the Employer Mandate was to be implemented in 2014 but the IRS extended partial implementation in 2015 and as of 2016, the 4980H Employer Mandate requirements are being fully implemented.
1. Changes to the employer mandate
- There have been several changes in coverage requirements, affordability requirements, employer mandate penalty changes, and more. Here are some:
- 2015 coverage requirements: Businesses with 100 or more full time employees or full-time equivalents had to offer at least 70 percent of full time employees insurance to avoid penalties.
- 2016 changes to coverage requirements: Businesses with at least 50 full time employees or full-time equivalents must offer at least 95 percent of full time employees insurance to avoid penalties.Under section 4980H, a plan must also be affordable. Coverage is considered “affordable” for IRC Sec. 4980H purposes if the cost to the employee of self-only coverage does not exceed a specified percentage of the employee’s “household income.”
- This is true irrespective of whether he or she qualifies for some other level of coverage (e.g., self plus dependents, family). Thus, although family coverage might require a larger employee premium, affordability for IRC Sec. 4980H purposes is determined based on the cost of self-only coverage. The Act defines “household income” to mean “modified adjusted gross income of the employee and any members of the employee’s family (including a spouse and dependents) who are required to file an income tax return.”
2. Changes to the definition of “affordability” requirements
- 2015 affordability requirements: The plan is affordable if the self-only coverage health care plan costs no more than 9.5 percent of an employee’s total household income.
- 2016 affordability requirements: The threshold of affordability for the plan has been raised to 9.66 percent of the employee’s total household income.
3. Employer mandate penalty changes
- Employers can be penalized for not providing minimum essential coverage or for having an inadequate health plan. Employers that offer health coverage will not meet the requirements if the following occurs:
- In addition to actually calculating the numbers for each employee, the ACA offers the use of three “safe harbors” as proxies for defining affordability: Form W-2 wages, an employee’s rate-of-pay, or use of the Federal Poverty Line.
- at least one full-time employee obtains a premium credit in an exchange plan, and
- the plan does not provide minimum essential benefits; the employee’s required contribution for self-only coverage exceeds the specified percent of the employee’s household income; the employer pays for less than 60 percent of the benefits.
4. Minimum essential coverage penalty changes (4980H(a))
- Minimum essential coverage penalties are found in section 4980H(a), which defines the penalty for an employer failing to meet requirements of “minimum essential coverage.” Initially the penalty was set at $2,000 per employee but this number is adjusted annually for inflation. The penalty has changed as follows:
- Neither penalty is triggered unless an employee receives a tax credit for the purchase of health insurance on a state exchange.
- 2015 penalty: the 4980H(a) penalty was $2,080 x number of FTEs in excess of 80 employees
- 2016 penalty: the penalty has changed to $2,160 x number of FTEs in excess of 30 employeesSection 4980H(b) provides for a different penalty for employers who offer minimum essential coverage that does not meet the federal requirements of Minimum Value and Affordability. This penalty will kick in if any full-time employee receives a premium tax credit to purchase insurance on exchanges because of the following reasons:
5. Inadequate health care plan changes (4980H(b))
- Minimum value: the employer health coverage offered did not provide “minimum value” (the plan’s share of the total allowed costs of benefits provided under the plan is not at least 60 percent of those costs)
- Affordability: the employer health coverage offered was “unaffordable”; or the employee was not among the 95 percent (70 percent in 2015) of full-time employees offered coverage.
- Under 4980H(b), the penalty incurred is the lessor of either of these two conditions:
- What the 4980H(a) penalty would have been had it been levied $2,080 in 2015/ $2,160 in 2016 multiplied by the number of each full-time employee in excess of 30 (80 in 2015)) or
- $3,120 in 2015 and $3,240 in 2016 per full-time employee who procures coverage from a health insurance exchange who receives a premium tax credit to enable him or her to purchase coverage through the health insurance exchanges.